AMBROSE EVANS-PRITCHARD: U.S. bank lending falls at fastest rate in history!
Bank lending in the U.S. has contracted so far this year at the fastest rate in recorded history, raising concerns that the Federal Reserve may have jumped the gun by withdrawing emergency stimulus.
By Ambrose Evans-Pritchard
LONDON, England - February17, 2010 - David Rosenberg from Gluskin Sheff said lending has fallen by over $100 billion (£63.8bn) since January, plummeting at an annual rate of 16%. "Since the credit crisis began, $740 billion of bank credit has evaporated. This is a record 10% decline," he said.
Mr. Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances. "The shrinking in banking sector balance sheets renders any talk of an exit strategy premature," he said.
The M3 broad money supply - watched by monetarists as a leading indicator of trouble a year ahead - has been contracting at a rate of 5.6% over the last three months. This signals future deflation. The Fed's "Monetary Multplier" has dropped to a record low of 0.81, evidence that the banking system is still broken.
Tim Congdon from International Monetary Research said demands for higher capital ratios and continued losses from the credit crisis are both causing banks to cut lending. The risk of a double-dip recession - or worse - is growing by the day.
"It is absurdly premature to think of withdrawing stimulus while bank credit is still sliding. To have allowed this monetary collapse to occur a full 18 months after the financial cataclysm is extreme incompetence. They seem to have forgotten that the lesson of the 1930s was the falling quantity of money," he said.
By Ambrose Evans-Pritchard
LONDON, England - February17, 2010 - David Rosenberg from Gluskin Sheff said lending has fallen by over $100 billion (£63.8bn) since January, plummeting at an annual rate of 16%. "Since the credit crisis began, $740 billion of bank credit has evaporated. This is a record 10% decline," he said.
Mr. Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances. "The shrinking in banking sector balance sheets renders any talk of an exit strategy premature," he said.
The M3 broad money supply - watched by monetarists as a leading indicator of trouble a year ahead - has been contracting at a rate of 5.6% over the last three months. This signals future deflation. The Fed's "Monetary Multplier" has dropped to a record low of 0.81, evidence that the banking system is still broken.
Tim Congdon from International Monetary Research said demands for higher capital ratios and continued losses from the credit crisis are both causing banks to cut lending. The risk of a double-dip recession - or worse - is growing by the day.
"It is absurdly premature to think of withdrawing stimulus while bank credit is still sliding. To have allowed this monetary collapse to occur a full 18 months after the financial cataclysm is extreme incompetence. They seem to have forgotten that the lesson of the 1930s was the falling quantity of money," he said.
