If we are coming upon a sustainable economic recovery, one which the Gov. or Gov. sponsored programs do not account for the majority of GDP growth, don’t we need to see credit expansion? Banks are still hoarding cash at an all time high rate since the FED starting recording this stat in 1975. Now banks are likely keepin high cash stashed for a combination or reasons, namely, uncertainty of a regulatory environment and continued deleveraging from borrowers. This bodes ill for bank earnings, as well as an economic recovery topping current expecations.
More on credit contraction from Dave Rosenberg’s Feb. 16 note:
U.S. bank lending contracted a further $30 billion in the past week and that brings the overall decline to over $100 billion so far this year — a historic 16% annualized decline. Since the credit crisis began, $740 billion of bank credit has evaporated — a record 10% decline. The fact that credit has dropped at a 16% annual rate since the turn of the year is testament to how the credit contraction is actually accelerating.
The declines are broadly based too:
- Consumer loans down at a 12% annual rate year-to-date (credit card balances have plunged 28%);
- Real estate down 13.5% annualized, and;
- Commercial and industrial loans have collapsed at a 19.3% annual rate.
Even when you account for the pickup in commercial paper issuance, total short-term business credit is down $14 billion so far this year, which is puzzling given the widespread consensus view among economists that we are into some new inventory cycle. If that were the case, these measures of working capital financing would be rising, not falling.