Credit Crunch, Credit Growth

1. There is a lot of talk of a credit crunch and the effects it might have on the real economy. As firms find it harder and harder to get credit, they cut back on investments, which affect other firms who cut back on investments, which affects yet other firms, which cut back on investments and so on.

2. However, the numbers show that credit is still strong. Banks are lending more than ever. There is, at most, a leveling off of growth.

3. Over at Coyote there is an explanation of why we might be seeing both a credit crunch and a growth in credit:

I am maxed on my line of credit, because the interest rate is low and I would rather have the money in hand and pay the interest rather than find out later my line is somehow revoked or frozen. The money is not needed for near term expenses, but I want to have resources in hand if the recession creates a business opportunity that requires funding. Does this worsen the near term crunch, the same way panic buying of gas worsens local gas shortages? Probably. And again, price is the key. Like with gas, I would rather rationing by price rather than shortage. In other words, I would rather my line of credit go up to a 15% interest rate, if that what it takes to put things in balance, than to be revoked entirely so a few businesses can still have 6% money.