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For months, now, the news has been filled with reports of a huge credit crunch crushing the ability to borrow in the United States economy. The impression of a financial sector that has ground to a halt, however, is not born out by the facts. To the contrary, lending and borrowing have continued to grow in America, albeit at a lower rate of growth all through 2008.
Banks have used a large portion of the Federal Reserve’s expansion of the monetary base (up 70 percent since July) to shore up balance sheets. But they have not “rebalanced” their balance sheets through any noticeable decrease in commercial and industrial lending. As Graph 1, below, shows commercial and industrial loans have grown from around $1 trillion in the middle of 2005 to $1.6 trillion near the end of 2008, or a 60 percent increase over this period. Even over the last year (November 2007 – November 2008) such loans increased by 11.3 percent. And they continued to increase, as well, since July of this year by 6.7 percent, in spite of the growing financial fears. 
Source: Board of Governors of the Federal Reserve System Commercial and industrial loans were exploding well into early 2008. As the Graph 2, below, makes clear these types of loans were growing as monthly rates of over 20 percent from a year earlier. But even as the “credit crunch” supposedly set in, at the end of the summer, commercial and industrial lending has continued to increase at monthly rates still around 13 to 15 percent from a year earlier. A part of the difference between the rate at which loans were being made early in 2008 and at the end of the year is the fact that financial institutions have reduced the number of new loans for which they are extended credit as they rebalance their own books. What is being provided are loans agreed to under prior commitments. And indeed, over 80 percent of loans being made are under this heading, according to Federal Reserve data. According to the Federal Reserve's "Loan Officers Survey on Bank Lending Practices," in October (for which the most recent information is available) less than 25 percent reported "tightening considerably" on new commercial and industrial loans, while 47 percent said they "tightened somewhat," and over 28 percent said they had kept their lending practices "basically unchanged." 
Source: Board of Governors of the Federal Reserve System The credit crunch, therefore, has not involved a “deflationary” decline in the amount of loans extended for commercial and industrial purposes, in comparison to the recession at the beginning of this decade. At that time, between 2000 and 2004, the dollar amounts of such loans and the percentage declines from a year earlier were in actual negative ranges. The current credit “crisis” has really taken the form of a decrease in the rate of increase of business lending, as banks have clearly raised their standards for “credit worthiness” and sound business practices. Business loans for viable commercial and industrial enterprises have remained available. All financial institutions have done, so far, as they get their own balance sheet house in order, has been to lift their lending foot off the borrowing accelerator to slow down what had been an unsustainable investment boom.
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