Secondary Sources: Consumer Lending, Supply and Demand, Local Debt
A roundup of economic news from around the Web.
- Consumer Lending: Ellyn Terry on the Atlanta Fed’s macroblog looks at consumer lending. “Is the decline in consumer credit the result of give- or demand-side forces? Perhaps the answer is both. According to the Federal Reserve’s Senior Loan Detective Survey, demand for all types of consumer loans (revolving and nonrevolving combined) has fallen since the first quarter of 2009. A decrease in demand for consumer loans is plausible because consumers tend to delay huge buys such as cars and vacations when uncertainty about future returns increases. Because future returns is affected by job prospects, consumer credit demand lags the recession much like employment does.”
- Give or Demand: Stephen Gandel also wonders whether give or demand is the main issue with consumer lending. “Credit card lending is diminishing because banks are cutting consumers off. And so this is much more of a give side problem. When it comes to credit, neither demand nor give problems are simple to fix quick. But my guess is that the give side problem is the simpler one to tackle. Banks generally want to lend. They are incentivized to do so. That’s how they make money. What’s more, the Fed has ways to get banks to lend. The government can pump more money into banks. The Fed can even start to essentially lend money itself, by buying up bonds. Yes, it has done a lot of this stuff already and lending has dropped, but not nearly as much you would have expected. And as the economy improves I would suspect that banks will become willing very quickly to lend again. If unfilled banks are too battered, persistent low interest rates should cause new banks to pop up to fill the void.”
- State and Local Debts: Paul Krugman worries about state and local cuts offsetting the stimulus. “I reckon it?s honest to say that state and local cuts largely offset federal stimulus. And David Broder thinks this is a excellent business, that Washington should be more like the states. What amazes me is that Broder doesn?t even seem to be aware that there?s an argument on the other side, let alone that most economists are dismayed by the effects of monetary austerity. If Broder is a guide to Beltway conventional wisdom — which he usually is — we?ve got a huge problem.”
Compiled by Phil Izzo