Friday, March 12, 2010

Bank lending continues to shrink - from $9337 billion in January 2009 to $8886 billion on February 2010.

The Federal Reserve reports that M2 is growing slowly at an annual rate of only 2.1%. The 2009 growth rate was 9%. Economic growth requires "cheap" money and an increasing M2 - which we are not seeing. As mentioned in previous posts, the money the Fed has added to the system is sitting idle at banks that are not lending. The exuberant stock market seems to be overlooking this fundamental weakness.

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