Inflation Then Deflation? Evidence From Banking (Lowest Bank Lending To Deposit Ratio Since The 1970s)

With The Federal Reserve’s prodigious asset purchases and rate suppression (not to mention Biden’s record spending), inflation is a concern. But now there is another problem on the horizon … deflation.

If we look at commercial and industrial lending at commercial banks divided by bank deposits, we see the ratio is the lowest since the 1970s.

How about loan and leases at commercial banks divided by deposits? Also the lowest since the 1970s.

Why is this possibly deflationary? Because commercial banks are the primary transmission mechanism for Fed policy, this bodes ill unless the economy roars back from government Covid shutdowns.

M2 Money Velocity (GDP/M2) is the lowest in history, so it had better be an epic rebound from Covid!

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