The Fed's Dislocation & Disconnect

Uttering the ridiculous... Boston Federal Reserve Bank President Eric Rosengren:

"Many small- and medium-sized businesses are not complaining about credit conditions."

Tim Arnett, small business owner: About a year ago, his bank, Wells Fargo, said he would need to be in business for about nine months to qualify for a loan.

"They're now saying we need two years of credit history before they will even consider us for a line of credit."

says Arnett, who employs four people and estimates that revenue this year has soared to $900,000.

"If the government is not willing to let entrepreneurship thrive, if the smaller businesses that truly have good ideas and good workforces are stymied,

it's going to affect the economy nationwide, and I just don't think the government gets it
."

Even after five reductions have pushed the Fed's key rate down to 3%, a new study indicates the economic implications of potential borrowers going begging,

The study estimates that U.S. mortgage losses may trigger a $900 billion contraction in lending to households and businesses.

Crimping credit, the study says, would reduce economic growth by as much as 1.5 percentage points over four quarters.

Its already started... Yesterday we noted from the ADP employment report: "Small firms (<50)+15k;>500) -34K.

The 1st decline in medium sized business since June 2003.

Another study published this week by Moody's Investors Service showed 300 U.S. companies with sub-investment grade credit ratings

need to refinance $13 billion of maturing credit lines and bonds this year, climbing to $28 billion next year and $45 billion in 2010.

William O'Donnell, a U.S. government bond strategist at UBS:

"The Fed simply can't afford to disappoint as they sail the fine edge of the winds from credit-market disarray that may be the worst since the Great Depression."

Hattip to Bloomberg.

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