Team Obama has taken to trumpeting the idea that the recession is over. As Ed Harrison likes to point out, the fact that we will see inventory restocking will produce a statistical recovery, at least in reported GDP. But the US in 1931 and Japan after its bubbles burst both featured a period in which the economy stabilized, and pundits for the most part concluded the worst was over. And in both cases, the economy resumed its slide.
The data have moved from bad to mixed, which is a relative but not absolute improvement. But one of the negative developments, highlighted by Ambrose Evans-Pritchard, is ugly indeed. Despite massive bailouts and liquidity supports, credit is contracting, and at a very rapid clip. If we are lucky, this may be a short-lived aberration. But if this pattern persists for any length of time, the prospects are not good at all.
From the Telegraph:
Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August...The M3 “broad” money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.
Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an “epic” 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc….Mr Congdon said a key reason for credit contraction is pressure on banks to raise their capital ratios. While this is well-advised in boom times, it makes matters worse in a downturn...
http://www.nakedcapitalism.com/2009/09/lending-is-taking-a-dive-oh-my.htmlLending in Europe continues to shrink
By Patrick Jenkins
Published: September 13 2009 23:37 | Last updated: September 13 2009 23:37
The credit crunch in Europe worsened over the summer as corporate bond finance issuance failed to plug the gap left by a sharp contraction of bank lending.
Net lending by banks went further into negative territory in July as companies paid back more loans than they took out new ones.
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