Today the Federal Reserve began raising interest rates. Quantitative easing efforts (read: monetization) are also coming to an end.
The central banks are worried about inflation due to the massive money printing of the past two years. Should they be worried? Probably not.
David Rosenberg from Gluskin Sheff said lending has fallen by over $100bn (£63.8bn) since January, plummeting at an annual rate of 16pc. “Since the credit crisis began, $740bn of bank credit has evaporated. This is a record 10pc decline,” he said.
Mr Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances. “The shrinking in banking sector balance sheets renders any talk of an exit strategy premature,” he said.
Bank lending is the money multiplier in a fractional-reserve banking system, and banks aren’t lending.
All those trillions of dollars bailing out Wall Street was meant to fix the credit markets, which means to get the banks lending again. This effort was a complete and total failure…unless you count banker bonuses.