The Cliff by Morgan Housel @ The Fool

Why There Was No Fiscal Cliff Deal This Week

By Morgan Housel

Picture a skinny 18-year-old with a high metabolism. He can eat anything he wants -- doughnuts, ice cream, pizza -- with virtually no harm. His weight stays the same, his blood pressure remains low, and he faces no immediate risk of heart disease. So he keeps on gorging. Why change when the food tastes this good?

Later in life, this catches up with him, and he puts on a few pounds. Unsettled, he tries dieting and exercises more. His growing waistline now serves as an incentive to change habits.

Then, in his 60s, he has a heart attack. He survives, but he's terrified. He hires a nutritionist and a personal trainer, and downs a daily cocktail of pills to keep his heart ticking. His near-death experience is a powerful incentive to drastically change behavior. His life depends on it.

This is an appropriate analogy to understand why the fiscal cliff debate has dragged on so long. America's finances are not the 60-year-old heart attack victim, highly incentivized to change behavior. We are the 18-year-old with the fast metabolism, loving our bacon cheeseburgers with no current incentive to do anything differently.

Two events -- and only two events -- will prod legislators into wide-reaching, permanent budget reform: Rising interest rates, or the threat of not being re-elected. Both are (for now) completely out of sight. 

Take interest rates. They're currently at all-time lows. The impact this has on financing government deficits is massive. In 1995, the national debt was $4.8 trillion and interest payments were about $230 billion. In 2011, the national debt was $15 trillion and interest payments were about ... $230 billion. We tripled the national debt without paying a penny more in annual interest. Interest payments on the national debt as a percent of GDP are at multidecade lows.

And interest rates on Treasuries are now below the rate of inflation, so in real terms, creditors are actually paying the government to borrow. Why would any congressman choose to stop spoiling their constituents with borrowed money when there is no (current) cost of doing so? As long as the market is this friendly, the odds of comprehensive budget reform are extremely low.

Next, consider this statistic from Campaign for Primary Accountability: "During the past decade, House incumbents were as likely to die in office as to lose a primary election." Despite record-low approval ratings, the reelection rate of politicians is off the charts. According to Bloomberg, "90 percent of House members and 91 percent of senators who sought reelection in 2012 were successful." That wasn't a fluke. Re-election rates have rarely dipped below 70% or 80% for the last half-century. Long-term deficit deals could get done with low interest rates if the mechanism for keeping politicians in line -- elections -- enforced discipline. Alas, they rarely do.

The last time we had comprehensive budget reform was 1993, when taxes were raised by $240 billion, and spending cut by $250 billion. The political climate then was no more friendly than it is today. The key difference was that interest rates were rising, with yields on 10-year Treasury bonds jumping by 3 percentage points in just over a year. That prodded legislators into action. Former Clinton advisor James Carville quipped at the time:

I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.

It's totally different today. The U.S. bond market hasn't intimidated anyone in more than a decade. If anything, it is begging legislatures to keep borrowing. 

Someday that will change. Interest rates will rise, markets will protest, and then -- and only then -- will there be comprehensive budget reform. No one knows when that day will come. It could be tomorrow or decades off. When it does, it will likely be the equivalent of weight gain or even heart attack, prompting quick action -- a reality that actually makes me optimistic. Until then, expect more symbolic, short-term budget deals, more bickering, and more fiscal cliffs. There is no incentive for anything else.

As Charlie Munger put it: "Never, ever, think about something else when you should be thinking about the power of incentives."

Romney vs Obama

Qui sont les 47% "d'assistés" visés par Romney?

mercredi 19 septembre 2012 à 11h50

Le candidat républicain dénonce, dans une vidéo filmée à son insu, ces 47% d'Américains qui ne paient pas d'impôts, sont des assistés et votent, en conséquence, pour son adversaire Barack Obama. Ses propos créent la controverse outre-Atlantique, à la grande joie des démocrates. Décryptage.

Mitt Romney. © Reuters

Serait-ce la bourde de trop, celle qui lui fera perdre l'élection présidentielle dans sept semaines ? La campagne de Mitt Romney est aujourd'hui secouée par la mise en ligne d'une vidéo dans laquelle le candidat républicain fustige les "assistés" qui constituent, selon lui, une bonne part de l'électorat du président sortant Barack Obama.

