Wall Street Journal Crashed-and-Burned Watch (George Newman/WSJ Editorial Page Edition)
The Economics of Covert Actions

There Is too a Credit Crunch

Spencer of Angry Bear writes:

Angry Bear: Bank Lending growth is not evidence that there is no crises: The point that bank lending is expanding is not a sign that their is no credit crunch. Rather it is an indicator that the Fed actions over the last year to provide large scale financing to the banking system is working.... [On] the liability side of the balance sheet... [banks] raise the funds to finance their loans and/or investment... deposits... borrowing in the money markets... borrowing from the Fed.

The crises has been the contraction in the banks' ability to borrow in the money markets.... Everything the Fed has done over the last year to provide special financing to the banks has been to offset or counterbalance the banks' inability to funds their operations in the money markets. The fact that bank lending is still rising demonstrates the success of the Fed....

Why are firms borrowing?... [B]ank credit is a lagging indicator. In the early stages of a business downturn business credit demands typically surges... an unusual surge in unwanted inventories.... Until firms can dispose of their unwanted inventories and cut expenses they have to expand their use of credit. This is why credit demand normally expand sharply in the early stages of a business downturn.... This... is exactly what we are now seeing...