Saturday, October 04, 2008

Financial Fuss (2) - Credit Squeeze

There is now less credit available. Americans have been poor savers for a long time and have relied on people in other nations to make up the short fall. I suspect that foreigners are now not so keen on that role. Worse still, some of the money that used to be available for lending has been wiped out by “write downs” and losses by various banks. The collapse of leverage has also reduced the amount of credit available.

In a normal world, declining availability of credit would not be a problem. Interest rates would rise to ration the available credit to the most efficient users. However, the Fed is holding interest rates down at a level where demand exceeds supply. This makes it seem like there is a shortage.

When supply declines, some of those who would previously have received credit miss out. Marginal businesses will find credit more difficult to obtain. Homebuyers with only a small deposit will find a mortgage more difficult to obtain. This happens as banks become more careful about allocating credit. However, credit is still available for good businesses. Statistics show that commercial and industrial loans by commercial banks are still at very high levels.

2 comments:

preacherman said...

Ron,
I want you to know that I found this post interesting. 700 Billion dallars is a lot of money. I sat and thought about what that money could do just dividing it out among Americans, Americans who are facing forcloses on homes, health care and other important issues. I want you to know that you such a fantastic job with this blog. I have been encouraged and strengthen in my faith. In reading your blog my faith has grow. Thank you. Keep up the wonderful work you do with your blog. It defiantely is a ministry.

Gene Redlin said...

Ron,
I thought this morning after about the bailout. "We have to do SOMETHING" was the mantra.

It would have been cheaper to kill a chicken and sprinkle it's blood on the steps of the NYSE in a Santaria ceremony and probably just as efficacious.

It's a matter of getting people to have faith and believe once again.

Chicken, 700 billion mythical dollars. Same deal. Harrumph.

If we as a nation believed in prayer it would have been better yet.

We don't