Are The Credit Markets Still Healthy?

Robert Higgs has a long list of healthy-credit-market datapoints to support his contention that any talk of a frozen market is "hyperbole".

Commercial and industrial loans of all commercial banks, which are reported monthly, have grown rapidly. The most recent report, for August 2008, shows outstanding loans of $1,514 billion, an all-time high. This loan volume is 15.5 percent greater than it was a year earlier, and 30.8 percent greater than it was two years earlier. Frozen credit?
Consumer loans at all commercial banks, which are reported monthly, have also grown rapidly. The most recent report, for August 2008, shows outstanding loans of $845 billion, an all-time high. This loan volume is 9.2 percent greater than it was a year earlier, and 16.5 percent greater than it was two years earlier. Frozen credit?
Even real estate loans at all commercial banks, which are reported monthly, grew rapidly until very recently. The most recent report, for August 2008, shows outstanding loans of $3,642 billion, only slightly below the all-time high (in May 2008). This loan volume is 4.1 percent greater than it was a year earlier, and 15.5 percent greater than it was two years earlier. Frozen credit?
Lest one suspect that I have cherry-picked my examples, consider finally the amount of all bank credit at all commercial banks, which is reported weekly. For the most recent week reported, the one that ended on September 9, this credit amounted to $9,406 billion, which is only slightly less than the all-time peak of $9,485 reached in the week that ended on March 26, 2008. For the past six months, total commercial bank credit has remained on a high plateau, well above the levels reached in previous years, when everybody seemed to think that credit was ample.

I would make a few points in response to these intriguing numbers.

Firstly, they're year-on-year numbers, which don't give much of an impression of what's happened over the past six months.

Secondly, remember that most of these loans were extended at very low interest rates. As a result, they don't get paid down very fast. So even if you're only lending a little, if it's on top of a stock of existing loans which is basically staying steady, then your total loans outstanding will generally rise.

Thirdly, if banks are deleveraging, the direct bilateral loans to their relationship customers are the last things they're going to want to cut. The first thing you do is try to sell off assets without damaging relationships. Most banks own a lot of debt securities, for instance: they'll sell those before cutting back on their own lending, which is their most profitable business.

Finally, and most importantly, remember that bond issuance has crashed this year. The number to look at isn't total lending, from banks: it's total borrowing. And that's gone down substantially: disintermediation preceded deleveraging.

What we've seen is that a lot of companies who would normally have issued bonds or other securities in the debt markets have chosen instead to tap their lines of credit and relationships with banks. So bank lending might well have gone up, even as the total supply of credit has gone down. That doesn't mean credit markets aren't in crisis: quite the opposite.

(Via Tabarrok, who adds interesting points of his own.)