Maybe I'll start drinking coffee

"Banks start to make more loans"

That was the heading of a New York Times Dealbook story today.  But if you’re in the market for a small business loan or line of credit, don’t get your hopes up.

According to the story, “Loan growth is still modest. And it remains heavily weighted toward the strongest corporate and consumer borrowers.”

So while big corporate loans and consumers are finding access to capital easier, small business is still suffering.  The SBA reports that loans to small businesses dropped again in the second quarter although not as much as they have since 2008.

In spite of all the talk by politicians and government officials of how important small businesses are to the recovery of our economy, the rhetoric has been all talk.  Even the most important federal legislation passed to deal with the problem (Small Business Loan Fund) has been undermined by the banks and regulators and just screwed up by the Treasury Department.

What we’re left with is a very frustrated private, non-financial sector trying to come up with ideas to by-pass the government and spur small business growth on its own.    

How about this idea from Starbucks--buy some coffee and make a donation for small business development?

As Joe Nocera writes in his New York Times column today, the Starbucks plan will work like this.

Americans themselves would start lending to small businesses, with Starbucks serving as the middleman. Starbucks would find financial institutions willing to loan to small businesses. Starbucks customers would be able to donate money to the effort when they bought their coffee.

Starbucks did find a partner with Community Development Financial Institutions (CDFIs) in a project to start November 1^st.  You will even get a red-white-and-blue wristband with your $5 donation.

“Americans Helping Americans” is the theme.  We sure need something given the failure of our banks, Congress and the Administration on this critical issue.

No Extra Credit

By JOE NOCERA
The New York Times
September 20, 2011

What if everything that is happening in Washington right now is just meaningless noise?

What if the Obama jobs plan, the coming deliberations of the supercommittee, the debate over taxing millionaires — what if none of it is likely to make a whit of positive difference for the economy? What if the only thing that matters is something Congress and the president rarely mention, and can do nothing about?

I’ve come to believe this is the case. What is killing the economy is lack of credit. In the aftermath of an asset bubble, invariably the result of too-loose credit, banks don’t just tighten their standards; they practically shut down.

This was true during the Great Depression, and it’s been true during the Great Recession. And until normal credit standards return, economic growth will continue to be stunted. “Overreaction to the credit bubble is now the knee on the throat of the economy,” says my friend Lou Barnes, a mortgage banker at Premier Mortgage Group in Colorado.

Not long ago, Lou sent me a powerful new piece of evidence, a presentation put together by Paul Kasriel, chief economist for Northern Trust. Titled “If Some Dare Call It Treason, Was Milton Friedman a Traitor?” (the title will become clear shortly), it has the force of revelation.

The first part of the paper is spent “dispelling the nonsense” (Kasriel’s words) that factors besides credit are the root of the problem. He persuasively mocks the idea that “uncertainty” is holding back companies from borrowing. (“Uncertainty,” Kasriel told me, “is the last refuge of economists who can’t explain what is going on.”) Ditto for onerous taxes, record budget deficits and lack of demand.

He then documents “a post-WW II record” credit contraction, before moving on to a surprising solution: more quantitative easing from the Federal Reserve, which is essentially the buying of bonds from investors by the Fed, using money it prints, as Kasriel freely admits, “out of thin air.”

That this solution is controversial is not lost on Kasriel; his title is an obvious play on Rick Perry’s comment that continued quantitative easing by the Fed chairman, Ben Bernanke, would amount to borderline treason. But that’s where his reference to Friedman comes in. Kasriel is absolutely convinced that if the great conservative economist were alive today, he would be leading the charge for quantitative easing. It’s all we’ve got left.

In the 1930s, the Fed’s tight money policy compounded the lack of credit and sent the country into the Depression. Decades later, Milton Friedman was the economist who most persuasively proved that point. Bernanke, a student of the Depression, took that lesson to heart; his willingness to flood the system with liquidity during the financial crisis prevented a repeat.

It is also what led Bernanke to try the first two rounds of quantitative easing. “Banking under normal circumstances is a transmission mechanism from the Fed to the economy,” Kasriel told me. “That transmission mechanism is broken.” Quantitative easing is not nearly as efficient at expanding credit as having the banks involved, but it does work. During the decade of stagnation in Japan, Kasriel points out, Friedman urged its central bank to expand the money supply and buy bonds — exactly what Bernanke has been doing.

The main argument against the printing of money is that it raises the odds of inflation; even the esteemed Paul Volcker is worried about it, as he wrote in Monday’s Times. But Kasriel is convinced that the bigger fear right now is deflation, and that the expansion of credit by the Fed should be seen in combination with the contraction by the banks. In that larger context, the Fed’s move no longer looks inflationary. It looks instead like the only means we’ve got right now to create badly needed credit.

There is much resistance to another round of quantitative easing, not just from G.O.P. presidential hopefuls, but from many in the political establishment. Yet it’s worth noting that the reason Volcker is esteemed today is because, 30 years ago, as Fed chairman, he stuck by a monetary policy — a severe tightening, in his case — that he believed in despite fierce denunciations. His willingness to chart an unpopular course led directly to the economic revival of the 1980s.

Today, Ben Bernanke is every bit as vilified as Volcker was back then. Yet the Fed remains politically independent, and like Volcker, he has the right to chart the course he believes best, without political interference. The course he has charted is quantitative easing. Kasriel is utterly convincing that this is the right course. Bernanke should make the Fed’s independence matter.

http://www.nytimes.com/2011/09/20/opinion/nocera-no-extra-credit.html?_r=1&nl=todaysheadlines&emc=tha212

Big business heal thyself (before it's too late)

It’s time for business to start creating jobs says Joe Nocera in his opinion editorial in the New York Times today.  He’s not talking about small business.  We’d love to start hiring again to meet incremental consumer demand but there is no access to capital for us.

Nocera is talking about BIG BUSINESS.  The companies he says “are hoarding cash while reporting record profits.”

With all their cash, companies shouldn’t be waiting for Congress to give them tax incentives to hire people. They should be trying to jump-start the economy — and fend off another recession — by making investments, and hiring workers, that will lead to renewed prosperity.

The problem, according to Nocera, is that these giant businesses are wed to “short-term profits instead of long-term good of the country.” 

It’s not a new love of socialism that Nocera proposes for corporations.  It’s the reality that their long-term financial health is directly tied to the long-term health of our economy.  And because our government has been made impotent to do much of anything thanks the success of the crazed minority’s rule of the majority, only big business can save itself by creating jobs, according to Nocera.

But what if they don't?  What if big business continues its myopic fixation on today's profits?  What if Congress and the President cannot deliver any effective job creation program?

Then that's what next year's elections will be all about.  Every member of Congress that continues to say NO to an immediate approach to creating jobs and only says yes to cutting spending needs to have opposition in the primary or general election.