USA: Cyclical structure of credit crunches
Summary
We have put order into the current chaos by putting current events into the calm harbour of The Economic Clock™. We have suggested that this particular manifestation of an "excess demand for money" is pernicious: it is harmful because it is the private sector that does not want to lend. In simple talk: Central Banks can alter monetary policy at a board meeting; commercial banks alter lending policy only when the pendulum of fear has swung back to fear. Given that Prof. Kindleberger's "panic" stage of the crisis has set in, I now have analysed the structure of credit cycles and give you a handle on strategic timing issues.Topics Covered
- Three cycle structures
- Popper's "pattern prediction"
- How to save your money
Background
1. Three cycle structures
Everyone is going mad about the fact that interbank lending has dried up. Well, we all may be looking at the wrong thing!Or, at least, we are missing the bigger gorilla.
Within the lending of commercial banks, their "commercial loans and leases" account for a whopping 74% of the total. Thus, it is of little surprise that this series "fits" well with the stock market: no excess supply of money means no demand for assets, so of course they tumble.
So I asked myself: since the 1980s, how long has commercial bank lending for such "loans and leases" actually decelerated? Since January 1980 we have had three major downlegs in such lending:
- 1/85 - 2/93 (98 months)
- 6/95 - 10/99 (52 months)
- 9/00 - 4/02 (50 months)
2. Popper's "pattern prediction"
Based on this work, it seems as if this lending downleg could last a good four years. The most recent peak in lending was in February 2007, so if you add four years to this, it looks like February 2011 is when lending will bottom.
3. How to save your money
We have given you ideas before, actually a couple of them.
