James Saft

If you have forgotten the credit crunch it appears you have company: U.S. banks are lending again.

Bank earnings reports and data from the Federal Reserve confirm that, at long last, banks are beginning to step up lending, a much-needed ingredient for a stronger and more sustainable recovery.

The good news is that lending is growing to commercial and industrial companies — exactly where you want to see growth if the U.S. is going to address its unsustainable dependence on domestic consumption. That’s good so far as it goes, but with a fragile euro and an undervalued yuan the upside is decidedly limited.

That’s because, in part, consumers are still quite restrained, or are being restrained, at least to judge by weak to middling lending levels to consumers and to support house purchases.

With 17 of the top 25 U.S. banks by assets having reported earnings, a lending turnaround is in evidence. Among the 10 largest regional banks, loan books expanded by 0.6 percent in the fourth quarter, according to FBR Capital markets, and nudged up slightly at the four mega-banks. This compares to a 2 percent shrinkage in the previous quarter and real carnage in the two years before that.

The great trade of the next 20 years may be out of the things that the old sell — houses, stocks and bonds — and into what they continue to consume: food, energy and medical care.

An aging consumer is the enemy of asset prices because she sells down the things she has laid up over a lifetime of working in order to fund her retirement. That includes housing, as older people downsize either to profit or to save money, and also financial assets, which the elderly “eat” to finance ongoing consumption.

One school of thought has had it that the U.S. will do relatively well compared to the rest of an aging world. While the Japanese working age population is already shrinking and China’s will peak sometime in the next decade, the U.S. is forecast by the United Nations to enjoy a steady increase over the next 40 years.

James Saft is a Reuters columnist. The opinions expressed are his own.

Apparently not satisfied with being unable to fulfill its dual target of price stability and maximum employment the Federal Reserve has set itself a third mandate: higher asset prices.

Speaking on CNBC at a Federal Deposit Insurance Corporation-sponsored forum on small business lending last week, Fed Chairman Ben Bernanke was asked how, in essence, his $600 billion quantitative easing programme could be called a success when interest rates and commodity prices had actually risen in response.

“We see the economy strengthening, its gotten better over the last three or four months, a 3-4 percent growth number for 2011 seems reasonable,” he said.

If the euro is going to survive without a Depression, German consumers are going to have to behave in ways that are, well, distinctly un-German.

While attention is focused on the suffering that the euro zone debt debacle is inflicting on the weak and the political anger the costs of bailouts are engendering among the strong, it is important to understand that the belt-tightening won’t just be a Gaelic and Mediterranean phenomenon.

German consumers will (rightly) regard events as likely to increase their taxes while doing precious little for their incomes and job prospects. If they react to this like Americans and spend like there is no tomorrow, well then, perhaps the euro zone can handle the local recessions in the Austerity Provinces. If, on the other hand, Germans behave anything like the way they have in the past, they will save more and only increase spending marginally, if at all.

James Saft is a Reuters columnist. The opinions expressed are his own.

Just when it looked like Spain would force the euro zone to get serious about destroying its crippling debts, here comes plucky Belgium, hobbling its way to history.

While some are focusing on whether Portugal will take a bailout (hint: they will) and how to extinguish the burning firewall around Spain,  markets are steadily losing confidence in Belgium, which is big enough, ugly enough and heart-and-soul-of-Europe enough to change the game, potentially forcing sovereign defaults and bank recapitalization.

Investors imposed an all-time-high risk premium on Belgian bonds relative to German ones on Monday amid political chaos. Belgium’s parties have for the past 212 days been unable to agree a government, forcing King Albert II to step in and ask for a cost-cutting budget for 2011. Gross government debt is very high, hovering around 100 percent of GDP, leaving Belgium very vulnerable to a loss of market confidence.

James Saft is a Reuters columnist. The opinions expressed are his own.

A very poor outlook for housing will hold the U.S. economy back in coming months, making it very unlikely that the Federal Reserve will be able to step back from their emergency room monetary measures.

A genuinely encouraging run of data and very strong asset markets has encouraged some to argue that the Fed’s policy will prove to have been too much for too long, but housing stands out as the one asset market that has failed to respond encouragingly to the adrenaline of quantitative easing.

The Fed acknowledged this in the minutes of their December monetary policy meeting, listing a litany of factors holding housing back and stating:

James Saft is a Reuters columnist. The opinions expressed are his own.

Look for a flood of new capital controls in 2011 as emerging market states seek a measure of protection against the easy money being generated by the United States, Europe and Japan.

In the short term this raises the chances of trade and currency conflicts, and may prove to be a button that was better left unpressed.

A laundry list of emerging market countries — including Indonesia, Thailand, Brazil and Korea — have already begun imposing capital controls, limits on who can take money in or out of their countries, under what circumstances and at what costs.

James Saft is a Reuters columnist. The opinions expressed are his own.

China’s Christmas day interest rate hike may prove to be bad for global growth but good, at least for a time, for risky assets.

From that perspective, the Chinese policy change could end up being a much-needed helping hand to Federal Reserve chief Ben Bernanke, who has engineered a policy partly aimed to boost economic growth through the false miracle of asset price inflation.

The Chinese rate hike, taking the benchmark interest rate up by a quarter of a percentage point, signals an increased willingness by Chinese authorities to do what they must to dampen the party domestically. The move increased the one-year lending rate to 5.81 percent and one-year deposit rate to 2.75 percent.

James Saft is a Reuters columnist. The opinions expressed are his own.

HUNTSVILLE, Ala — It is going to be an interesting 2011 for British banks, which face funding hurdles and exposure to troubled sovereign debt and property markets.

After the carnage of 2008, the de-facto nationalizations, and the euro zone exposure scares this year, Britain’s large international banks could be forgiven for hoping at year’s end for a bit of peace.

That may not be the result, at least according to a reading of the Bank of England’s Financial Stability Report released this week.

You can lie to taxpayers or you can lie to creditors, European authorities are learning, but doing both at the same time is very hard.

The proposed policy that current senior creditors to troubled states will not face losses on their loans but future private lenders will be forced to share in losses with taxpayers is so irrational, so bound to fail that it falls out of the realm of economics and into the ambit of brain injury.

European Union member states will this week hold a summit at which they will create a permanent fund to lend to troubled members under co-called strict conditions of fiscal responsibility.