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Source link: http://archive.mises.org/10876/nothing-to-see-here/

Nothing to see here

October 20, 2009 by

move along please

Bank credit from commercial banks (GRAPH) is a good barometer of the economy. The graph below shows the year-over-year percentage change in commercial credit. A reading of 5% means that commercial credit expanded by 5% over last year at this time. The shaded areas represent official recessions and the graph shows clear and sharp declines as the economy enters a recession. Most recessions bottom with 2-7% increases (over the previous year). This is the first downturn where total commercial credit turned negative. Over the last year or so total commercial credit has declined about 5%. Presumably, the economy will not recover until this statistic bottoms, changes direction, and turns positive for an extended period of time. HT to Chad.

{ 12 comments }

Jim October 20, 2009 at 4:08 pm

Mark,

From the graph, it sure looks like commercial credit is actually more of a lagging indicator. It bottoms out some time after the recovery begins (after the shaded regions) in every case except ’82-’83. I.e., this statistic will not bottom out and change direction until the economy starts to recover.

Lmack49 October 20, 2009 at 4:30 pm

The concern is that commercial credit has gone negative in the short run indicting that commercial credit could become a driving force rather than a lagging indicator as mentioned by Jim. The recession has already extended longer than any previous on the graph and the recession or depression has not ended. We could still see some tough times coming.

(8?» October 20, 2009 at 5:04 pm

Speaking of a “recovery,” I went looking for a mortgage yesterday from my local credit union. When I asked if they serviced their own loans, she stated that yes, they do. The only outsider involved is the investor they get the money from.

When I asked whether or not there were any investors not named Fannie or Freddie, she replied yes, there was, in addition to those two “investors” they also used FmHLA!

I wonder if there are any real lenders left, or are they all just front-running fedgov “money” these days?

K Ackermann October 20, 2009 at 5:05 pm

Anyone can make things look bad with facts, but facts don’t tell the complete story.

A much better story can be put together by simply omitting the facts. For example, this article on Caterpillar mentions their profits are down 53%, and sales have declined 49%. Yet this MSNBC article had exactly this to say about CAT:

“Caterpillar [CAT 59.61 1.76 (+3.04%) ] led Dow gainers, up 3 percent, after the construction-equipment maker smashed analyst estimates with profit of 64 cents. It also raised its full-year outlook, saying it’s seeing signs of recovery.”

See how much better that sounds?

It’s not a decline in credit, it’s assisted deleveraging, and there is still a lot of assistence in the offering.

DixieFlatline October 20, 2009 at 5:43 pm

Anyone can make things look bad with facts, but facts don’t tell the complete story.

Funny stuff.

mpolzkill October 20, 2009 at 7:48 pm

Dixie: Funny stuff.

That’s one thing you got to hand to him, he *is* one hell of a comedian.

Bruce Koerber October 20, 2009 at 8:37 pm

It looks unprecedented!

davboz October 20, 2009 at 9:50 pm

mpolzkill: he *is* one hell of a comedian.
Sure it’s funny but you DO know what he means. Right?
The media distorting “facts”. Wrapping them in fairy-tales which ARE telling the story

Andrew_M_Garland October 20, 2009 at 10:40 pm

Why should there be a recovery?

Obama is promising to raise taxes, promising higher healthcare costs, is running a deficit that will require higher taxes or high inflation of the currency, is promising to share the wealth ($250 per senior citizen is a start), likes programs that destroy assets (cars for clunkers), is reflating the housing bubble as fast as possible, is talking about a third stimulus package, wants to reduce carbon emissions by dramatically raising the cost of energy, and embraces new regulations in all things large and small.

This parallels those similar actions by Hoover and FDR in the Great Depression, the last market crisis that was too good to waste politically.

We are in a grand experiment to determine the new equilibrium GDP and employment level for the U.S. economy under more government control and regulation than European Socialism. Maybe the economy will sink further and stay there before that equilibrium is reached.

Enjoy Every Sandwich October 21, 2009 at 7:52 am

“move along, please”?

That brings back memories of my childhood. Agents of the state don’t use “please” anymore. They use tasers now.

KP October 21, 2009 at 8:44 am

Not really understanding this article. Are you trying to base the economic recovery off of bank credit?

Looking at this graph I take a few things:

Massive credit expansion during growth.
Bubble burst leading to stricter lending practices until recovery, then crazy credit expansion until the next burst.

It looks like a rinse and repeat process; based on the barometer above, do we see a financial recovery anytime soon, quite possibly if history repeats itself. But depends on multiple factors that create a positive atmosphere in the economy for the next bubble / burst.

I’m not advocating this; just saying that this is what will most likely happen because of the amount of “wealth” invested in our economy and global economies.

So ride the bull but get out before you crash. (As least its easier said then done haha)

Gerry Flaychy October 22, 2009 at 5:05 pm

If the “Bank credit from commercial banks (GRAPH) is a good barometer of the economy “, then we are due for a big storm !

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