lending is in crisis; there is plenty of capital to lend but the guidelines keep getting tighter closing off more and more credit-worthy borrowers from the working capital they need. Some industries are considered by lenders to be higher risk than others such as trucking and construction which are both facing shrinking demand and lower revenues. Now they receive terms that are much worse or they can't even get approved for capital at all.
Banks who received (and continue to receive) Fed bail-out money to cover deposit flight aren't using the extra money to lend, they're hoarding it on their balance sheets because they're afraid more banks could blow scaring folks again and increasing the hemorrhaging of deposits even further.
Private lenders making advance-loans for working capital are filling the gaps that banks are leaving by withholding their capital. The cost is higher for the borrowers however and that's just another added cost to all the extra costs that have been imposed over the last three years.
The fact that the Fed had to torch the entire market with high interest rates just so the rate-of-increase would slow down to 3% doesn't help anyone. the increases from the last two years are already baked in the cake; we're already paying way higher prices now for almost everything, who cares it's only rising at 3% still??
"First, inflation continues to increase, inflicting greater and greater pain on consumers. Only the rate at which inflation is increasing has slowed. Keep in mind that inflation is cumulative; much like compound interest, it just keeps adding up. After a large increase in the prior year, it is not particularly impressive that the current year increase will be lower, but that lower number comes on top of — or in addition to — the prior year’s number. For example, the 4 percent increase this May was on top of last May’s 8.3 percent increase for a two-year increase of nearly 13 percent. That’s nothing to boast about."
The additional cost of capital imposed by high interest rates is withering the cash flow of businesses just as the consumer starts to roll over and cut spending simply to maintain their lifestyle.
"Cash-strapped consumers are cutting back on personal hygiene products, according to Bloomberg. It's yet another sign, after two years of negative real wage growth, depleted personal savings, and record amounts of credit card debt, the supposedly 'strong' consumer under 'Bidenomics' continues to crack under the heavy weight of a once-in-a-generation inflation storm."
Meanwhile, the increased cost of capital has made the Federal Reserve underwater too, they have more debt than anyone! It's all good though because the extra interest cost the Federal Reserve must pay is on our tab, not theirs.
"The government could have locked in their hundreds of billions of new debt issuance over the last several years at long-term rates of 2% or less. Nah. That would have been rational, logical and prudent. Homey don’t play that game. They financed it all short-term, so now they get to refinance it at 4.5% or higher. $900 billion of interest will be in the rear view mirror shortly."
Another sign that demand is about to suffer significant shrinkage is corporate bankruptcies have exploded higher and that's before most of them have had to experience the higher rates too!
In the first six months of 2023, there were 340 corporate bankruptcies, topping every other comparable span in 13 years, according to S&P Global Market Intelligence. This is up 93 percent from the same time a year ago and higher than in 2020, when there was a spike during the early days of the coronavirus pandemic.
Demand for back-to-school items dropped for the first time in over a decade and, considering that the prices are much higher it should have been a higher number even if folks bough less than last year. They clearly bought WAY less than last year.
"According to a Deloitte survey released on Wednesday, back-to-school (BTS) spending, the second-largest spending event for families after the holiday season, is anticipated to decline for the first time in nine years."
This is happening in every household, business, agency, government office, etc. You name it, they are tightening the belt right now because, even if they haven't quite felt the affect themselves yet they can see everyone else is getting smoked. This is a runaway train because nobody is at the controls right now.
