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"Cha-ching!" Christmas Time on Wall Street

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Remember how Quantitative Easing was going to "get the banks lending again"?

Well, it hasn't worked that way. In fact, after four years of zero rates and $3 trillion in monetary pump-priming, "banks are lending less to small businesses and consumers than before the financial crisis." (International Business Times)

But how can that be, you ask, after all, didn't the banks just report record profits in the Third Quarter?

Yep, they sure did -- $40 billion-worth. But the bulk of that dough was raked off their gaming operations, you know, all the dodgy activities that Dodd-Frank regulations were going to stop, but never did. As far as lending to households and small businesses, that's been a non-starter from the get-go. Check this out from the IBT:

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"'Small business loans' decreased in 2012 from 2011. ... there was $588 billion in small business loans outstanding in June 2012, 3.1 percent less than at the end of 2011." ("Banks Have Received $2.3 Trillion In Quantitative Easing But Are Lending Less To Small Businesses And Consumers Than Before The Financial Crisis," International Business Times)

Okay, so let's do the math: The Fed beefs up its balance sheet by a hefty $3 trillion, and the banks issue a whopping $588 billion in new loans.

Sounds like a bargain to me! You're doing a heckuva job, Bernanke!

And household credit is in the dumps too, in fact, loans to households haven't budged in the last two years. And the reason they haven't budged is because demand is weak, which is what happens when the economy is mired in a Depression. Most people are either still paying off debts left over from the big housing bust or trying to squirrel-away a few shekels for retirement. Or, maybe, they've sworn off credit altogether which is a phenom that took place following the Great Depression some 80 years ago. In any event, the low rates haven't seduced people into spending money they don't have on junk they don't need. And that rule applies to credit cards as well as banks loans, as Jim Quinn points out in a recent post on his website, The Burning Platform. Take a look:

"Wall Street introduced the credit card in 1968...

"There were 200 million Americans in 1968 and $2 billion of credit card debt outstanding, or $10 per person.

"By July of 2008 credit card debt outstanding peaked at $1.022 trillion and the population was 304 million, with credit card debt per person topping out at $3,361 per person. Over the course of 40 years, the population of this country grew by 52%. Credit card debt grew by 51,000%. Credit card debt per person grew by 33,600%.

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"Since July 2008 credit card debt has declined by $175 billion, and has only grown by a miniscule $13 billion in the last 29 months." ("The Subprime Final Solution," The Burning Platform)

So people aren't maxing out their credit cards anymore either, which makes perfect sense in a world where incomes are trending lower, where paychecks remain frozen in time, and where personal spending is impacted by the grim expectation that one's financial situation will probably be worse tomorrow than it is today. The fact is, no wants to load up on debt in Obama's Debtcropper U.S.A because they have no idea what's in store for them in the future; whether they're about to get a cut in pay, shorter hours, or their pink slip. They just don't know, and that nagging uncertainty is shaping their borrowing habits.

But that creates a problem, doesn't it? Because -- as you know -- most of the growth we've experienced in the last few decades has come from the surge in household debt. (Wages have barely grown at all.) So if people slow their borrowing and stop running up their credit cards, then where's the growth going to come from? Housing?

Not likely. Despite the Fed's impressive effort to reflate the bubble that burst in 2006; higher rates and rising prices have put the kibosh on sales which have dropped for two months straight. That's going to send more speculators (who represent 50% of the market) racing for the exits, putting downward pressure on prices. Housing should remain relatively flat for the foreseeable future regardless of what the Fed does. The mini boom of 2013 is pretty much kaput.

What about student loans? Are lenders issuing enough loans to students to buoy GDP, lower unemployment, and fire-up the economy?

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Mike is a freelance writer living in Washington state.


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