in case it wasn't clear from the terrible headline, this is about all United States banks, not U.S. Bank.
U.S. bank lending slumps by most on record in final weeks of March
41–50 of 72 posts
Re: U.S. bank lending slumps by most on record in final weeks of March
#42It's interesting that many of us here are programmers and understand that debugging becomes exponentially more difficult as you add a number of variables beyond 1 to your deductive tests.
Yet when it comes to the economy, which is the product of an unfathomable number of variables, from the same people there are consistently these confident assessments of why we see x, y, z and what will happen.
It's worth discussing those things to the best of our ability, but we should have a tone of our confidence in these types of assessments that's commensurate with reality.
Re: U.S. bank lending slumps by most on record in final weeks of March
#43Earlier quoted context omitted.
> I put a dollar in the bank the bank can then use that dollar to loan to someone else This isn’t how banks work. When “a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money” [1]. Loans create deposits, not vice versa . [1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Fractional reserve requirements limit the amount of loans a bank can make relative to its deposits.
> reserve requirements limit the amount of loans a bank can make relative to its deposits
Reserve requirements haven’t restricted lending for decades. It’s why they’re zero in most of the world, replaced by finer-tuned capital and liquidity requirements. (And deposits != reserves.)
Re: U.S. bank lending slumps by most on record in final weeks of March
#44The days of cheap capital are over, and not because of the Fed. The largest generation, boomers, are now retiring. Up until now they've been pumping money into the economy and the investing with their 401k and things like that. Now that trend is reversing as they retire they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing. The end result is a lot less…
It’s not all of the Fed’s fault, but they did keep printing. The main culprit though is the multiple administrations who didn’t fully weigh the long term consequences of weaponizing the dollar.
Re: U.S. bank lending slumps by most on record in final weeks of March
#45The days of cheap capital are over, and not because of the Fed. The largest generation, boomers, are now retiring. Up until now they've been pumping money into the economy and the investing with their 401k and things like that. Now that trend is reversing as they retire they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing. The end result is a lot less…
This is an interesting theory, but couldn't the opposite happen? As boomers aged, many will have gradually reduced their stock holdings to own less risky assets in preparation for retirement. As boomers die, Millennials will invest the inherited capital back in to the market because they have a higher risk tolerance.
Re: U.S. bank lending slumps by most on record in final weeks of March
#46The days of cheap capital are over, and not because of the Fed. The largest generation, boomers, are now retiring. Up until now they've been pumping money into the economy and the investing with their 401k and things like that. Now that trend is reversing as they retire they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing. The end result is a lot less…
> they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing Withdrawing from a 401(k) has no real effect. Spending the proceeds does. The decrease in purchasing power blunts the restrictive effects of those savings being spent with no corresponding contemporaneous production. > a prolonged slump is coming Careful. America is uniquely tuned to benefit from…
> Withdrawing from a 401(k) has no real effect.
Highly disagree here....
First, selling stocks puts downward pressure on price and also p/e ratio. A lower p/e ratio means startups and growth companies trade at lower multiples.
Second, selling bonds increase yields, which means the price of borrowing (interest rates) goes up. When that happens, companies that borrow money (most of them) see lower profits because more money is spent on interest than on investment (machinery, people, etc).
Capital markets are complicated beasts, but withdrawing capital has very predictable effects - we just don't know if the effect will happen slowly or quickly (like in a panic).
One other effect that happens is that as people retire (or get close to retirement), their investment choices become more conservative and there tends to be a shift from smaller, more volatile growth companies to larger, more established companies with good dividends. That shift alone is worth a thesis or two.
As for your last comment, I can't tell from the wording whether you agree or disagree with the PP's comment. However, I would note that since the baby boomer generation is larger than the Gen Z now entering the workforce, that on average, experienced people are retiring at a higher rate than the rate that young inexperienced people are joining the workforce. This tends to result in higher labor cost (fewer people to fill jobs), which, when combined with higher interest rates tends to mean lower growth for a good period of time (measured in years, not months). Obviously there is variability from month to month and quarter to quarter, but the trend is clear (or will be soon to everyone). It's not the 1970's, but some of the parallels will be surprising.
Re: U.S. bank lending slumps by most on record in final weeks of March
#47The days of cheap capital are over, and not because of the Fed. The largest generation, boomers, are now retiring. Up until now they've been pumping money into the economy and the investing with their 401k and things like that. Now that trend is reversing as they retire they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing. The end result is a lot less…
Coincidentally, I just saw two separate job ads on the subway looking for caregivers. Maybe the next booming sector would be taking care of retired boomers.
This massive labor shift toward service work has been well underway across the US. See, eg, this excellent case study of how Pittsburgh's aging, shrinking cohort of unionized steel workers (with good health insurance) has been demographically offset by a growing (precarious, non-unionized) medical and care industry. Now the largest employer in Pittsburgh is the university medical center, and the largest sector is care workers.
https://shop.nplusonemag.com/products/the-next-shift-by-gabr...
This pattern isn't unique to Pittsburgh, of course, and has played out broadly across the US.
Re: U.S. bank lending slumps by most on record in final weeks of March
#48Earlier quoted context omitted.
> they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing Withdrawing from a 401(k) has no real effect. Spending the proceeds does. The decrease in purchasing power blunts the restrictive effects of those savings being spent with no corresponding contemporaneous production. > a prolonged slump is coming Careful. America is uniquely tuned to benefit from…
Wouldn’t withdrawing from your 401k and transferring it to a checking account limit the pool of funds available for equity investment and move it into lower risk assets?
> Wouldn’t withdrawing from your 401k and transferring it to a checking account limit the pool of funds available for equity investment and move it into lower risk assets
Yes, at the margins. But these are still financial effects. When a capital project is delayed because the bank they hired to sell stock came back with a lower price after talking to the retiree’s asset manager, that’s a real effect.
Re: U.S. bank lending slumps by most on record in final weeks of March
#49The days of cheap capital are over, and not because of the Fed. The largest generation, boomers, are now retiring. Up until now they've been pumping money into the economy and the investing with their 401k and things like that. Now that trend is reversing as they retire they are taking money out of the 401k, out of their life savings, at the same time their purchasing power is decreasing. The end result is a lot less…
Controversial opinion: The US's buying power has led to global negative externalities directly tied to the cost-cutting measures needed to drive perpetually increasing profits and population growth, most of which was fueled by a strong growing economy. A long-term slump might lead to a net reduction in negative externalities, assuming there is a refocus on more efficient resource allocation in order to safeguard the…
That's an interesting thought.
I prefer to use the word "de-globalization", which covers some of the same effects.
Re: U.S. bank lending slumps by most on record in final weeks of March
#50Earlier quoted context omitted.
Lets just hope it's done by the government and not by private corps gouging people who just need care.
The government will be gouging the young to pay for it. From the generation that brought you Ronald Reagan, boomers will have no trouble bankrupting the youth to pay for their entitlements
The boomer playbook has always been voting themselves benefits to be paid for by their children and grandchildren. This seems to be universal: liberal, moderate, or conservative. See the national debt.
And I say this as a boomer myself.