(ZERO HEDGE) – One of the biggest quandaries of this cycle for the US economy has been the amount and growth of commercial bank loans. Virtually non-existent for the first three years of the centrally-planned new normal, something changed in 2012 at which point U.S. bank loans, led by Commercial and Industrial or C&I lending growing at a double-digit pop, started to rise at an impressive pace, asking many to wonder: maybe the biggest driver for a sustainable economic recovery is in fact present, because where there is loan demand, there is velocity of money.
A few years later, as the loan growth persisted with virtually no flow through to GDP growth, we – and others – wondered: we know there is a "source of funds," but what about the "use of funds" – how can banks be creating tens of billions in loans if virtually nothing was ending up in the broader economy?
The first flashing red flag appeared last July, when we reported that companies were using secured bank debt to repurchase stock: a stunning, foolhardy development, comparable to taking out a mortgage on one's house and using the proceeds to buy deep out of the money calls on the S&P 500.
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