Dans cette vidéo filmée à son insu lors d'une soirée privée avec des donateurs, diffusée par le site du magazine de gauche Mother Jones, Mitt Romney affirme que 47% des Américains voteront pour le président Obama quoi qu'il arrive, parce qu'ils ne paient pas d'impôts donc ne se sentent pas concernés par son programme de baisse de la fiscalité, et parce qu'ils dépendent du gouvernement, qui pensent qu'ils sont des victimes.

La vidéo embarrasse le clan républicain. Le camp républicain n'a bien sûr pas laissé passer cette occasion de fondre sur son adversaire, dénonçant le "mépris" de Mitt Romney pour la moitié des Américains. "Il est difficile d'être le président de tous les Américains lorsqu'on traite par le mépris la moitié du pays", a ironisé le directeur de la compagne de Barack Obama, Jim Messina. La polémique enflant, Mitt Romney a reconnu lundi soir que ses mots auraient pu être choisis de façon "plus élégante". Mais il persiste sur le fond. A tort ou à raison?

Est-ce vrai qu'un Américain sur deux ne paie pas d'impôt?

Mitt Romney reprend des chiffres diffusés en 2011 par le Tax Policy Center: 46,4 % des Américains ne paient pas d'impôts sur le revenu. Une autre étude, publiée en juillet dernier par la Tax Foundation, montre que 58 millions d'Américains sont imposables mais ne paient pas d'impôt sur le revenu en raison des diverses niches et crédits existants. Soit 41% des 143 millions de foyers imposables. Si l'on y ajoute les ménages pas imposables en raison de revenus trop faibles - le seuil est de 9500 dollars par an pour une personne seule et de 19.000 dollars pour un couple marié-, le nombre d'Américains ne payant pas d'impôt sur le revenu passe à environ 50% des ménages.

Néanmoins, s'ils ne paient pas d'impôt sur le revenu, ces Américains paient des charges sociales pour la Sécurité sociale et Medicare (l'assurance vieillesse). Ces taxes, appelées "payroll taxes" et prélevées au niveau local, dépassent de loin, pour les Américains qui travaillent, ce qu'ils paient en impôt sur le revenu. En réalité, seuls 18% des foyers ne payent aucune taxe, selon le Tax Policy Center.

Qui sont ces Américains qui ne paient pas d'impôt?

Parmi ces 18% d'Américains qui ne paient pas du tout d'impôts, 82,8% d'entre eux perçoivent moins de 33.542 dollars par an (25.656 euros) et sont pour la moitié (soit 10,3% des ménages américains) des retraités qui vivent de la Sécurité sociale, qui ont payé des cotisations sociales pendant leur vie active. Les autres (7% des ménages) sont pauvres - ils vivent avec moins de 20.000 dollars par an. On trouve notamment parmi eux les étudiants et les chômeurs. En résumé: 44% des ménages qui ne paient pas d'impôt sur le revenu sont des retraités, 30% bénéficient de crédits et déductions d'impôt accordées depuis deux décennies, tant par les républicains que les démocrates, aux ménages les plus modestes.

Si la majorité des Américains ne paie pas d'impôt en raison de ressources insuffisantes, il y a quelques rares - mais notables - exceptions: les très riches. Environ 3.000 contribuables appartenant aux 0,1% des plus riches - ils ont gagné plus de 2 millions d'euros en 2011 - échappent à l'impôt parce que leur revenus proviennent de gains en capital, faiblement taxé, rappelle le journaliste du NYMagKevin Roose. Et on compte également une part croissante de ménages appartenant aux classes moyennes - les "middle classes - parmi les ménages échappant à l'impôt (+40% en 10 ans, selon la Tax Foundation), en raison de la multiplication des niches fiscales, créées à la fois par les républicains et les démocrates.

Dépendent-ils pour vivre du gouvernement?

Les Américains qui ne paient pas d'impôts étant majoritairement des pauvres et des retraités, oui, ils bénéficient d'aides publiques. Selon le Census Bureau, 49% des Americans vivaient au deuxième trimestre 2011 dans un foyer touchant au moins une aide publique, comme le rappelle ce blog du Wall Street Journal. Mais pour une grande majorité, ils ont cotisé pour y avoir droit - ils ont payé des "payroll taxes" pendant plusieurs décennies. Ainsi, "les personnes qui ont bénéficié le plus de l'explosion des prestations sociales sont les travailleurs de la classe moyenne", rappelle David Brooks du New York Times, citant la Brookings Institution. Par ailleurs, la politique de crédit d'impôt pour les plus pauvres a permis de sortir 6,6 millions d'enfants de la pauvreté, souligne The Hamilton Project.
Votent-ils tous Obama?

