US credit shrinks at Great Depression rate prompting fears of double-dip recession - Telegraph (http://www.telegraph.co.uk/finance/financetopics/recession/6190818/US-credit-shrinks-at-Great-Depression-rate-prompting-fears-of-double-dip-recession.html)

Very interesting read from a UK perspective, but a great deal more generally aligned with what I think some of the investment folks here have been saying....


Comments invited.

Interesting, makes some good points.

The author makes some good points but, if you're not familiar with him, Ambrose Evans-Pritchard is a notorious bear. He happened to be right on the US economy starting in 2007 in pointing out how credit was far overextended. But he has been bearish on the US economy since I started in the business before the crash of 1987. He also contradicts basic economic principles with some of his arguements.

The discussion he has about M1, M2 and M2 money supply is a traditional view of the supply. The fact is that, as we all know, the money supply overall has grown tremendously as the Fed tries to get cash into our economic system through stimulus efforts. This is the basis for all of our concerns that hyperinflation is a decent possibility when the economy starts to heat up again.

I find it ironic that a man who called the economic downturn in 2007 due to an overextention of credit is now lamenting that the fed is letting credit contract? He also expresses concern that the money supply is contracting but doesn't mention the massive pumping of cash into the system with federal stimulus spending. He argues that money supply must grow but at the same time states that the value of the dollar must not fall. You can't grow the money supply the way the US has done without the value of the dollar falling - unless the US economy is expanding rapidly - which we all know it has not.

Credit is slowly loosening up again but when the Fed put additional credit requirements on the banks last year, the banks couldn't loosen up much - they had to maintain their credit requirements. His article states that he can't understand why the Fed is doing this. Ben Bernanke is a great student of the Great Depression. He fully understands why things happened as they did then and understands that traditional textbook views of "money supply" don't necessarily apply as they once did.

Ambrose Evans-Pritchard is also the nut that started a lot of the OKC Bombing conspiracy crap. His investigative skills are a little suspect... in many of his papers on the bombing he couldn't even get basic street directions and downtown building names correct.