U.S. Bank Lending, Already Low, Is Collapsing Further

June 28, 2021 (EIRNS)—The Federal Reserve’s transformation of the biggest U.S. banks into a collective mechanism for collapsing the American physical economy, is picking up pace. The clearest indicator: Loans and leases by the entire U.S. banking system—overwhelmingly dominated by 10 of the biggest banks with three-quarters of assets and deposits—are now falling more and more rapidly from already extremely low levels.

The most recent flow-of-funds report from the Federal Reserve itself, on June 16, 2021 shows that “loans and leases in bank credit” in the banking system, at $10.339 trillion, had dropped by $500 billion since May 2020. In May 2020 they had already fallen by $150 billion from May 2019. This mocks the hoopla over the “Payroll Protection Program” loan program in 2020 which was supposed to let small and medium-sized firms avoid laying off their employees during the pandemic collapse of economic activity.

“Bank credit” overall, however, is up by $700 billion in the past year, and that is because bank holdings of securities rose by a huge $1.2 trillion, to $5.2 trillion. When a bank buys securities—for example, mortgage-backed securities or asset-backed commercial paper—it creates deposits for itself, by opening an account for the issuer or previous holder of the securities. It fills this account with a deposit of money which it can create from new electronic reserves, which the Federal Reserve in turn has created for the bank.

Deposits in the U.S. banking system, at $17.2 trillion, now exceed its lending by an obscene 70% and this margin is rapidly growing as lending falls.