C'est sans doute-là l'erreur la plus flagrante de Mitt Romney. Une quantité disproportionnée de ces personnes résident en effet dans des Etats dirigés par des républicains. Comme le montre cette carte de la Tax Foundation, 8 des 10 Etats où le pourcentage d'Américains ne payant pas d'impôts sont la Floride et le Nouveau Mexique. A l'inverse, la majorité des Etats où le pourcentage de ménages ne payant pas d'impôts est le plus faible sont des Etats acquis à Obama. De fait, les seniors - ceux qui paient le moins d'impôts - votent majoritairement pour les républicains (58% en 2008).

Mitt Romney ne confond donc pas seulement les personnes qui ne paient pas d'impôts sur le revenu et les personnes qui vivent des aides publiques, il fait preuve d'une méconnaissance totale de son électorat.

Par Emilie Lévêque - L'Expansion.com

BofA @ MarketWatch

Nov. 11, 2011, 9:39 a.m. EST

Bank of America: Fallen angel or demon?

By Hilary Kramer

The stock I get asked most about right now is unquestionably Bank of America.BAC +2.99%   I don't think there is even a close second. And I get why. BAC crashed from over $50 before the 2008 financial crisis down to $3, recovered with a bounce toward $20 in 2010 and is now back down to its lowest prices since March 2009 when the market bottomed.

At these low prices, the stock must be either a really good opportunity or dying company , and everyone wants to know which.

I view Bank of America as what I call in my new Little Book , a "fallen angel" - a company that was once considered widely owned and admired that has fallen monstrously out of favor with Wall Street and investors. Of course, a fallen angel could in reality turn out to be a money-devouring demon.

To tell the difference, we have to ask two critical questions: 1) What went wrong? and 2) Can it be fixed?

So What Went Wrong With BAC?

Bad mortgages. This wasn't unique to Bank of America. A lot of banks made the same mistakes, one of the reasons for the 2008 financial crisis. BAC and other major banks were holding too many mortgage securities backed by subprime mortgages in an effort to stretch for yield. Making loans to unqualified borrowers is a bad idea no matter how you slice it, and the practice cost BAC and the industry billions.

Bad acquisitions. Coming in the throes of the financial crisis, the acquisitions of Merrill Lynch and Countrywide were certainly ill-timed, but they were ill-advised as well. Then-CEO Ken Lewis coveted Merrill and its franchise with retail investors, which he believed he was getting at a bargain price. However, the acquisition came right when Merrill's business dried up and increased BAC's exposure to subprime mortgages. Making a bad deal even worse, Merrill's last CEO, John Thain, paid many of his bankers, traders and lieutenants bonuses that sparked outrage at a time when public money was being used to bail out banks. The anger was so great that some big public funds needed to sell as a "statement of objection." Countrywide brought in additional mortgage problems and also suffered from ethical challenges to boot.

Bad balance sheet management. BAC did not have sufficient liquidity to meet potential obligations and demands from creditors. This is why Lehman and Bear Stearns went under - and why the whole banking system may have failed without the government's TARP program.

Now, Can BAC Be Fixed?

Yes, and despite the recent PR debacle over debit-card fees , BAC is already making progress. Here's what they're doing and can continue to do to fix the company and boost the stock:

Streamline costs. Banks have often had large bureaucratic structures. Citigroup was criticized before it nearly collapsed because expense growth exceeded revenue growth. Bank of America is in the midst of a core project called "Project New BAC," which could reduce expenses in the consumer unit by $5 billion, or 18%, and produce as much as $7 billion-$8 billion in savings. I would like to see the company go even further and, as Citigroup did, evaluate all business units to determine which ones to keep and which ones to sell or close down. They need to really focus on improving the consumer unit, which is a critical driver for the future, and need to rebuild the public's trust (more on that in a moment).

Boost capital on the balance sheet. Under new Basel III regulations, banks must have a common equity ratio (a measure of the company's tangible equity as a part of its capital base) of 7%, up from 2% previously. Holding on to more cash means less leverage for banks, which will hurt returns in some cases, but it also makes them much safer. BAC has made solid progress with a common equity ratio of 6.25% at the end of the third quarter, the highest in 15 years.

