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Source link: http://archive.mises.org/15172/commercial-lending-uptick/

Commercial Lending Uptick

December 30, 2010 by

The WSJ says: “Some big U.S. banks are starting to increase their lending to businesses as demand for loans rises and healthier banks seek to grab customers from weaker rivals. After declining steadily for most of the past two years, the amount of commercial and industrial loans held by commercial banks inched upward during the past two months, according to the Federal Reserve.”

As I understand the situation, here is where the trouble begins. The money supply has not increased dramatically but bank reserves have. Loans turns reserves into hot money and this is what fires up the flames of inflationary finance. The paradox here is interesting to consider: there is a greater danger to recovery than continued recession.

{ 4 comments }

Michael A. Clem December 30, 2010 at 11:16 am

Some people argue that the Austrians are wrong because we haven’t had the big inflation that Austrians predicted. But, as has been pointed out in previous articles, the banks took the money the Fed gave them and sat on it, instead of lending it out–thus preventing the expected inflation. If the banks do start lending out more of this money they’re holding, then we can expect to see greater inflation.

Bruce Koerber December 30, 2010 at 12:07 pm

Combine that with the dumping of the dollar internationally! Hyperinflation was a term needed to describe the shocking impact of runaway inflation. There is not a term yet to describe the explosion about to occur!

billwald December 30, 2010 at 3:06 pm

The money supply has increased by 3 trillion this year but except for the military it is not being used to buy consumer goods and services. It is being used to inflate various financial bubbles, to buy political power and to fill Swiss bank accounts.

jmorris84 December 30, 2010 at 5:20 pm

It’s going to be spent on consumer goods and services at some point.

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