Credit Crunch: Is it Real?

In a recent post I compared bank loans to businesses in this recession with the pattern in past recessions. I couldn't see anything that resembled a credit crunch.  I cautioned readers that those statistics did not include non-bank credit.  So I dug up the data on all credit to non-financial businesses, which includes corporate businesses, non-corporate businesses, and farm businesses.  Here's data for the last five quarters:

The underlying data are available here.

The only noticeable drop in credit was commercial paper, but check out the dollar magnitudes; they are small.  The increase in bank loans was almost twice the decrease in commercial paper.  As I pointed out last week, some of that decline in commercial paper probably triggered an increase in bank loans, as borrowers exercised standby lines of credit they had been paying fee for.

One could argue that this rate of increase is small, and that it's not sufficient for a healthy growing economy.  (Hey, you seen one of those lately?)  However, it's hard for me to say that the credit crunch was the cause of the recession, given the increases in credit to the business sector.

Now we have to reconcile the data with some of the horror stories I'm hearing from business contacts, including clients whom I trust.  It's probably true that some businesses are crunched, but plenty of others aren't.  The most credit-worthy businesses may be sucking down credit like beer in a frat house, while riskier businesses are getting turned down.  That suggest a sectoral problem rather than a system problem.

I'm growing increasingly skeptical that the massive Treasury operations are necessary.  Either they are unnecessary, or they have already worked.

Comments

[entertainment pr dude]

great article. I really wish there was more transparency in the market and ESPECIALLY the medias conveyance of these so called "facts"

Ill be waiting for the follow up after GM files for bankruptcy.

dion
amp3pr.com

[Linda Keith]

Very helpful, Bill. I work with banks and am hearing from business bankers that I trust that it really is harder to get a loan approved.

Maybe it is just the bank sector I work with, but the anecdotal evidence is that credit is very tight.

I wonder why the 'real' evidence doesn't seem to support that?

Linda Keith CPA
www.LindaKeithCPA.com