Tuesday, April 01, 2008

Carpe Diem Exclusive: Total Bank Is Growing At the Fastest Rate Since the 1970s: What Credit Crunch?

According to Federal Reserve banking data (via the St. Louis Fed) released yesterday, "weekly bank credit of all commercial banks" hit an all-time record high of $9.49 trillion on March 19, 2008. What's even more impressive though is the growth in total bank credit measured as the "percent change from a year ago" (see chart above). Compared to the same week a year ago, bank credit in the third week of March (the most recent week available) increased by 12.62%, the largest annual percent increase in bank credit in more than a quarter century!

You would never know from media reports on the "credit crisis" (1.81 million Google hits) and "credit crunch" (3.61 million Google hits) that total U.S. bank credit is higher in absolute terms than ever in U.S. history, and is growing at the fastest rate in percentage terms since 1979!

Update: Notice also that the growth in bank credit declined sharply during each of the last four recessions (shaded areas in graph). Although bank credit is not one of the official NBER recession-indicating variables, it seems highly unlikely that we could now be in recession when bank credit is growing at almost a record high rate.


At 4/01/2008 11:10 PM, Anonymous Anonymous said...

Isn’t it really a liquidity crisis? And the media mistakenly calls it a credit crisis, which is a symptom of the liquidity problem?

At 4/02/2008 11:26 AM, Blogger OBloodyHell said...

OK. clarify, please?

Would this not be a symptom of the Fed flooding the market with money to counter the problem (i.e., almost exactly the opposite of what it did in 1929)?

If so, does this not reflect potentially serious inflationary pressure (better than a collapse, duh, but not good if they are overdoing it and/or stopping bad investment liquidations that need to occur)

At 4/02/2008 5:05 PM, Anonymous Anonymous said...

THINK aout SIVs coming on the bank B/S, now you know why bank balance sheet is bulging..


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