Is it over? If so, why do I read this headline "US credit shrinks at Great Depression rate prompting fears of double-dip recession" on an article by Ambrose Evans-Pritchard in the Telegraph newspaper?
Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).Here is a graph from Barry Ritholtz's The Big Picture blog that shows what is happening:
"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."
The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.
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It is unclear why the US Federal Reserve has allowed this to occur.
Chairman Ben Bernanke is an expert on the "credit channel" causes of depressions and has given eloquent speeches about the risks of deflation in the past.
He is not a monetary economist, however, and there are indications that the Fed has had to pare back its policy of quantitative easing (buying bonds) in order to reassure China and other foreign creditors that the US is not trying to devalue its debts by stealth monetisation.
Mr Congdon said a key reason for credit contraction is pressure on banks to raise their capital ratios. While this is well-advised in boom times, it makes matters worse in a downturn.
"The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."
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2 comments:
I wonder if you have seen these pictures and article about the ships that are anchored just outside of Singapore. This is a big indication of how the economy is going.
Yep... I had seen the picture. It is not a good sign. The Chinese claim to be back booming, but I don't trust the Chinese data.
Another source of data is Calculated Risk who puts up a graph of container traffic out of the Los Angeles harbour. This is a better indicator of the US economy, both imports and exports. The August graph on Calculated Risk indicates that things are coming back.
So... the ghost fleet says the world economy is stalled. The LA container traffic shows that US exports are back to Dec 2007 levels while imports are closer to 2003 levels, i.e. about 70% of the 2007 levels. So the US internal economy is very weak. But having exports rebound stronger than imports is good because it helps bring down the balance of trade deficit.
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