Yesterday Business Insider featured a chart of commercial and industrial loans over the past several decades with the headline story Hooray! The Great Private Credit Collapse Is Finally Over:
Let’s take another look at the data, this time adjusted for population growth and inflation. The loan data, available from the St. Louis Federal Reserve, dates from 1947. My chart starts in 1952, the first year for which I have consistent monthly population estimates (also courtesy of the St. Louis Fed).
The next chart uses a logarithmic vertical axis, which gives a more intuitive visual representation of the relative change in total loans, especially the dramatic levelling off in loan activity since the late 1980s.
Why adjust for population and inflation? Consider: During the past 59 years, the US population has virtually doubled while the dollar has lost about 88% of its purchasing power to inflation. When we adjust accordingly, the latest commercial and industrial loan activity is about where we were in August 1989.
These charts do not discount the possibility that the credit collapse following the Financial Crisis is showing signs of recovery. Rather, they give a better sense of where we are in the larger historical context with regard to commercial loans. The unadjusted chart suggests that, even at the recent low, loan activity exceeded the peak of the Tech Bubble. But the adjusted view shows us a more sobering view of epic volatility in commerical loans since the late 1980s.
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