Why are we asking the banks to increase lending?

In response to....

http://www.ritholtz.com/blog/2009/11/stiglitz-u-s-paying-for-not-nationalizing-banks/

I wrote....

Barry et al,

I for one, am relieved the banks aren't increasing lending. Our public and private sectors are carrying overwhelming debt loads. When the banks increase lending, not only will our debt loads swell further, but we will feel the pain of real inflation as the excess money supply created by Federal Reserve actually hits the economy instead of sitting in the vaults of the banks. I believe the banks refusal to lend is one of the few things they have done to benefit this nation (albeit selfishly).

It is a symptom of the ignorance of government representatives that is fueling Obama and congress to insist that banks increase lending. We are a consumption addicted society and are in the process of cleansing that addiction. Unfortunately, the political powers that be (who are largely influenced by private concerns) are not willing to tolerate the pain that will come with rehabilitation from addictive spending. Consequently, it is my belief that unless this paradigm shifts, we as a nation are destined for further destruction of the freedoms we have taken for granted as we become further enslaved to debt.

IMO, nationalization of the banks would have been a critical error, which would have put too much control in the hands of a bumbling federal government and devious federal reserve. Rather, banks should have been allowed to fail, with well managed and well capitalized financial institutions allowed to bid for their assets, and those assets going to the highest bidder with no government assitance. We would likely have had several years of contracting economic production, but we would have had an opportunity to come out on the other end as a more cautious, ethical, and strong nation with reasonable fiscal practices.

People seem to be willing to do anything to avoid recession, and god forbid, depression. In my mind, stimulus aimed at avoiding a contracting economy is the elixir that will drive us to the devastating consequences of holding debt that we cannot pay off without monetizing it (printing enough money to pay our obligations) which will destroy the value of the dollar, and the middle class along with it. A nation's people cannot live the life of excess without having to feel the pain of contraction at some point. The longer we delay contraction in our economy, the greater will be the eventual financial reckoning.

Fubsy