Rebuild trust with consumers and investors. Unlike costs and balance sheets, it's hard to quantify rebuilding trust, but it's the most important challenge facing Bank of America. Increased and more detailed financial disclosures would be a big step, including telling us what is actually in the vaguely defined "other" assets. Executive compensation also needs to be kept in line with performance , and the company needs to deal more effectively with consumers -like being open, honest and smart about fees.

I believe Bank of America is heading in the right direction and is a fallen angel - one that fell particularly hard but is fully capable of flying higher once again. The stock has been extremely volatile because of both the company's own situation as well as the debt crisis in Europe.

I see big upside potential in BAC stock. As investors focus on Europe, BAC is down from highs of $15.30 in January to today's prices just above $6. The situation in Europe is messy, but I expect an acceptable resolution to eventually be put in place. With BAC's ongoing efforts to fix its own problems, I see the stock moving back to $12 in 2012.

Ce n'est pas la crise pour tout le monde ...

USA: forte hausse des ventes en octobre pour Chrysler, modérée pour Ford et GM

Mardi 01 novembre 2011, 21h46
Les ventes des constructeurs automobiles américains ont augmenté sur un an en octobre aux Etats-Unis, fortement pour Chrysler, plus modérément pour Ford et General Motors (GM), les consommateurs cherchant notamment à remplacer leurs véhicules anciens.

Le japonais Toyota continue de son côté à voir baisser ses ventes (-8%), en raison des conséquences du séisme de mars dans l'archipel nippon sur l'approvisionnement, mais améliore ses performances par rapport à septembre.

Pour Jeremy Anwyl, analyste du site spécialisé Edmunds.com, ces gains traduisent une "mini-bulle", les clients ayant retardé leurs achats après la catastrophe nippone en raison de la baisse des stocks et de la hausse des prix l'accompagnant.

Ce rebond participera selon lui aux bons résultats de l'industrie d'ici la fin de l'année même si les niveaux de ventes du secteur restent historiquement bas en raison des difficultés économiques.

"Il y a un nombre croissant de consommateurs pour qui un nouveau véhicule devient une nécessité mais je m'attends à ce que la pente de cette tendance reste modeste", a-t-il ajouté.

Pour Chrysler, avec une hausse de 27% à 114.512 voitures et camions écoulés, il s'agit du meilleur mois d'octobre depuis 2007.

"Dans ce qui se présente comme un nouveau mois de ventes de véhicules solide pour le secteur, nous continuons à faire mieux que les autres", a indiqué le responsable des ventes aux Etats-Unis, Reid Bigland, cité dans un communiqué.

Toutes les marques du groupe ont profité de cette embellie, les ventes des véhicules Chrysler augmentant de 28%, des Jeep et des Dodge de 25% et des pick-up de la marque Ram de 21%.

Les ventes de GM, le premier constructeur automobile américain, se sont établies de leur côté à 186.895 véhicules, en hausse de seulement 2% sur le mois contre 20% en septembre et 18% en août.

Mais la base de comparaison, le mois d'octobre 2010, "a été un de nos meilleurs mois l'an dernier", a souligné le responsable des ventes du groupe Don Johnson au cours d'une téléconférence.

La progression de la marque Chevrolet (+6% à 131.804 unités) a compensé le recul des ventes de marques GMC (-4,6% à 31.609 unités), Buick (-7% à 11.687 unités) et Cadillac (-11,9% à 11.795 unités).

Les ventes devraient être portées en 2012, comme en 2011, par une "demande de remplacement créée par quatre années de ventes" inférieures aux niveaux habituels, a souligné Don Johnson.

"Nos concessionnaires nous rapportent que les client arrivent avec des véhicules très anciens et ayant beaucoup roulé" et estiment qu'"il est temps de racheter un nouveau véhicule", a confirmé Ken Czubay, responsable des ventes de Ford, au cours d'une téléconférence.

Le constructeur a vendu 167.803 véhicules, une hausse de 6% sur un an.

Les ventes de véhicules légers n'ont progressé que de 0,4% mais les véhicules tout terrain de loisirs ont remporté un franc succès (+38%).

Pour Toyota, les ventes aux Etats-Unis ont diminué de 8% sur un an, à 134.046 unités, creusées par le recul prononcé de la division Lexus (-14,2%).

