I'm not in the market for a loan, but I found this chart to be quite interesting. It's the M1 Multiplier from the St. Louis Fed.
The multiplier is a ratio derived from a formula based on the proposition that a bank will accept a deposit but can lend most of it out, keeping only a required percentage in reserve. The person who borrows that money can then deposit what he borrowed into his own bank. That new bank makes a loan based on that deposit while retaining the required reserve. So the actual spending power of that original deposit is multiplied by the fact that banks can lend it out.
The chart shows the multiplier has been declining since about 1986. But it made a drastic drop below 1 in 2008. It bounced a bit and looked like it was about to reach 1 again. But now it's at around 0.75.
So it looks like banks aren't lending. Why the ratio has been declining for 25 years is a mystery the economists should explain. But at least one blogger speculates that the drop in 2008 was caused at least partly because that's when the Fed began paying banks interest on their reserves. If that theory is correct, bankers have decided a guaranteed payment from the Fed is a better bet than lending money to borrowers.
In any event. Now may not a good time to be in the market for a loan.
It's definitely harder than it used to be to get loans of over £1500 or $2000.
Posted by: Pay day Loans | August 25, 2011 at 09:32 AM