Friday, November 11, 2011

The Liquidity Trap Seen From the Borrower's Perspective

Over the last week, I've taken an in-depth look at the latest senior loan officer survey (see here, here, here and here).  These posts have helped to explain the overall liquidity trap situation from the borrower's perspective.  Put another way, this analysis explains why record low interest rates aren't creating booming growth; there is simply very little loan demand right now.

Consider the following charts:

The only people making commercial and industrial loans are the largest 100 banks.

The smaller banks are getting out of the C and I loan business -- at least for now.  My guess is the 100 largest banks are only dealing with the largest borrowers. 

Moving on to the consumer, we're seeing households cutting back on overall debt:

The financial services obligation ratio tells us the households are still cutting back on debt, which is evidence from the slight drop in household debt outstanding.
Finally, commercial real estate is in terrible shape, meaning no one in this area of the economy is borrowing either.

Simply put, there is little overall borrowing demand right now.