The current H8 and commercial paper data from the Federal Reserve indicate that credit for businesses continues to contract.
This chart shows the H8 commercial bank loans outstanding (B1023NCBD), plotted with the Federal Reserve commercial paper outstanding (DTBSPCK_N.M). Data is not seasonally adjusted.
Commercial paper availability fell sharply in July 2007, and is now below the lows set in 2004 at the end of the dot-com/telecom downturn. Note that bank credit expanded sharply at first, peaked in late 2009, and has fallen now to levels equivalent of those at the beginning of 2008. I interpret this fall as being due to loans maturing or being called, and not being reissued.
Another way to look at this data is to think of the "external commercial money supply" – the money supplied into the commercial system by loans from outside the system. (Money is also created inside the system by the invoice payment cycle, but we can ignore that for the moment.) The following chart shows "Commercial Paper + Commercial Loans" as a rough proxy for the external commercial money supply.
In this picture, the external money supply peaked in July 2007, oscillated somewhat, and then began a sharp descent in September 2008, turning into almost a straight line descent from January 2009 to August 2009. The commercial money supply has dropped 21% since August 2008, and has been dropping at an (annualized) 25% rate since the beginning of 2009. External commercial money is now back to levels seen in July 2005. For comparison, the commercial money supply only dropped 15% from 2001-01 to 2003-10; this was a change of about 6%/year.
This amounts to a major run on external financial inputs to the commercial system. As argued previously, banks will (naturally) pull loans from weaker and smaller organizations first, so they will suffer more than larger organizations.
When money is destroyed at this rate in any sector of the economy, that sector suffers greatly. It is a pity that this is not getting more attention; instead, most economics postings seem to be related to health care.
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