The Fed is desperately trying to incent banks to lend more money by reducing the yield on cash and reducing risk.But it’s clear now that lack of lending isn’t the problem: lack of desire for credit is.
Yesterday, two credit surveys were released by the Federal Reserve that told readers roughly the same thing: Americans now hate debt.
How did this happen? Only 3 years ago, Americans were in love with their credit cards, holding massive mortgages, and finding new ways to take out loans for reckless purchases.
Then, bang, the crisis hit and everyone is tapped out and retrenching.
While some may see this as a responsible turn by Americans, it is evidence of the paradox of thrift, where consumers prefer to pay down debt and save rather than spend. And if people and businesses aren’t spending, the economy isn’t growing, and job growth can’t take hold.