Phat Dragon is placing the most value on new information regarding credit demand and supply. It is credit growth that tells us more about the shape of activity later this year than any other macro indicator……the supply side of the credit equation is moving decisively higher (greater policy emphasis, increased willingness to lend) but ……sluggish demand for loans is holding the system back. Indeed, the June quarter observation for “loan demand” (bankers’ assessment) fell to 12% below average, lower even than the Dec-2008 reading, even as the “lending attitude of banks” (corporate assessment) rose for a second straight quarter and the ‘easiness’ of the monetary policy stance (bankers’ assessment) rose to 21% above average.
via Westpac: Phat Dragon – a weekly chronicle of the Chinese economy.
Can we have a ‘Layman’s’ resume at the end? Such as – “This means……….
They are pushing on a string…. credit is available but business wants to repay debt not borrow more. That will cause a deflationary spiral (like in the 1930s) unless central banks inflate the problem away.
IncredibleCharts had a link to an address by Richard Koo to a European Summit on one of Colin’s Trading Diaries on the 5th June. Koo discribes this as a balance sheet recession brought on by the fact that the world’s primary consumers (ie households and workers) are getting their balance sheets in order and are loathe to take on debt until their futures are more secure. Government policies increasing the supply side of the credit equation will have no impact until demand is stimulated.
We had a 30-year debt expansion (China’s was shorter but more explosive), now for the contraction. So far what most countries have done is run fiscal deficits (to offset private debt repayment) in the hope that demand recovers before they run out of credit. That has not worked and unless we see decisive, coordinated action by major central banks we will enter a deflationary spiral.