(James Saft is a Reuters columnist. The opinions expressed are his own)
Jawbone all you like, but we are in a private sector de-leveraging, and bank lending and demand will remain weak, making interest rates unlikely to rise any time soon.
Monday’s two big economic news events dovetailed neatly, if not entirely happily; Citigroup announced plans to repay $20 billion to the government and President Obama called banks together to inform them of their obligation to support the recovery.
“My main message in today’s meeting was very simple: America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” Obama said after the meeting. “Now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.”
I just don’t think that is how it is going to work, or really how the capital intermediation process has ever worked. Banks will make loans when they have sufficient capital, when there are good opportunities, meaning demand for loans from good risks willing to pay good rates, and when there aren’t better opportunities elsewhere.
Taking one for the team is not how shareholder capitalism works, even if you lavish upon it public money.