Chart by High Frequency Economics.
By Laura Conaway
Got this note and the chart above from Carl B. Weinberg of High Frequency Economics. Weinberg writes about the shrinking of credit in the eurozone and Britain:
Analysis of money and credit growth over centuries has taught economists the following lesson: No economy has ever grown without an accommodating increase in money and credit. One does not have to be an economist to see this contraction of money and credit as an unambiguous signal that these economies must contract, probably in a deflationary environment.
Weinberg, a decided bear, predicts we'll see the effects of shrinking credit by the end of this year. He continues:
We have already seen a retraction of bank lending to households wreak havoc with consumers' expenditures -- particularly expenditures on consumer durables, autos and homes. Households are increasing their savings rates -- paying down credit, or simply not borrowing more -- and this has caused a major economic contraction. Call this the first leg of what we now expect will be a much bigger global economic downturn. We fear that companies will fail for lack of credit to finance inventories -- which remain too high relative to sales anyway -- working capital to fill orders and trade. A new round of layoffs will ensue. These failures and job losses will permanently damage the economy.
Not a very cheery outlook, right?
categories: Understanding The Crisis
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