Le groupe s'est toutefois félicité des bons résultats de la nouvelle Camry (22.043 unités) et espère qu'avec l'arrivée sur le marché de la nouvelle version de la Yaris, ses ventes de détails "dépasseront (celles) d'il y a un an au quatrième trimestre", a noté le responsable des ventes du groupe aux Etats-Unis, Bob Carter.

Nissan, qui n'a pas connu les mêmes problèmes d'approvisionnement que son compatriote Toyota, a vu de son côté ses ventes augmenter de 18%, à 82.346 unités.

Cash & Confidence @ MarketWatch

Oct. 17, 2011, 12:01 a.m. EDT

Large U.S. firms outpace tepid U.S. growth

Small business needs a customer more than credit or tax breaks

By V. Phani Kumar, MarketWatch

Reuters

A man stands outside a store advertising that it is going out of business in New York in this July file photo. Small businesses have struggled more than large ones in this cycle.

NEW YORK (MarketWatch) — The high exposure large U.S. corporations have to overseas markets is protecting them from sluggish domestic demand, leaving the broader economy to falter in tandem with the fortunes of small businesses, the provider of most jobs in the country.

Three years after Lehman Brothers’ collapse, the financial strength of S&P 500 companies stands in stark contrast with a U.S. economy that is barely growing and continues to be dogged by high unemployment.

Thanks to their strong overseas sales as well as low-wage costs and interest rates in the U.S., S&P 500 SPX +1.74%companies are now in a much stronger position than they were at the time of the crisis, with profits near record levels and a mountain of cash idling on their books.

But weak consumer spending and uncertainty on multiple fronts, including tax rates and the cost of complying with healthcare reforms, are keeping many globally-diversified large firms from putting their cash to productive use in the U.S., such as toward opening new factories.

Ibrahim Gassambe, an equity strategist at Roubini Global Economics, says S&P 500 companies’ sensitivity to the U.S. economy has been decreasing, but increasing toward the global economy.

“What’s particularly intriguing is that it is the high-margin sectors that are expanding faster overseas,” said Gassambe.

Gassambe listed technology and materials among those high-margin sectors that are increasing exposure to overseas markets. Meanwhile, sectors that are mostly reliant on domestic demand, such as telecommunications, are underperforming on sales growth, he noted.

What U.S. corporations say about their ability to keep leveraging global growth, and make the best of a patchy domestic market, will be a focus in the week ahead.

Several large U.S. companies, some with extensive international operations, are scheduled to report quarterly results next week -- including Citigroup, Inc. C +0.70% ; Morgan StanleyMS +0.53%  ; Apple Inc. AAPL +3.32%  ; Microsoft Corp. MSFT +0.04%  , Coca-Cola Co.KO +0.67%   and McDonald’s Corp. MCD +0.71%   Read more in upcoming earnings in Weekend Snapshot.

Record profits & mountains of cash

While not all S&P 500 components detail exact foreign sales, analysts at S&P Indices estimate 46.3% of total sales came from outside the U.S. in 2010. The information technology sector, in particular, made more than 56% of sales outside U.S. borders.

Profit growth at the S&P 500 companies is also expected to be far superior to U.S. economic growth.

Click to Play

Retail sales and main street swings

Ahead of the Tape's Kelly Evans joins Evan Newmark to discuss how the wild swings on Wall Street are impacting Main Street as well. AP Photo.

Arundhati Bhat, an analyst at S&P Capital IQ, said the index constituents are estimated to report aggregate earnings per share of nearly $99 in 2011, placing them on course for record annual profits.

The U.S. economy, meanwhile, has been struggling. Second quarter gross domestic product expanded 1.3%, compared with 0.4% in the first quarter. The International Monetary Fund is forecasting growth of 1.5% for the entire year, or half the rate of expansion last year.

Another divergent trend for the S&P 500 firms is the massive amount of cash on their balance sheets. At the end of the third quarter, U.S. corporations had cash worth $1.74 trillion on their books, according to S&P Capital IQ data.

“When the economy is strong, businesses don’t usually rack up cash because shareholders don’t like it. But it’s different now,” said Ben Herzon, senior economist at Macroeconomic Advisers. “There’s a lot of uncertainty out there and businesses don’t feel the pressure ... because it’s really not clear from the perspective of businesses where the economy is headed.”

