Remember a few weeks ago? Interbank lending had seized up. Small businesses couldn’t get loans and large companies couldn’t roll over their commercial paper.
A new paper from a trio of economists (.pdf) (via organisations & Markets) at the Minneapolis Fed say it’s all a myth. The argument: the numbers just don’t bear it out. The economists present several slides, all culled from Federal Reserve data, suggesting that the reported stories aren’t borne out by the facts. This first chart shows total bank credit for all US commerical banks up until Oct. 8th.
The next chart shows commercial, non-financial loan volume over the same time period:
The paper is filled with similar charts, all pointing to something similar. But we still feel it’s lacking, because if there wasn’t (or isn’t) a credit crunch, then what’s going on? What did everyone see that was so freakout-worthy?
Update: Felix Salmon chimes in with a confident explanation for why the credit crunch isn’t a myth. He notes, as a commenter did below, that companies quickly accessed revolvers/bank lines once traditional markets started siezing up. Meanwhile, certain charts in the study don’ t point to an interest rate spike, but, when you factor in that risk-free interest rates plummeted, you still get a severe spread widening.