Chart Of The Day: Worst. Loan Creation. Ever

Tyler Durden's picture

For all the endless talk of a recovery during the past five years, there is a very tangible reason why for most people this is nothing but spin, propaganda and lies: when one strips away the retroactively adjusted GDP, the seasonally adjusted (and politically mandated) counting of temp jobs, the constantly upward revised jobless claims, the Fed's $4+ trillion balance sheet of course, and even the declining (yes, declining) real disposable income per capita, what one is left with is the lowest loan creation out of a recession (or depression) in history, and is at indexed levels last seen during the Lehman collapse over five years ago!


Why is loan creation important? Because in traditional economics (not their "New Normal" equivalent, where central planning decides everything), loans - i.e., money created by commercial banks - ultimately leads to GDP growth. It also has a direct bearing on the steepness of the bond curve and thus, inflation expectations. Conversely, lack of loan creation ultimately means the government is forced to adjusted the definition of GDP to make it seem as if there is growth, or to rely on an inventory stockpiling boost to "growth" and all other recently seen gimmicks to force the conviction of "growth."

There's more. As the charts below show, there is a direct link between loan demand (and thus creation), and EPS growth, Industrial Production, Employment and CRE development. Obviously, the lower the loan creation, the worse all of these will look.


But how is it possible that banks continue to function in an environment in which there has been zero loan creation for the past 5 years? Simple: the banks' excess deposits (a liability) has been pumped higher by about $2.5 trillion thanks to the Fed's excess deposits:


... and instead of lending out reserves, which banks don't do (for those still confused about this, read the following primer from S&P), banks instead use them as initial and maintenance margin for risk-chasing trades as JPM so kindly explained over a year ago.

... which is also why once excess deposit creation, i.e. "flow", slows down, halts or is put in reverse, watch out below.

Furthermore, as long as the Fed creates reserves, and excess deposits, banks have no incentive to force loan creation.

In other words, as long as QE continues, and the Fed injects however many tens of billions into the commercial bank balance sheets each month, all talk of an economic recovery will be bullshit, simply because all of the Fed's money makes it only into capital markets, resulting in asset inflation, but not into the economy, where it is up to commercial banks to create loans, and the resultant money that then leads to an increase in money velocity and ultimately, if allocated carefully, growth.

In the meantime, there will be no economic growth, period, as long as the loan creation in the top chart shown above refuses to move higher, and any talks of an economic recovery will be merely lies, propaganda and yes - more lies.

Charts: Barclays, JPM, Zero Hedge

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new game's picture

so a tad of inflation on tap? had to happen eventuallty...

Shocker's picture

People are tapped, they can't spend like they used to.

Current Job Situation:


pods's picture

Debt saturation.  Either people won't, or cannot expand the amount of credit.

That is why the has been deficit spending on anything and everything.  As well as the huge push to go back to school (non dischargeable loans).

This system requires debt to expand at an exponential rate.  

I really hope that when this blows, because it has to, that people do not rush into the next bankster scheme to separate us from the fruits of our labor.

Think about how hard you work, and how much more productive you have become.  Then think about who is realizing the gains from all that productivity increase.

Give you a hint, he wears presidential cuff links.

Skimmers, burn them all.


Popo's picture

Our current system is so much worse than serfdom.  That's what people don't understand.

Under serfdom, the "lord" would take a percentage of your crops in return for you living there.

Under our current system, the banks take a percentage of your earnings for 30 years.

But at least the lord 'had' the land to lend you.  In our current system, the banks have nothing to lend.  They take a percentage of your 30 years of labor,  but they shift the risk of the loan to the government.  Which means back to you, indirectly via taxes and inflation.  The banks have a win/win scenario.  They cannot lose, and you cannot win.  Basically, no matter what you do (even if you don't buy property) you're paying the feudal lord one way or another.    But because the process is so diabolical, so invisible and so difficult to explain to people (Most people think banks actually 'have' money to lend, and lend their own money) that the serfs shuffle on, not realizing that they are supporting a class of wealthy parasites.   The theft is disguised behind concepts which are designed to fool you.  "Loans" (as if money was "lent"),  "taxes" (which are presented as a 'moral' obligation) and "inflation" (which is portrayed as a natural phenomenon, like the weather).  But all of these are acts of theft -- so massive that the mind often rejects the truth:   That you,, all of us.. are caught in a web from which there is little hope of escape.