Herzon pointed to data, showing that the amount of cash held by U.S. corporations — large and small — outside the agriculture and financial sectors as a proportion of their output, is currently at the highest level since the mid-1960s.

Crisis of confidence

For corporations to start spending that money, business confidence must first improve, he said.

SPX 1,200.86, -23.72, -1.94%RUT 688.60, -23.86, -3.35%

S&P 500 vs. Russell 2000

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“As soon as confidence turns, people have a more hopeful view of the outlook … shareholders are going to start demanding returns on that cash, and businesses will be under pressure to put that cash to use,” Herzon said. “Once that cash is put to work, it’ll lead to job growth and the broader economy will be in line with the corporate growth.”

Still, there is no guarantee that the money will be put to use in the U.S.

Given that a rising share of their revenue now comes from overseas markets, the S&P 500 firms might be more inclined to put that cash to use outside the U.S., RGE’s Gassambe said.

A small business’ recession

Smaller firms, meanwhile, are hurting as their fortunes are more closely tied to the local economy.

These companies, which employ just over half of the private-sector employees in the U.S., need a customer more than they need easy credit or lower taxes. Anemic demand is making it unnecessary for them in most cases to both borrow at low interest rates or hire workers to take advantage of tax incentives, according to industry and banking groups.

Click to Play

Does Occupy WS need a sponsor?

Columnist Al Lewis, who spent Thursday night with 'Occupy Denver' protesters, discusses the idea of attaching sponsorships to the protest venues. AP Photo.

Bruce McCain, chief investment strategist at Key Private Bank, said bigger companies tend to outperform smaller peers during tough times “because of their better ability to exploit overseas sales than the very small companies.”

“To the extent that the smaller they are, the more focused they are on local sales as opposed to overseas sales — particularly those focused on consumer goods spending, where the consumer is not spending as much money as in the past — the sales outlook has been a major concern that has held companies back from making investments,” said McCain.

Unlike big businesses, which are capital-intensive, most of these small businesses are labor-intensive. And it’s their plight that cost the U.S. most of the eight million jobs that vanished in the wake of the financial crisis, according to William Dunkelberg, chief economist at the National Federation of Independent Business.

Dunkelberg said that during normal times, 600,000 small businesses start every year for every half-a-million that shut shop, but that trend has reversed after the financial crisis.

There are still some small businesses that are doing well. For example, those in the farm sector are benefiting as prices of agricultural commodities have been supported by global supply disruptions. Small manufacturers that supply products to a large corporation are also in good shape. But most small businesses, especially those in the construction and real estate sectors, have been hit hard by the slump in property prices.

“We are doing really badly on housing starts, which are a million short of where they would normally be. That’s a small business deal,” he said.

Housing starts fell 5% in August to an annual rate of 571,000 – the lowest in three months – underscoring depressed conditions for the U.S. real estate market. Read more on August housing starts.

Dunkelberg said that as opposed to some popular beliefs, the poor conditions facing small businesses weren’t because of a credit crunch — he says a survey showed 65% of the NFIB’s members don’t even want a loan — rather, it’s because of poor consumer demand.

In the absence of a recovery in consumer demand, small businesses were unlikely to borrow even at the current low interest rates, nor hire more people to avail any tax incentives the government may offer, he said.

Land of no borrowers?

Dunkelberg’s views are also echoed by a trade group for community banks, the primary source of funding for small businesses.

The 7,000 community banks in the U.S. are responsible for about 60% of the total loans made to small businesses, although their total assets are just about 15% of overall bank assets, according to Paul Merski, executive vice president and chief economist at the Independent Community Bankers of America.

Merski said the slump in real estate valuations, in particular, has hit small firms’ ability to secure loans, given they usually pledge real estate — often property owned personally by the owner — to receive a loan. Stricter regulation and oversight of the loans hasn’t helped either, he said.

“If regulators say we want zero risk of lending, then they choke off economic growth, because you can’t operate a financial sector if you choke off the risk,” Merski said. “The pendulum has swung in the regulatory environments toward squeezing off lending risk.”

But while increased regulation was a deterrent, it wasn’t the primary reason for weaker credit demand. Rather, it is sluggish consumer demand that is discouraging small businesses from seeking loans. Uncertainty related to tax rates and healthcare costs were also seeding doubts and turning businesses unwilling to borrow, he said.

“The demand really has to come first before the credit is given out,” Merski said. 

Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.