Lending rebounds

The ability to borrow money for investments is crucial for the economy.  Clearly borrowing can be overdone, but if consumers don’t borrow, the economy usually struggles. Host Mary Walden asks her husband NC State Economist Dr. Mike Walden, “Lending virtually stopped during the recession, so where are we now?”

Mike Walden—“Well Mary, I would say that we are responsibly back. Now you’re right that during the recession business lending, as well as consumer lending I might add, did fall. And that was a big part of the recession. Right now business lending is rising at an annual rate of 10 percent. Now that is still far below the 20 percent annual growth in business lending that we saw prior to the recession. So, we are improving in terms of business lending, but not at the gang-buster rates we had prior to the recession.  Another indicator is loan-to-value ratios. In other words how much money is put down in buying a piece of property as a percent of that property?  And those loan to value ratios are now at a 30-year low, again suggesting that lenders are being cautious and borrowers have to put more of their money up to buy a piece of property. So, I would argue that, yes we do have to have lending back. We do have to have lending going to businesses in order to spur the economy. That is occurring, but I think it is occurring at a much more modest, and I should say, sustainable rate.”