MachoMan's picture

All you're asking for is that the bank be the government proper...  of all the things to complain about...

Popo's picture

With severe limits on leverage, a hard currency, rules against structured financial products, a return to rules which separate banking from investment, and a forced single-entity of loan originators and loan holders.  Yeah.  That would about do it.

MachoMan's picture

None of which was actually stated in your original post, but I'm sure those things would help...  the problem of course is that laws nor regulators control the world...  which are essentially just demands to keep out the tide.  Humans behave on an independent, individual level...  and your suggestions would likely yield a bit more longevity, and maybe even fairness, to the system, but they will not cure it.  Steps in the right direction, for sure, but they ultimately just treat some symptoms.

PS, you could probably shorten the list if you'd just put "let failed institutions fail"

The-Dirty-Scurd's picture

Nothing stops what is happening. We have been doomed to repeat the same cycles of dominance from wickedness in high places and principalities because we, in general,  turn from the one thing that can and will save us. There is only one escape we have; that is God manifest in the flesh as Jesus. Anything else will prove futile as it always has.  

graspAU's picture

"That is why the has been deficit spending on anything and everything.  As well as the huge push to go back to school (non dischargeable loans)."

Well said. This was observable to anyone who had a clue very soon after fall 2008 by looking at the Fed Z1 report (fed debt skyrocketing to cover reductions in debt in other areas).

dick cheneys ghost's picture

Amen brother pods, Amen

''Only the very intelligent understand the mathematical inevitability of usury.  The stupid simply see the rich getting richer without working while the poor work harder and harder and go backwards.  Institutional Usury lets money "make" money without work and it INEVITABLY bankrupts the poor and stupid...this is why it and its purveyors have been reviled as con artists throughout history.''

trav7777 ZH 2010

Oldwood's picture

Its a blessing. They have papered over our shrinking economy with debt for years allowing us to dig into a bottomless hole. All markets today are based on future earning and the farther in the future the better. If there is any salvation from this, the current lending paradigm has to stop. Nobody knows where and how this will end if continued, but we all know it WILL end and it will be ugly. we will have a real economy when we do not have to rely on earnings 20 years hence to survive a day.

CrazyCooter's picture

I have been deleveraging for years now and am almost done. Despite being a professional engieneer (professionally employed), I was up to two part time jobs at one point.  All that is left is a small balance on one credit card. I finally gave the house keys to the bank (I couldn't sell it). We can argue over how much I pay them back after they clear it at auction.

Everything else is paid off or paid in cash.

I like to joke that banks are going to love me as much as my grandfather, because I will never borrow another damn dime the rest of my life.

Fuck em.



El Vaquero's picture

I'll second the Fuck'em sentiment.

holdbuysell's picture

I hear ya CC. My great grandparents, who went through the Great Depression, gave the life lesson early on: never borrow.

While I followed the advice for the most part, it's only been the last decade that the concept of borrowing truly became revulsive.


On another note, this whole insidious, destructive, decrepit and complex system reminds me of the story: Castle in the Sky. If you haven't watched the animae, it's a great story and a great watch over the holiday.


Bob Sacamano's picture

Well done.  If everyone would just not borrow money. 

I thought the decline in lending would be viewed postively on this site.   I want less borrowing / lending.   Less is better for the borrower and hurts the lender.   Debt is a large part of how we got in this mess.

Things that go bump's picture

People who lived through the Great Depression learned that lesson well and even with the FDIC many still didn't trust their money to the banks afterwards. Even now, I'll bet, small businesses who deal in cash, such as bars, restaurants, beauty shops, etc. siphon off a high percentage of that cash and it never sees the inside of a bank. One couple I knew 30 years ago owned a bait shop. He ran it. She babysat for me for cash. Once I walked in to pick up my kids unexpectedly and their whole kitchen table was covered in stacks of bills they were counting. My kids said they hid it somewhere in the basement. I thought it was stupid to be so indiscreet as to let small children know such things or allow random neighbors to walk in on you, but I couldn't fault them for it otherwise. That's a bank that will never fail and abscond with all of your money or leave you to wait on the pleasure of the FDIC (which will never be able to cover all the deposits it insures). It will never hand your funds over to a government or creditor who thinks it belongs to them, and it will never send an accounting to a government that demands a third of it in tribute. A very small neighborhood restaurant I sometimes pick up takeout from has a cash register on the counter, but she's never used it that I could see, and I've been going there for 15 years at least. She uses a calculator on the counter. I pay in cash for everything that I don't buy off the internet. My dentist, the woman who cuts my hair, the guy at the liquor store all appreciate it. If I need work done on my car I know a mechanic who does work on the side out of his garage and I pay him cash. I know a plumber, a carpenter and an electrician too. 

