I’m basing this caveated prediction on a single article, and I don’t quite have the quantitative information to be fully clear on this.
This single article contains an immense amount of evidence that the long expected increase in US inflation is now more or less imminent. Unofficial estimates of inflation are around the 11% level. If everything in the article is true, and significant on a quantitative level, we would have to expect a large increase in US inflation. The article however doesn’t provide enough numbers to be fully clear on all this. The last part of the article is more positive in reality and not just in Kapner’s take on it.
THE CRITICAL THEORETICAL IMPORTANCE OF THE RONALD DUFFY ANECDOTE
That last story about the fellow buying the laser. If all the new lending was akin to that last story, then the conclusion one would draw might be quite different. I’ll have a lot more to say about this laser story. Because on the face of it, that last loan to Ronald Duffy, would seem to be a “text-book example” of excellence in bank lending. And were it this sort of lending that fractional reserve lead to, I would not be able to make a convincing case, to honest laymen, that fractional reserve was a bad thing. It still WOULD BE a bad thing mind you. But it would be very difficult to make that case. The other case study to do with the Classic Cars has some aspects of lending excellence to it. But its not as clear a case as the Ronald Duffy loan. So this will be a tip to the banksters, and its not going to get any better than that from me, because I’d basically want to see the 1000 most influential of these guys drop dead. Yet having said so, it mystifies me, when the bankers (getting their subsidised finance from the central banks) have all this power, and unjust enrichment …… well then why with this historic opportunity, could they not make a good fist of it??????? Why could the banksters not see the fortunate opportunity they have, and keep the unjust enrichment for themselves going a lot longer. Why could they not avoid, what at this point appears to be their inevitable demise …. by taking those trillions of subsidised loans ……. and applying them with excellence in bank lending????
Fucking beats me. I guess that Blankfein, Dimon and the others are just too fucking useless, moronic, incompetent, anti-intellectual, and hard-wired towards wealth destruction, to follow this sort of path. Developing excellence in lending, for their ill-gotten and subsidised funds, would be a problem from the point of view of them grasping too much of the pie to themselves. But it would be much less of a problem then the current situation, insofar as wholesale wealth-destruction was concerned.
Another alternative to a surge to galloping inflation is that international investors will once again show themselves to be incompetent wealth-destroyers, and instead of a large acceleration in inflation, in the near term, there will be a new round of basically insane, but massive buying of US debt. If there is another bubble in US bond-buying, US exporters will be further damaged, but its at least a potential way of these guys kicking the (galloping-inflation) CAN-DOWN-THE-ROAD just a little bit longer. But aside from that possibility Suzanne Kapner’s article points to a strong pickup in inflation, whereas she misunderstands what is going on and thinks that the trends she sites imply a positive outlook for economic progress in the US. In reality no such positive outlook exists. The US economy has essentially been collapsing slowly since the year 2000, and that trend will continue. But now with higher inflation rates.”
I’ll cut and paste the article straight at first, and let people go through it to try and think about why I am claiming that pretty much everything said in this article, points to a surge in US inflation. Then later I might post the whole article a second time, breaking it up with my explanation and commentary. We have known for a long time that the US was staring into galloping inflation, but the capacity of these people to kick that can down the road, is something I’ve always been amazed at. Anyway, here is the article:
Big U.S. banks are reopening the lending spigot amid signs that an improving economy is spurring companies and individuals to borrow more.
On Tuesday, Citigroup Inc. and Wells Fargo & Co. recorded their strongest loan-growth numbers since the financial crisis. The figures confirm a warming trend highlighted Friday byJ.P. Morgan Chase & Co.
The lending gains mark a change from the past few years, when lackluster figures opened the banks to criticism from politicians and others that the firms’ tight grip on their cash was keeping economic growth under wraps. Banks responded that, after the bursting of the credit bubble that led to the financial crisis, consumers and companies were unwilling to borrow.
The data offer the latest signal that the deleveraging that swept the economy following the 2007-08 turmoil may be easing.
“Companies that are credit-worthy haven’t been in a borrowing mood, but we are starting to see that change,” said Jeffrey Harte, a principal with Sandler O’Neill + Partners LP.
At Citi, retail-banking loans rose 15% from a year ago to $133 billion, as the New York bank lent more to individuals and local businesses. At San Francisco-based Wells, commercial and industrial loans rose 11% from a year earlier to $167 billion at Dec. 31, amid what Chief Financial Officer Tim Sloan called broad-based growth.
