If there’s no money to expand

Our economy isn’t going to be growing anytime soon.

News gets worse and worse.

http://www.nytimes.com/2008/07/28/business/economy/28credit.html?_r=1&hp&oref=slogin

Worried Banks Sharply Reduce Business Loans

By PETER S. GOODMAN

Published: July 28, 2008

Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

Drew Greenblatt of Marlin Steel Wire Products is having trouble getting a $300,000 loan to buy a robot for his Baltimore factory. “This is what a bank is supposed to do,” he said.

Graphic

Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.

The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.

“The second half of the year is shot,” said Michael T. Darda, chief economist at the trading firm MKM Partners in Greenwich, Conn., who was until recently optimistic that the economy would continue expanding. “Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit.”

No money for businesses. No money for new employees. No money for increasing output. No money for investing in future growth.

Not unexpected, but not good, either.

Paul