Wednesday, 3 May 2017

The Fed Will Likely Chicken Out on Planned Rate Hikes

By Thorsten Polleit,

The Austrian business cycle theory tells us that the injection of new money created through bank lending out of thin air causes an artificial boom; and that the slowdown of credit and money creation, let alone a decline in available loanable funds, turns the boom into bust. Recent bank lending data in the US show a noticeable slowdown in bank lending rates, setting in around autumn 2016. Does it signal trouble down the road?

There is no easy answer to this question. Various forces are at work. As far as the supply side is concerned, banks may have tightened their lending standards due to higher delinquency rates, restricting access to new loans. Banks may also sell off credit exposure to non-banks such as, for instance, mutual funds, insurance companies etc. Both developments would actually translate into a decline in the level of bank lending aggregates and thus their growth rates.

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