Yet another seemingly negative report came out this week regarding the continued fall in bank lending.  The logic of this being bad news goes like this: If banks don't loan to business, then business cannot grow and hire back the workers that it has laid off.  That makes sense, that is, until you think about it for more than a moment. Why aren't banks lending?  If you listen to politicians while moving pretty much across the entire political spectrum, they blame the banks themselves.  Since they took TARP money and are now healthy (largely because of accounting tricks - but I digress), they have an obligation to lend out more money.  Instead, the politicians are outraged because many banks are instead borrowing from the Fed at less than 1% and buying Treasury Bonds at around 3% and booking the profits.  Of course, if the banks weren't buying those bonds then the government would be having a real problem financing record deficits as well as pumping all the phony  paper money into the economy, but why let a favor go unpunished when they can blame the banks for all that is wrong?

The truth is that banks aren't lending by and large because business isn't asking to borrow. Lost in all this bank bashing is that business is bad, really bad.  Nowadays, when slightly less terrible earnings are viewed as a sign of growth, the press is missing the obvious story here which is when business is bad and looks to be that way for the foreseeable future, why would any company want to borrow more money?  Businesses borrow to grow in good times and these are definitely NOT good times, so there is little demand for loans.  It is no more complicated than that.

Tax relief, lower regulation, free trade, strong money, you know, the things that really spur the economy are what is needed - but all are being forsaken by the worst administration and  Congress (in economic terms) in history.  Let's face it, an administration that remains distrusting of markets and a Congress led by a huge majority made up of like-minded representatives’ spells trouble. With truths like these, it really is no mystery why every day seems like a page from the script of “Groundhog Day.”