Saturday, December 13, 2008

Credit crunch? What credit crunch?

One of the main reasons the public hears for the need to continue throwing taxpayer money at the economic crisis is that the credit markets are "dried up". In other words, there is not enough money available from lending institutions to lend.

There is some truth to this. I was talking with a banker the other day who pointed out that although his back had plenty of cash on hand because of its own conservative business practices, but that other banks in his region had over 100 percent of their money out in loans. They were therefore having to borrow money at the now very steep interbank rate.

And, of course, they deserve it.

But at the same time, Brian Love at Reuters remarks:

The credit crunch is not nearly as severe as the U.S. authorities
appear to believe and public data actually suggest world credit markets
are functioning remarkably well, a report released on Thursday says.

As a result, governments are pumping masses of public money into the
economy across the world because of the difficulties of a few big,
vocal banks and industries such as car manufacturing, which would be in
difficulty anyway, according to the report published by Celent, a
financial services consultancy.

HT: Jeffrey Tucker at Mises Economics Blog.

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