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Banks have started to tighten credit due to the Federal Reserve’s interest rate hikes, which represent a deliberate strategy to temper economic growth and reduce inflation. According to the most recent Senior Loan Officer Opinion Survey, a majority of banks reported that they had tightened lending standards for larger and medium-sized businesses in the past three months.
But Straight Arrow News contributor Larry Lindsey raises doubts about the survey’s reliability. He cautions against policymakers depending on potentially biased information and recommends a more nuanced analysis to make informed policy decisions.
It’s human nature for everyone to like to think that they’re right. And part of that is to get news that tells you that what you believed is true. This is often called “confirmation bias.” And Washington, D.C. is more guilty than most about wanting to believe confirmation bias. Well, one of the publications that does that is an online service called Axios. Axios is a political broadsheet that everyone who thinks of themselves as part of the beltway cognoscente will be sure to read. They recently ran a big story called, “Historic Credit Tightening is Occurring.“
Well, okay. Why do beltway denizens, the animals in the swamp, so to speak, want to hear that? Well, they believe that it was banks that caused inflation with their reckless lending. That throws them in the same camp of inflation causes like Putin, corporate greed, global warming, what have you. Everything is on the list for causing inflation, except for Washington, of course. Then, in addition, the banks, through their reckless lending, caused a meltdown back in March, and were only saved by aggressive action by our fearless beltway powerhouses, the Fed and the Treasury.
That’s what we want to believe. So being told that, in fact, we have historic credit tightening going on, is a good thing, because it’s going to take care of those banks.
Well, let’s think about that a little bit more carefully.
