Mark Thoma gives us eight credit series from the St. Louis Fed. He is somewhat surprised to discover that all show positive growth over last year. I think most people who have heard talk of the credit crunch would also find this surprising. Let’s be clear, however, almost all the series also show declining growth. Let’s also be clear that the financial sector is a huge mess. Furthermore, we are in a recession that is likely to get worse especially because growth is declining around the world.
Tyler, are you worried?
Did Kahneman quantify how worried we should be by this? Or, do tenured professors have different worries than people without guaranteed jobs?
I must confess I find this post extremely odd.
You start off by giving interesting information, but then the last part of this post sounds like we’re being lectured not to take it seriously. How about giving some other information that might balance out the only information you provide here, if you want to make a case against the conclusions one ought to draw from it?
Alex,
Year to year is worth noting, but weird things happened to bank credit in September and the beginning of October. You seem to think that credit conditions improved, but why was a most of the net increase in residential and commercial real estate loans (including home equity) and in “other” securities (i.e., not Treasury, agency, mortgage backed, or municipal securities)? I think you are forgetting that there is an interesting story to be explained in bank credit during the latest stage of the crisis.
Frank
Alex,
You started out by referencing the Minnesota article as evidence that things were not so bad. One of their main points was that nothing extraordinary was happening to bank credit in September and October. They didn’t notice that something weird was happening. I suspect, but don’t have good evidence, that the weird stuff was symptoms of real problems for credit to the non-financial sector. You may be right that changes in bank credit was driven by Fed (or Treasury?) actions. But the mechanism which goes from government actions to for example, banks rapidly increasing home equity loans ($39 billion in one week, Sept 24 to Oct 1, when the biggest monthly change between March and August was $6 billion) would be nice to learn about. I think that focusing on aggregate bank credit alone has two opposite problems:
(1)You ignore the other sources of funds for businesses and individuals.
(2)You ignore the detail of what is going on within bank’s assets.
Frank
could it mean that we’ve got further down to go?
All of this proves that we need a more powerful Fed because the catastrophe occurred when we had a less powerful fed. This also proves once and for all that commodity backed currencies are far more dangerous than fiat currencies…if we hadn’t listened to the silly inflationista monetarist a year ago and just kept interest rates low we wouldn’t have experienced any of this catastrophe.
I look at the first slide in the linked post. The slide is entitled “Commercials and Industrial Loans at All Commercial Banks”. Isn’t that the slide we are most worried about? After all, we want to make sure that businesses can get loans to continue to support their business activities, thereby enabling them to keep people employed or hire new employees. That chart shows that, even though the year-over-year growth rate has declined slightly since the past few years, the growth rate is still higher than *any point in time in the entire decade of the 1990s*.
So commercial and industrial loans are growing faster than any time in the 1990s, and we’re supposed to be in a credit crunch? Really?
Bob Murphy,
That is exactly what I have been thinking through out this crisis.
Thanks for putting it so succinctly.
I very much agree with Bob and eccdogg.
And thank Andrew for making fun of the Iraq non-sense.
Recent delinquency rates on real estate loans are nothing unusual by historical standards, either. You can see the historical delinquency rates going back to 1987, and up to Q2 2008 at http://www.federalreserve.gov/releases/chargeoff/delallsa.htm
In the early 1990s the delinquency rate for commercial banks on loans secured by real estate peaked at 7.5 percent in Q2 1991. It was above 4.2 percent thoughout the years Q1 1987 through Q4 1993. That puts in comforting perspective the fact that the Q2 2008 rate was 4.2 percent. That’s the delinquency rate on home and commercial real estate loans combined. For the home mortgage loans taken on their own, the current delinquency rate (4.3%) is higher than the 1990s peak (3.7%) and will probably go higher still. But commentators today should not forget that the banks had loads of damage from commercial real estate in the early 1990s without inducing a systemic panic reaction.
As Alex Tabarrok’s lead, I’ve stopped referring to the situation a “crisis”, because the fundamentals are not of crisis proportions, and instead I think of it as a “panic”.
when did a recession come to mean a slow in growth? i thought it was an actual contraction, not a decline in the rate of increase?
What are you talking about, parviziyi? The very source you cite shows that delinquency rates on residential loans are at their highest levels ever. And the delinquency rates on commercial loans, while well below historical peaks, are rising quickly. In any case, the point isn’t that firms are defaulting on their loans (although they increasingly are), it is that the risk that they will in the future is rightly perceived to be higher.
The fact that *bank* lending hasn’t completely collapsed misses the point that much of the existing lending is from firms accessing back-up lines of credit after having been shut out of capital markets. (Some firms are even accessing already authorized lines of credit, even though they don’t currently need credit, because they fear those lines being withdrawn.) Taking the latter as given, bank lending would have to rise sharply to offset capital market developments for there not to be a credit crisis. It is this fact–that the charts various people have posted are solely on bank lending–that misses the story.
I have to agree with Alex. US stuff doesn’t look so dire, with the exception of a few areas (automotive for example.)
Most foreign economies I am not so optimistic about.
And the more cheap cabal gold is very good for you.
Is it realistic?
Every success is based on continuous efforts. It is not possible be done over nigh.
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