Loan growth and the taper

Loans and leases

From Sober Look, there is further discussion and pictures here.

Comments

The two big insight I've gained from this whole experiment is: a. we shouldn't be directly targeting the the interest rate, and b. QE/asset purchasing has important and understudied distortionary effects related to crowding out and relative rates of return.

Modern macro gives the paradoxical advice that low rates stimulate investment and growth, but that recovery leads to growth, inflation and therefore higher rates. Suppressing interest rates over a long while therefore seems to constrain growth and inflation in the longer run. An alternative is to directly target higher inflation or NGDP, which means lower rates rates in the short run while keeping rates free floating so they can rise as the economy recovers, providing incentives to the suppliers of investment.

I'm really missing the point here. Loan growth remains drastically lower than one would expect in an economic expansion, much less an overheating economy. The argument to tighten monetary policy is not supported here, despite the misleading period of measurement.

Agree with you on loan growth. While I agree that winding down monetary policy seems premature, thr costs of doing so rise the longer the policy is maintained.

If you like low loan growth, you're gonna love it when interest rates soar above 10%.

Paging Scott Sumner?

Wasn't the taper scare earlier -- june or so? I lost a bunch that day, so it sticks in the mind.

If anything, it looks as it loan growth bottomed out when the fed basically came out very aggressively and said taper does not equal rate hike. The market bought it until january of this year.

Interesting chart.

Yes, the initial tapering scare was in June, which appeared to start a bit of EM unwinding. I recall the rise in the 30-yr was stark. Pair that with inflation expectations which slowly came down over the year, and you got a pretty decent pop in long-term real yields.

I'd offer that maybe banks had to wait for their loans to come in before really ramping lending to take advantage of higher real rates. That is, we wouldn't expect the effect in just a few weeks, so may be that explains the June to March gap a little bit. But banks have been fairly flush with excess deposits, so that doesn't hold.

chart from the June pop: https://twitter.com/JustinWolfers/status/349164533392232448

they won't lend to the little people at low rates.

I can confirm this. I own a small business in a large metropolitan area and am acquaintances with several owners of small to medium sized businesses. Loans are still very difficult to obtain with reasonable terms (i.e. requiring less than 100% near liquid collateral) at low rates (i.e., at or below 6%).

Yes loans are difficult to get. We have a small business that we started that helps Mexican vegetable growers get access to US markets.. The loan would be fully collataralized with receivables from established highly rated US domiciled companies at 60% loan to value/cost. The banks are telling us no loans until you have a 3 year history of operating at a profit . They like our business. Two bankers said we can't make you a loan but we would like to personally invest in your company. The banking rules on lending would ding them on capital requirements unless we have 3 years of operating profit. The owners of the company are no slouches when it comes to successful past business endeavors either. Two CEO's of fortune 500 companies and a senior partner from the largest law firm the in the US. In the meantime we are using 100% capital to fund the business and the farmers are paying more and have less access to the capital they need,.

What kind of loans are those and which banks are making them?

This is also growth from a low base.

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