ZH Snob's picture

ironic, is it not, that in the midst of the largest credit orgy in the history of the world the true economic engines and creators of wealth can't be assisted by any of it?

this doesn't appear to be accidental at all, does it?  the overwhelming greed and fear for their self-preservation is obvious, but what puts my paranoia into overdrive is the possibility that they are simply stealing whatever they can before scuttling the ship.

tarsubil's picture

I'm not sure about inflation. I am sure about a lower quality of life.

Colonel Klink's picture

FUCK YOU CENTRAL BANKERS!  No one wants your criminality and slavery.

EDIT:  Welcome to ZH Janet.  Get use to it.

Heroic Couplet's picture

Lack of loan creation only affects banks, not the government. And who cares?

Tyler Durden's picture

Lack of loan creation only affects anyone who uses money.

TimmyM's picture

"Furthermore, as long as the Fed creates reserves, and excess deposits, banks have no incentive to force loan creation."

Banks don't force loan creation. Banks are continually in the business of selling credit. It is there core business line. Aggregate credit growth is dependent on loan demand.

We do not have loan demand because of decades of Keynesian/monetarist credit promotion schemes. Artificially created credit growth has forced us into peak credit. There is no more credit growth possible until the population and economy limp forward and grow into the huge overhang. That is the best case scenario. Accidents could happen as we'll. The fiat ponzi may not survive.

MachoMan's picture

We don't have loan demand because everyone doesn't have access to the discount window...  presently, the interest rate on what we can borrow is greater than the return on any investment we might partake, when accounting for risk...  In other words, they can't get anyone to take the money if they wanted because it's a losing endeavor...  (that some desperately try to make up on volume).

Of course, the rate of return on investments will follow the lending rate on down, but I digress...  we'll let krugman figure that one out. 

andrewp111's picture

If wage-price inflation could be kickstarted by a doubling of the minimum wage coupled with massive Federal stimulus, existing mortgages and car loans could be inflated away, and the sheeple would become creditworthy enough to borrow more. At least this is the Obama Regime plan. To execute this plan he has to recapture the House of Representatives while retaining the Senate, though.

MachoMan's picture

So you think employment numbers would stay the same with a doubling of the minimum wage...  or that employees would work the same number of hours if they could make twice as much per hour.

We're in a cost push inflationary spiral...  the inflation that you're talking about is on a completely different cycle, one that would be monumentally difficult to get to from here...  I'm not sure that the process wouldn't be inflation neutral anyway, in that the money handed out would just go to extinguishment of debt...  see generally, what happened when bush handed out $300/$600 before the economy tanked.  We'll see what happens with japan, but for the foreseeable future, we're planning on muddling through.

Oldwood's picture

So the only money that exists is that which has not been created yet?

gdogus erectus's picture

Tyler, I'm starting to wonder if all of these "excess" reserves as well as shadow RE owned by the banks are all by design for the bankers to scoop up assets in a white-hot fabricated deflationary period. Or during the reshuffling of the reserve currency deck, the FR/BIS gives the banks' reserves a special one time higher exchange rate with the new devalued dollar.

During the dollar collapse, scoop up all the houses for pennies on the dollar to add to their already healthy stash of homes and come out in the open to rent them out to us poor citizens that need the banks. NEED them I tell you! Please help us! Vignette over. Renter Nation.

Ghordius's picture

dear Tyler, imho with this comment and the other

"Why is loan creation important? Because in traditional economics (not their "New Normal" equivalent, where central planning decides everything), loans - i.e., money created by commercial banks - ultimately leads to GDP growth."

you are citing from the New Normal (Financialization) gospel already

what is "traditional" (economics) about GDP growth as the only measure, without care about how (much debt this involves)?

to put it bluntly and perhaps too simply, capital ain't money. a cow that gives milk or a factory that churns out goods is capital, a gold coin is money

GDP calculation only adds all recorded transactions, without consideration to real capital, or the level of leverage applied to it

real traditional economics focused on production. and production is what ultimately pays the bills, including debt service

sorry, I have the impression that here you have one eye blinded by ideological fervor and a financial industry background bias

