Insolvent US banks can’t lend

recession logo right.jpgMany US policymakers are still in denial about the underlying causes of the downturn. They argue it is due to a lack of liquidity, and are thus encouraging ‘hot money’ to flood into financial markets.

But the new ‘bubbles’ created by this wishful thinking, such as today’s $80/bbl oil prices, are making the underlying problem worse, not better.

As the blog noted last March, the real problem is that too many US banks are actually insolvent. Many loans made during the 2003-7 Boom to property developers and homeowners will never be fully repaid. Already 120 US banks have gone bust this year, and the Federal regulator has another 416 on its watchlist.

Insolvent banks can’t lend, which is why lending to businesses and individuals remains so weak. Until policymakers start to tackle the solvency problem, the blog fears that we are unlikely to see any major recovery in the US jobs market, or in chemical sales.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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