Over the last few weeks, all newspapers have gone to town about why the bailout package was necessary to “unfreeze” the US credit system and that businesses were suffering from lack of funds due to a “credit crunch.” Economists V.V. Chari, Lawrence Christiano, and Patrick J. Kehoe of the Federal Reserve Bank of Minneapolis have gone through data from the Federal Reserve Board till October 8, 2008, and claim that the “credit crunch” is a myth; well I might be putting words into their mouths. They examine four claims made by pink papers and “policymakers”-
- Bank lending to nonfinancial corporations and individuals has declined sharply.
- Interbank lending is essentially nonexistent.
- Commercial paper issuance by nonfinancial corporations has declined sharply and rates have risen to unprecedented levels.
- Banks play a large role in channeling funds from savers to borrowers.
and say that all four claims are false. Read about it and download their paper from Organizations and Markets where Peter Klein asks – What Credit Crunch?