The US economy is sounding an alarm that everyone is ignoring

Donald Trump and other proponents of scrapping the post-financial crisis regulations imposed on Wall Street argue red tape is preventing banks from lending and hurting the economy.

It's true that firms have been borrowing less in a sign that they are still uncertain about the economy's prospects, despite record-breaking rallies in the stock market.

Here's the rationale Trump offered last month for his promise to "do a number" on Dodd-Frank financial reform rules.

"We expect to be cutting a lot out of Dodd-Frank because, frankly, I have so many people, friends of mine, who have nice businesses who can't borrow money," Trump said at a meeting with CEOs. "They just can't get any money because the banks just won't let them borrow, because of the rules and regulations in Dodd-Frank."

But regulation has nothing to do with it. Just ask a banker.

"What is causing the slowdown in credit? It is a demand, not a supply story," writes UBS strategist Stephen Caprio and economist Robert Sockin in a research note to clients.

Indeed, Trump himself, with the turbulence his presidency generates, may be the biggest impediment to credit growth.

"We find three key channels that are inhibiting demand growth: 1) political uncertainty, 2) elevated corporate leverage, and 3) Fed policy, both through past tightening and expected tightening going forward. We see little evidence that the slowdown in lending is due to tighter bank or non-bank lending standards."

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There you have it. So why is less credit a source of concern? Because firms are generally in a solid financial position, so their recalcitrance suggests business investment will continue to disappoint.

"If investors do not see an improvement in credit growth near-term, a soft patch in growth is possible as firms are stuck in a wait and see mode amidst heightened uncertainty," the UBS note concludes.

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