Sometimes it’s a little frustrating to read and listen to clueless so-called financial and/or business journalists, as they regurgitate the stupid idea that government bailouts or big banks lending out money will help create jobs. It’s just plain ignorance of how business and finance work, or they wouldn’t make these types of statements which mark them as uneducated in these areas.
Anyway, I’ve been hearing a lot recently about if big banks like Bank Of America (NYSE:BAC), JPMorgan (NYSE:JPM) Wells Fargo (NYSE:WFC) and CitiGroup (NYSE:C) ramp up their lending to small business or other commercial enterprises, we’ll begin to see a big turnaround in the job market. I’ll say without hesitation that this is a completely wrongheaded way of thinking, and lending has absolutely nothing to do with job creation.
Those writing these things are of course socialists, or have socialists leanings, so their answer to everything is to throw money at it and it’ll take care of the problem. History has proven that to be false of course, and whether it’s robbing the taxpayers to throw at businesses, or lending money from banks and financial institutions to throw at businesses, the result will be the same if the real criteria for job growth aren’t in place.
The Obama administration has failed miserably in how they’ve spent taxpayer dollars in order to stimulate the job market, and estimates are it cost between $150,000 to $200,000 to just keep existing jobs, let alone create one (which hasn’t happened).
Another element in this, which many business writers are also seemingly ignorant about, is commercial loan defaults are set to increase exponentially in 2010, with the latter part of the year hitting banks especially hard. To call for loans in that environment, when we aren’t even close to being out of the current great recession is reckless; although no banks going to heed the call of course, unless they want to position themselves for another taxpayer bailout, if it was allowed to even come.
With all this in mind, the thing that creates jobs is the demand for products or services from consumers or businesses. Absolutely nothing else creates jobs on a sustainable business, as the stimulus waste of money has proven, with unemployment rates continuing to remain at 10 percent in America. Of course the real rate is much higher than that, as the underemployed and those quitting looking for jobs proves, which stands more at about a 17 percent rate taking the real situation into account.
Back to loaning money to small business. If a bank loans money to a small business, if there isn’t a growing demand for their products or services, how will that help increase jobs? The answer is of course it absolutely can’t create jobs. The market creates jobs, and that market is first consumers and secondarily businesses. If neither are spending money, it doesn’t matter how much in loans is thrown out there, it won’t do a thing but sit in the account of a business.
The other side of this is banks are going to struggle in 2010 to generate revenue and profits, as the highly profitable investment banking side, other than commodities, is looking to be very slow for the year, eliminating what generated the revenue and profits for 2009 in the industry.
So retail and commercial banking performance is the area banks are looking for to grow this year, and there simply isn’t much there to get anyone excited.
Again, to call for banks to loan to small businesses in a market that isn’t growing is the same thing as calling for the government to waste more taxpayer dollars by throwing it at businesses in hopes they’ll get lucky. They didn’t get lucky last year and they won’t get lucky this year. There simply isn’t a growing demand by those who would spend the money for products and services. It’s as simple as that. Case closed. Get it?
Loaning money can’t change demand. That’s the bottom line. Neither can it create demand. People have to want something and be willing to spend money to get it. That’s not going to happen in 2010 to a large degree, so banks aren’t going to loan money for it to happen.
Oh you’ll have the gratuitous loans thrown out there which generate media coverage to give the illusion of lending to small businesses, but banks have already stated they’ve loaned to all the healthy small businesses they could without creating another scenario of defaults which they face in 2010.
Loans come about from consumer or business demand, they don’t come about from some type of wishful thinking concerning something called ‘job creation’ which banks indiscriminately throw money at. That’s part of the problem of the huge recession we’ve been facing. To call for more of that is, as I said, a revelation of business and/or economic writers being clueless as to how the real world works.
Now that you know this, I don’t mind you citing my article so you don’t have to continue looking like you don’t know what you’re talking about.
