An Update on the Economy

The U.S. economy officially “peaked” in December of 2007.  18 months later, the economy was still shrinking.  Although it appears that the bottom was reached mid-summer and third quarter growth will be positive, the recession was the worst since the Depression and the road to recovery is strewn with weak banks, crippled government mortgage financial institutions, a boat load of “money” floating around the system, misguided government programs and a consumer trying to regain financial stability.  Profits tanked along with the stock market which has now started to anticipate a recovery, but how strong and how long?  The largest government deficit in history ($1.6 trillion this year alone) will pose a major drag on interest rates and capital availability.  Will the economy muddle through or will the economy spring back?  We’ll try to sort it out.

Notes on the Economy Excerpt

“An uptick in…lending could help businesses expand and reduce employment,” says the report, reflecting the view that it is credit supply that is the problem.  The banks mentioned in the article are all of the “biggies” who had, and still have, major loan-loss problems and pulled away from small business lending.  Missing in the report are references to the thousands of community banks who did not get caught up in the “bubble” and are the mainstay of lending to Main Street firms.  Yes, credit is harder to get now at these banks than it was during the bubble, and it should be.  Underwriting standards were seriously compromised, and bubble prices overstated the true value of collateral.

That the real problem is loan demand was confirmed while speaking to bank organizations in half a dozen states over the past year.  Loans have to be repaid, meaning that the money must be used to finance the acquisition of employees or equipment that will “pay back” the loan. This is common sense.  But a record numbers of owners – as high as twenty-eight percent – have reported that “weak sales” is their top business problem, while only four…

Read Prof. Dunkelberg’s latest “Notes on the Economy”