Everyone has focused on the supply of credit. The banks have to lend! Yet, a close look at the Fed's Senior Loan Officer Survey shows that the problem is not on the supply side but the demand side.
Lenders want lend as evidenced through a reduction of tightening of loan standards. The banks are reporting weaker demand for corporate loans, consumer loans and a slight increase in prime mortgages. Consumer will borrow to buy cheap assets like homes which have better tax incentives. They will not borrow to buy stuff. Corporations want to hold off borrowing and investment projects. Their focus has been on cutting costs this year.
So what is the policy to get people to borrow more?
Lenders want lend as evidenced through a reduction of tightening of loan standards. The banks are reporting weaker demand for corporate loans, consumer loans and a slight increase in prime mortgages. Consumer will borrow to buy cheap assets like homes which have better tax incentives. They will not borrow to buy stuff. Corporations want to hold off borrowing and investment projects. Their focus has been on cutting costs this year.
So what is the policy to get people to borrow more?
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