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Credit woes continue
A recent Bloomberg article was titled”Pandit “near death” hoard signals lower bank profits“, and stated that Citigroup Inc. and JPMorgan Chase & Co. were hoarding cash as if another crisis were on the way. Also, a Wall Street Journal article entitled “Jittery Companies Stash Cash“ showed cash on the balance sheets of S&P 500 companies was the highest in 40 years. The chart below, courtesy of economist David Rosenberg of Gluskin Sheff & Associates, shows that credit is still contracting as banks go through the painful process of repairing their balance sheets. As indicated, bank lending has now declined for 21 weeks in a row and over this entire period a total of $216 billion (15% at an annual rate) of loans and leases has vanished. “The contraction in bank credit is broad based across all lines of business – consumer, real estate and companies – and seems to be motivated by both the bank and the borrower. This is a dead-weight drag on aggregate demand and it goes to show that the real story in Q3 was not that it was so wonderful that real GDP expanded at a 3.5% annual rate but that the number was so low in view of the massive dose of government stimulus and that the contraction in credit is ongoing and acting as a tourniquet on private sector spending activity,” said Rosenberg. Meanwhile, the US Depository Institutions Aggregate Excess Reserves continue their ascent at levels far in excess of the amount banks need to keep on deposit to meet their reserve requirements (see chart below). The level indicates that the balance sheets of banks remain under pressure, especially in view of the fact that the value of some assets is not known. A definite peak in the Excess Reserves graph should coincide with a turning point for banks getting back into the business of making loans. Source: Fullermoney Rosenberg concluded: “This is 1992-93 all over again when the commercial banks used the steep yield curve as an opportunity to reliquify their balance sheets, and the flip side of that process was a listless and jobless recovery. The only difference is that the credit contraction process this time around will prove to be even more pernicious and enduring than it was back then, and inevitably drag Treasury note yields back down towards the lows we saw almost a year ago.” 4 comments to Credit woes continueLeave a Reply | |||||||||||
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As an individual cash hoarder I had begun to question my direction in this matter. I have the answer, keep hoarding. s/hank330
The credit woes are definitely still in place.
You can’t reserve a decade of bad lending and betting (+ stupidity) over night. At least, not in real terms.
What you can do, and what has been done, is that you can change accounting standards so that you can try to fake it until you make it.
And that’s all to it. And how funny is it that banks created the mess, however, they still get a steep curve with 0% borrow interest? What else can you ask for ?
[…] Credit woes continue – Posted by Prieur du Plessis – … The chart below, courtesy of economist David Rosenberg of Gluskin Sheff & Associates, shows that credit is still contracting as banks go through the painful process of repairing their balance sheets. … – Investment Postcards from Cape Town […]
[…] while at the same time, bank cash reserves have soared (Prieur du Plessis offers a good overview here). This surge in reserves is a mirror image of the Fed’s balance sheet, which has taken on […]