Ben Bernanke Doesn't realise That America Is Facing A Brand New Type Of Credit Crisis

Credit Card Cut

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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.

The thesis: The credit crisis resulted in a recession, which resulted in consumers and businesses being focused on paying down debt rather than taking on new loans.

The result: No matter how low rates go, no one wants credit.

The proof: Bank requirements for commercial loans are heading to all time lows.

But demand for those loans remains lows, and is actually in decline.

Lending standards for commercial real estate loans are also in decline.

And demand is rising, but still remains near zero.

Standards for residential real estate loans are tightening slightly, but the housing market is uniquely weak.

Demand is barely climbing for those loans, however.

Banks are loosening standards for consumer loans.

And demand still remains low.

Number of credit card accounts is collapsing, as it is the easiest loan to pay off. Growth in other, besides student loans, has stalled.

Debt overall is in decline as Americans deleverage, rather than take on new loans at low interest rates.

But how long will it last? The worry is it could be just like the Great Depression.

Curious how this deleveraging relates to the Japan experience and the Great Depression?

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