Credit Crunch

Robert Higgs has an excellent blog for the Mises Institute , which was sent to me via e-mail. Higgs traces outstanding post '03 bank credit worldwide over time. The graph goes up at a 30 degree angle from '03 to '08, then flattens in '08. At the end of '08 it shoots up at an 80 degree angle.

The graph suggests that post 9/11, the US and the world have become addicted to easy credit. The brief flattening of credit expansion in '08 precipitated calls of a depression. Higgs notes:

"After the six-month pause, commercial-bank credit zipped upward again, so that by the end of the year, the amount outstanding stood more than 8 percent higher than it had a year earlier. Some credit crunch! Année terrible, indeed."

Higgs echoes Howard S. Katz's repeated calls on Kitco (also here) and on his blog (also as far back as March '08 here) that the "credit crunch" is but a media-driven hoax. If so, you want to invest your cash in gold stocks, gold and commodities. In my own pension fund, TIAA-CREF, there are stock and real estate funds but no hard assets or foreign currency funds (there's a foreign stock fund, but not a foreign CD). Because of the recent volatility in real estate and corporate investment, there may be some short term risk in commercial estate. But the massive credit injection in late '08 makes investment a good idea at this point in time. Stocks should hold their own and real estate should follow, but we're most bullish on commodities.

I help Howard S. Katz with his correspondence, and when he was forecasting a bull market in November, he literally began to receive hate mail from a small number of Kitco readers, and one of his newsletter readers canceled. Howard told me that he views that kind of reaction as signaling a market bottom.

I am glad to see eminent libertarian economists like Robert Higgs supporting this view.