Even after the trillions of dollars in bailout money, credit is contracting at a record rate.
During the September 2nd week, U.S. commercial banks cut back on their commercial & industrial (C&I) loans by $10.3 billion; their real estate credit by a huge $15.3 billion; and their lines to consumers by $6.4 billion. In sum, $32 billion of banking sector lending evaporated during the week, bringing the total contraction to over $200 billion since the end of July. Not only is that unprecedented, but it is also a record decline in percent terms — down at over a 12% annual rate on a 13-week basis. Indeed, we have massive government stimulus that is still just patching a leaky boat, and the consensus economics community is trying to “sell” this idea to investors that credit typically lags the cycle. That may well be true, but not by this much — these declines in lending activity are triple the most severe downdrafts we have seen in the modern era — there is no comparison.