Credit, as measured by bank loans and M3 money supply, is contracting at rates similar to those at the onset of the Great Depression.
That has sparked concern of a double-dip recession starting next year, writes Ambrose Evans-Pritchard in the London Telegraph.
U.S. banks loans have plunged at an annual rate of almost 14 percent in the three months through August, to $6.89 billion, according to economist Tim Congdon of International Monetary Research.
"There has been nothing like this in the U.S.A. since the 1930s," he told the Telegraph. "The rapid destruction of money balances is madness."
M3 money supply, seen as a leading economic indicator, has slumped at a 5 percent annual rate.
David Rosenberg, chief strategist at Gluskin Sheff, shares Congdon’s concerns.
In the four weeks ended Aug. 24, bank credit shrank at an "epic" 9 percent annual rate, according to Rosenberg.
"For the first time in the post-World War II era, we have deflation in credit, wages and rents, and, from our lens, this is a toxic brew," he told the Telegraph.
Congdon said, "The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances."
Not everyone agrees.
“The money markets are healing rather rapidly,” David Keeble of Calyon told Bloomberg. “All the money that has been thrown at us from the central banks is having a profound effect. There is just a wall of money out there willing to be lent out.”
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