Here’s year on year growth in commercial and industrial loans from weekly reporting banks in the US:
A 20% decline year on year does not look like a recovery. In fact, it looks like nothing we have seen since the Great Depression. C&I loan growth lags the end of recessions, to be sure, but this extreme level of credit reduction suggests profound trouble.
In a rational market, lending institutions which have sustained losses (and most have) would be able to raise interest rates. This would ration credit via the price mechanism, but it would a) allow investors of all kinds to improve their yields on interest-bearing instruments and b) allow lending institutions to recoup their losses via higher interest rates. However, our government (for a variety of reasons) has opted to keep interest rates low. This gives the illusion that credit it cheap and available but, if the lending institutions tighten the loan qualifications, then the result is the same: credit rationing.
Higher interest rates are no fun to those who pay them, but having them winnows out lending to ventures of marginal rates of return. It’s better if the quality of the venture being borrowed for can be quantified by the spread on the rates of return rather than artificial guesswork on the part of a lending institutions whose rates do not correspond with reality.
Choking credit to small businesses, as Goldman is fond of pointing out, is a sure-fire way to prolong a depression. But small business people, by and large, are in the opposition to our current government, something the Chicago-style rulers currently occupying the White House are well aware of.