The Fed, interest rates, deficit spending, and loan growth


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Loan growth is also to some degree a function of interest rates. Lower rates = lower loan growth due to the reduced compounding of interest for many borrowers.

Additionally the increased federal deficit spending is restoring income and savings of financial assets, reducing the nedd to borrow to sustain spending.

Fed Effort to Stoke Growth May Be Undermined by ‘Tight’ Credit

By Scott Lanman

Sept. 22 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke’s efforts to stoke a U.S. economic recovery may be undermined by the central bank’s other goal of restoring the banking system to health.

A Fed report released last week shows banks had $6.85 trillion of loans and leases outstanding to businesses and households as of Sept. 9, down for a fifth straight week and below the record $7.32 trillion in October 2008. Real estate loans, the biggest portion, stood at $3.79 trillion, up $7.5 billion from the prior week while down from a peak of $3.9 trillion.


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