Do you own a small business ? Then thanks for creating the jobs and the products and services that keep the economy going. Do you feel like you have to beg for money to expand your business from your banker? No wonder: Banks have been much busier lending to consumers than to business people. Bob Prechter not only explains why that's unfair but also why it adds to the prospect for deflation. Here's an excerpt from his latest Elliott Wave Theorist.
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…[F]or at least 3½ decades, banks have under-lent to the one sector—business—that can create profits to pay them back. Businesses report that since 1974, ease of borrowing was either worse or the same as it was the prior quarter, meaning that—at least according to business owners—loans have been increasingly hard to get the entire time.
This means that banks were shunning businesses in order to lend to consumers who wanted to buy homes, cars, furniture and who-knows-what on their credit cards. As explained in Conquer the Crash, the only loans that are traditionally categorized as “self-liquidating” are business loans, because businesses make money to pay them off. Consumer loans have no basis for repayment except the borrower’s prospects for employment and, ultimately, collateral sales. Consumers consume, so whatever they buy with borrowed money loses value over time, whereas successful businesses gain value.
As bank-credit and Elliott-wave expert Hamilton Bolton pointed out half a century ago (see
Conquer the Crash, p.89), the biggest financial crises come from the unsustainable expansion of non-self-liquidating loans. And today, there are more such loans outstanding than ever before, by many multiples. Banks’ concentration in non-self-liquidating loans is bad news for debt repayment. The trend away from business loans, moreover, is accelerating. [A chart from the Wall Street Journal, 11/11.09] shows that banks are choosing to invest new money in federal agency debt—which is all consumer debt—and Treasury debt. Creditors are finally coming to realize that individual debtors’ means of repayment are evaporating, which implies future deflationary pressure within the banking system.