Sean King

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Knoxville, Tennessee, United States

Monday, March 15, 2010

Deflation News

While big companies have been able to borrow in bond markets, smaller companies rely mainly on bank credit, which has been shrinking. In 2009, total lending by U.S. banks fell 7.4%, the steepest drop since 1942. In all, the credit pulled out of the economy by banks since the downfall of Lehman Brothers in September 2008 amounts to about $700 billion, more than double the amount so far distributed under President Barack Obama's $787 billion stimulus program.

"It's a dismal situation," says Diane Swonk, chief economist at Chicago-based financial-services firm Mesirow Financial. "Banks won't lend to businesses because they're afraid they'll go bad, but that can become a self-fulfilling prophecy."

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