Banks, TARP and Inflation......

There is a good part and a bad part to what commercial banks have done with a combination of bailout money, recapitalization and zero-cost money.

The bad part is they have not extended credit to those who may be demanding it. By any measure of bank lending, there's a Roach Motel here: The money goes in but doesn't come out. Small wonder we are not creating jobs.....

However, the impairment of bank credit has prevented an outbreak of inflation stemming from the Federal Reserve's monetary creation. This is why year-over-year M2 growth is declining and velocity is just over crisis levels. If banks decide en masse to start lending -- and do they ever do anything in a non-herding manner? -- watch for inflation to pop higher.

Policymakers act as if their wisdom has prevented inflation when it in fact has been an impaired banking system.....