Demand of credit, central engine of Economy cycles

pinball

A very important thing in economy is the credit, which brings the money into economic recycling. If economy condition is good, companies borrow to expand their business, and bring the economy more monetary currency in use, thus enhance the economy by both real side and monetary side.

  Modern financial system in U.S and Europe is so efficient that it can create any supply in normal case if there is any demand. Basically, in this game, it is demand driven.

  FRB Senior Loan Officers' survey is very good one to know the credit conditions, it has both survey in Supply and Demand side, here let's focus on demand, the supply only simply follow the demand.

  There are four categories of credit: commercial and industrial loans(C&I), consumer mortgage(Real Estate), commercial mortgage, consumer loans(credit card), of which C&I loans is the most important one which indicates the real economy, and consumer mortgage is the next important one since the number of credit it generates is huge. The other two are not that useful given commercial mortgage only simply follows C&I, and credit card is small in absolute number.



  Below is a figure shows these loans on the same picture, but only up to early 2008.

  The red line is C&I loans and the black line is consumer mortgage. Above zero means expansion and below zero means contraction. Since the C&I loans is something related to expansion in prodution, it has a lag to turn the loan into product and profit(say one borrows money to build a new factory, need time to wait the factory operate), thus the demand of C&I loans, is a leading factor to the GDP growth, and a leading indicator to the Market. Consumer mortgage is leading the market too, since the construction itself is a part of economy. Besides, modern finanial systems allow one to borrow money to consume other stuff using the house as a back asset while the house is still in mortgage, thus the consumer mortgage is brought to represent consumption somehow, which is the central driving force of the consumption America.



Let's see how it leads the market.



  C&I loans demand topped at early l995 then declined, but always keeps above zero and topped again late 1998, market was bullish during this period.

  C&I loans demand declined again since late 1998, and officially dropped below zero late 2000, market kept bullish and topped in late 2000, then there come the bear. C&I top lead the market by 2 years when C&I contraction(below zero) started at almost same time with the bear.

  C&I loans demand bottomed late 2001 and officially above zero early 2004, market bottomed out early 2003. C&I bottom lead the market by 1.5 year. Note here a super bubble of consumer mortgage starts from earlier, around 2001, which may help an ealier recovery of economy.

  C&I loans demand topped late 2005, and officially below zero late 2008(see the latest picture below), market topped late 2007. C&I top lead the market by 2 years.



  So C&I loans demand usually lead the market for 2 years, and should be confirmed by an officially below/above zero claim, which is about 2.5 years later than the C&I top.

  Below is the latest data on the demand of credit, up to Apr 2009.









  So now what can we tell from these charts? Consumer mortgage bottomed out late 2008, while C&I loans stalls under the hell. If we assume the demand of credit really lead market by 2 years, even for the most optimistic view that Apr 2009 was the bottom of C&I demand, we still need to face a coming 2 year bear market. Even you count the consumer mortgage, the market won't bottom out until Q4 2010.



btw: I don't think consumer mortgage could help economy this time, since the trade on existing homes does not help in either prodution or monetary fact, they only generate a new mortgage, move the money to the seller's hand, and return to bank to annihilate an old mortgage, since the house if in foreclosure...     And new home sales, though helps in both prodution and monetary fact, won't help much since we don't have large number on new home sales anymore.




my blog: http://blog.sina.com.cn/pinball1980

btw: this demand for credit picture is more useful in oil price.

yam

xiaoyaoxl

别用sina的blog了，大家看着都不方便

去blogspot吧

pinball

3# xiaoyaoxl

blogspot被封一个多月了。
用代理也不知道会不会出各种奇奇怪怪的问题

比如我现在用代理上胡同，文章的图（包括我自己上传的），大多数是看不见的。

RedChili

r

peaceful99

Thank you! very nice

ychen222

总觉得Demand of credit里，银行是主动方。银行愿贷，还怕没人要吗？所以可能根本上还是看党中央的态度。

RedCedar

Thanks!!

colderdown

thanks a lot