More Bank Earnings
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- Deal Journal: Wall Street Reaction to Citi’s Earnings
- Citigroup Earnings Miss Expectations | Stock Quote: C
- Wells Fargo’s Net Profit Rises 20%
- TD Ameritrade Profit Rises, But Revenue Slips
- M&T Bank Profit Falls 28%
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- J.P. Morgan Sings Wall Street Blues
All told, loans outstanding at the companies and J.P. Morgan rose by $41 billion from a year ago in the fourth quarter, to $2.14 trillion. That’s the first increase for the three giant lenders since 2008, when crisis-related acquisitions led to big expansions at J.P. Morgan and Wells Fargo. Bank of America Corp., the second-biggest U.S. lender after J.P. Morgan, is due to post its fourth-quarter numbers on Thursday.
The expansion is good news for the U.S. economy at a time when unemployment remains high and investors are fretting about the prospect of an economic downturn or market shock spurred by Europe’s debt crisis. Increased credit availability stands to help U.S. businesses that have been looking to finance new growth.
Demand is “everywhere,” J.P. Morgan Chase Chief Executive James Dimon said during a conference call last Friday. “Industrial, consumer, Asia, Latin America, trade finance, corporations, all types of corporations.”
The lending pickup is a bright spot in a mostly dour big-bank earnings season featuring declining revenue and mixed profits. Big U.S. financial firms are under pressure in the markets as weak economic growth, tighter regulation and a decline in trading and deal making crimp their earnings outlooks. Citigroup stock fell 8.2% on Tuesday following its weaker-than-expected fourth-quarter earnings report; Wells Fargo edged up 0.7%.
But strong lending growth, as long as the loans are of high quality, should boost earnings in coming years.
“From what we can see so far, there is actual demand for loans, as opposed to banks going down the credit spectrum and loosening their standards,” Sandler’s Mr. Harte said.
The lending gains are being driven in part by a retreat by European lenders tied to the region’s debt crisis. As banks on the continent sell assets to raise capital and reduce their dependence on scarce dollar funding, big U.S. lenders are stepping in. Mr. Dimon said on Friday that “a little bit” of the bank’s lending increase can be attributed to a pullback in lending by hobbled European competitors.
The banks’ numbers aren’t the only source of positive signs for the economy. Household borrowing on credit cards, car loans, student loans and other kinds of installment debt rose at a 9.9% seasonally adjusted annual rate in November, the Federal Reserve said this month, marking the fastest monthly increase since November 2001.
Recent borrowers include Tom and Tevie Dante Fraser, who closed in September on a new credit line for their Fulton County, Ga., classic-car business. They got the line and refinanced a mortgage on their showroom with Wells after the bank they had borrowed from previously was taken over by a competitor.
The new loan will let the couple make opportunistic buys at the car auctions “on the spot,” Ms. Fraser said, allowing the couple to expand their business.
At Citigroup, corporate loans surged 24% from a year ago to $219 billion. Another bright spot was trade finance—the management of money, credit and investments for large corporations; Citigroup was able to increase this type of lending by 50% in the period, as it picked up share from European banks that are paring back as a result of the region’s debt crisis.
“In the fourth quarter, we began to see some good demand for loans pretty much spread around the world,” Vikram Pandit, Citigroup’s CEO, said on a conference call with analysts and investors on Tuesday.
J.P. Morgan’s total loan book was up 4% during the fourth quarter, as lending to middle-market and corporate banking clients rose 12% and loans retained by the investment bank were up 28%. Executives said the latest-quarter gain would have been 9% if the firm hadn’t been allowing loans tied to its 2008 acquisition of Washington Mutual Inc. to run off, or mature without being replaced by new loans.
“I believe you are seeing real loan growth,” Mr. Dimon said.
At Wells Fargo, commercial and industrial loans rose 11% from a year ago, while commercial real-estate lending rose 6.6%. The figures were boosted by loan purchases, particularly from retrenching European lenders, which CEO John Stumpfsaid would continue. The bank recently purchased loan portfolios from Allied Irish Banks and Bank of Ireland, both of which are retrenching following government bailouts.
But the European shake-out is far from the only driver of loan growth.
Ronald Duffy closed last Friday on a $600,000 loan from Wells Fargo that he says he will use to a buy a laser-cutting machine for his company, Laser Cutting Services in Tualatin, Ore. He expects the new machine to allow him to take on more capacity at lower rates.
“The banks had been very tight-fisted, and they are still being extremely cautious,” Mr. Duffy said. “But they are lending to companies that they consider to be an acceptable risk.”
—David Benoit and Dan Fitzpatrick contributed to this article.