Why Banks Aren't Lending: The Silent Liquidity Squeeze

http://www.opednews.com/articles/Why-Banks-Aren-t-Lending--by-Ellen-Brown-110716-833.html

Where did all the jobs go? Small and medium-sized businesses are the major source of new job creation, and they are not hiring. Startup businesses, which contribute a fifth of the nation's new jobs, often can't even get off the ground. Why?

In a June 30 article in the Wall Street Journal titled "Smaller Businesses Seeking Loans Still Come Up Empty," Emily Maltby reported that business owners rank access to capital as the most important issue facing them today; and only 17% of smaller businesses said they were able to land needed bank financing. Businesses have to pay for workers and materials before they can get paid for the products they produce, and for that they need bank credit; but they are reporting that their credit lines are being cut. They are being pushed instead into credit card accounts that average 16 percent interest, more than double the rate of the average business loan. It is one of many changes in banking trends that have been very lucrative for Wall Street banks but are killing local businesses.

Why banks aren't lending is a matter of debate, but the Fed's decision to pay interest on bank reserves is high on the list of suspects. Bruce Bartlett, writing in the Fiscal Times in July 2010, observed:

Economists are divided on why banks are not lending, but increasingly are focusing on a Fed policy of paying interest on reserves -- a policy that began, interestingly enough, on October 9, 2008, at almost exactly the moment when the financial crisis became acute. . .

More at the link --

...awakening when they realize that many of us don't have any appetite for borrowing money from them anymore. Small businesses are starting to get wise and loan cash and services amongst themselves. No taxes, no interest, no write offs, no records. Who needs a bank when a small group can diversify their risk amongst several small businesses locally and keep all the money in the family of friends within the community?

mega corps are sitting on record piles of cash, they don't need to borrow either even if they had the consumer base they were used to. If wages had kept up with costs, we could all still spend at the rate we used to, but since consumers had to do it with debt, the limits have been hit and they aren't coming back