>Risk, The Banks and Stimulus

>If lowering interest rates to zero to induce citizens to take risk (any risk) with their money is good and needed, why is it that the banks need not follow the same directive? Why is it okay for citizens to earn nothing on their money or be forced to take more risk to earn slightly more than nothing and yet the banks get to borrow at nothing interest rates and use the proceeds to buy risk-free treasuries with a higher yield? Isn’t the idea to get money flowing again?

Banks are not lending, even to credit worthy consumers. I was recently declined for a fully collateralized auto loan due to the year my house was purchased…what? The banks are inventing reasons to decline people. If this is recovery I’d hate to see what a recession looks like.

In re-memberance of that mighty $800 billion stimulus that failed to contain unemployment, alas it is risen from the dead and is about to inflict its wrath on our nation. In 2009, less than $300 billion of the stimulus was spent, leaving nearly $500 billion ready to prime the economy in 2010, an election year nonetheless (no coincidence). This will help in the short term (and if it doesn’t then we are really in trouble), but detract in the long term. It seems everyone is bullish again, maybe a good time to be bearish?

The banks are not lending because their balance sheets are highly impaired, this won’t change anytime soon. We have not dealt with any of the problems that caused this depression, nor does it appear we are likely too. On to the next boom…and bust.

Scott Dauenhauer

Kindle

Leave a Reply