From our perspective there are six really strong forces, three negative and three positive, that in combination predict the American economy in 2012. In this series, we will look at each of the forces individually, both negative and positive.
Negative Force I – The Banking Industry
Not just here in the United States, but around the world, banks are de-leveraging. In some cases, such as here in the US, the pressure to do so is driven by bank regulators. The bank regulators are insisting that banks get their capital in proper ratio to the amount of loans (which banks call assets) on their books.
In Europe the pressure is also from the market because of recent negative impacts to the stock of banks that raised capital by selling additional stock. Since banks cannot raise more capital by selling stock, one alternative is reducing the amount of their loans.
Either way, banks are reducing the amount of loans on their books. The bottom line for the American economy is that until banks INCREASE their lending, which expands the available amount of credit, the economy will continue to struggle.
Therefore, this is the most negative force. It will probably slowly shift as individual banks get healthy enough to begin to INCREASE their loans. That slow shift means a slow recovery.
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