Financial Crisis and $1 Trillion Lending Boost

Last October, the Fed surveyed 53 domestic banks. 85% of the banks surveyed said they had tightened their commercial and industrial loans. In a more recent survey, 63% had tightened their commercial and industrial loans, an obvious decrease from the October survey. However, the number of banks tightening their consumer loans has remained unchanged since October. This is a large issue since the state of our economy relies on banks willingness to lend money. If more banks lend money, more people will spend. So, if banks are not lending, people are not spending. This has become a focal point of President Obama's proposed stimulus package. With the stimulus package on the way, the Fed has begun to make predictions about the future state of the economy. The Fed has projected a decline in GDP from .5% to 1.3%. They project the unemployment rate to increase from 8.5% to 8.8%. However, the Fed predicts that the economy will grow 2.5% to 2.7% in the years after 2011. Based on the Feds predictions, the economy will continue to get worse short term, but it will improve in the long run. The Fed and President Obama have also been working together on a $1 trillion program designed to boost lending from banks. The program, called the Consumer & Business Initiative, will recieve $100 billion in funding from the Treasury Department. In the program, a bank would issue (for example) $1000. An investor would then give the Fed $50 dollars and the Fed would in return provide a loan of $950. The program is designed to spark lending by banks and get our economy flowing normally once again.