Dr. Engali's picture

First of all, fuck the government , and secondly what do you think happens when the banks start making loans and money flows through the economy? When economic activity starts to pick up, so does your precious government's tax revenue. Like it or not, in a credit based fractional reserve system  the lack of loan creation affects everybody.

disabledvet's picture

Well...there are Government Banks...and those loans have moved strongly higher in this recovery (Fannie, Fred.) it might not matter in the "banister scheme" of things...but if this is the basis for another asset bubble...and it sure looks like an massive asset bubble to me...then you can have a repeat of the 2008 collapse...only this time (as usual) with the banks piling in right at the high and "a theory of bailouts on the table again." Again this is light trading this time of year...I would take any moves in the markets with more than a degree of skepticism. This includes any "moonshots."

nightshiftsucks's picture

The next time the economy goes down it will be the last.The Federal reserve has just begun to print.

piceridu's picture

Pretty simple in a fractional reserve fiat money Ponzi scheme:

Money = Debt

No Debt, No money and conversely; No Money, No Debt.

Wyatt Junker's picture

Lack of loan creation only affects banks, not the government. And who cares?


Lack of loan creation is the very product of government.  Its what government sells... UST.  

And the Bernanke buys UST propping up the government.  He is the condom for government when they screw you in the ass.

And this is why there is no private loan creation.

The governmet needs the Bernanke put.

fxrxexexdxoxmx's picture

My government never uses condoms. Spreading STDs is one of their most coveted responsibilities.

Atomizer's picture

If we can get the pheasant to shore up one more stimulus program, we can create another artificial growth cycle. / laughs 

all-priced-in's picture

It must be time to change the way loan growth is calculated.


Stuck on Zero's picture

My problem concerns where the loan money goes.  It used to buy factories, equipment, land, facilities, and raw materials to stoke the fires of industry.  Today, borrowed capital goes to buyouts, stock puchases, speculation, and foreign investment.


666's picture

Whaddya mean there's little loan creation? Then explain to me why I keep hearing people say "I'll gladly pay you Tuesday for a hamburger today"?

youngman's picture

I dont have a problem with Foreign Investment....that is where the growth is....and if you are a carmaker say...and you want to sell cars in Brazil or have to build them there...and you have to tie with with a local company...I think most emerging markets have got this figured out..if you want their have to give them half or more of the company....

MachoMan's picture

What about foreign investment when china is outpacing the world at money printing?  Do we end up like hawaii, where all the locals live in slums due to being priced out of the market for everything? 

As for the car example, does that have anything to do with increased energy (transportation) costs?  Nationalism?  "business ethics" (goodwill)?  [japan still won't let us build some critical components because we're not worthy...]

NoDebt's picture

You hit the nail on the head.  Is there a PRODUCTIVE use for the borrowed money?  Looks like both individuals and businesses are not finding many.  Car loans, student loans and share buy-backs seem to be about it right now.

Wyatt Junker's picture

You get two distortions during financial repression.  

1) Corpies get increasing EPS due to buybacks.


2) Government gets expanded balance sheet(debt) because the CB holds it.


after awhile, as long as the CB continues holding UST in ever greater amounts, government will continue to expand its balance sheet and will not stop.  This, in turn, will create even further private capital strikes which will leaden the economy even more in a viscious cycle. 

But the real danger here is that if this goes on for too long, 'the people' will get used to big government as the imovable object it now is as state wards, trained to be dependents, and the UST will have to be even further bought to prop up the fantasy.

This cannot continue.  

Debt is not the problem.  Training serfs to be serfs is.  Training minds to be compliant wards of the state is very difficult to throw off.  Tyranny via dependency is the best way to create loyalty.  

andrewp111's picture

There is global overcapacity in every type of manufacture. Why the fuck would anyone borrow for industrial investment? What the world needs is a global war to destroy the overcapacity, and eventually that is exactly what we will get. It's all proceeding according to plan.

gdogus erectus's picture

Exactly. And have you noticed that as the Chinese race to keep up with us on the money printing front, that they actually build/buy shit with the created bucks? Factories, resources, hell- even land banked ghost cities are better investments than drones, DUMBs and dummers.

Patriot Eke's picture

"money" velocity is at an all time low too.  If currency is not moving, there can be no recovery.

Tyler Durden's picture

Velocity of money is the direct consequence of loan creation. Loan creation, i.e., inside money, is the basis of EVERYTHING.