Transcripts

"Two Ways to Play"-Kevin Depew of Minyanville

SUSIE GHARIB: Well if the recession is winding down, why are consumers and businesses having a hard time getting bank financing? Today's "Two Ways to Play" looks at the reasons behind the slow credit flow. Here's Kevin Depew of Minyanville and Minyanville's Kevin Depew.

KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Access to credit is getting tighter. Banks are not only cutting credit lines for more consumers, they're also becoming more aggressive in their cuts. Conventional wisdom says the economy can't recover without access to credit. But a recent study of all nine post-World War II recessions by Barclays Capital says this thinking may be wrong. According to the study, in the first year of recovery, net new borrowings almost always lags the economy. The study also points out that, historically, borrowing by households and corporations always falls in the first year of recovery, which is precisely what is happening today. As you've pointed out, the supply of credit is certainly falling and that's typical of how most recessions unfold, but there are two sides to the credit coin -- availability of credit on the one side, demand for credit on the other. During prior recessions, credit availability was a short-term problem, largely because the underlying demand for it was still present. Now however, both availability and demand for credit are declining. That's key, because credit demand is the side of the coin the Federal Reserve cannot control. A central bank can make credit available, but there must be demand for it or it's like throwing a party where no one shows up.