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Credit Crunch or a Lack of Credit Demand?

Posted by: Michael Mandel on October 27

Over at Marginal Revolution, Alex Tabarrok suggests that the current problems are more the result of a lack of credit demand rather than the lack of credit supply.

Just looking at the numbers, Alex has a point. Outstanding loans and leases at large banks are up by 5% over the past 4 weeks, after being flat for most of the year.

But I would draw a further implication—this is not a crisis of confidence rooted in the financial system, but rather a wrenching readjustment rooted in the global real economy. Financial stress is a symptom, not a cause.

I’m going to post a longer piece later on this, but basically the idea is that investors and companies are realizing that their assumptions about the global economy are wrong—that the situation where the U.S. consumes and borrows and everyone else produces is not sustainable. And the fall in the global stock markets and the general havoc is the result of that shift in assumptions, rather than a collapse of financial markets.

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Reader Comments


October 27, 2008 08:08 PM

One mystery for me is what became of the global excess liquidity that was so broadly and recently noted.

I certainly hope you can convince us that what you kindly call a shift in assumptions is actually happening.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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