Chart of the Week: Deflation is the Word

Ok, so we have a debt based economy what does that mean for Joe Sixpac?  It means without more credit we have no mo' money and without money we have no jobs and nothing to buy. And round and round it goes down. Banks have money because the federal government stuffed $13 trillion into their pockets. But they are not lending it as this chart shows:

The banks are not lending because their balance sheets are impaired by all the toxic assets they bought during the real estate boom and they need liquidity to improve their balance sheets. US bank reserves have increased 500 times from under $2 billion in August 2008 to over $1 trillion. Bank lending has contracted the largest percentage in 67 years. Commercial real estate loan defaults are a major concern to small and midsize banks that do most of the lending to community businesses which in turn provide most middle class jobs. Commercial real estate and related businesses alone generates an estimated 9 million jobs. This chart shows the problem:

Just pushing on a string, baby.
chart source: Shedlock, www.marketoracle.com