We finally got to the point when Main St takes a hit from Wall St. As you recall I’ve mentioned few times that so far the collapse of commercial paper market was offset by the extension of lines of credit. Few minor bumps on this road are not important.
Now is the major bump. Just released H8 shows that banking credit contracted by $102 bln from last week and by $132 bln from the March peak. Now add here $16 bln two-week contraction of commercial paper. I always used to add those two numbers, so the total two-week credit contraction is $148 bln. You can add here a more modest bond issuance contraction that I reported here. The total outstanding short-term debt is $1,817+$9,433=$11,250 bln. The relative contraction is 1.3%.
I think this is a very big number. You can compare it with “stimulus package” passed earlier this year – they pretty much cancel each other. I think the effect will be almost immediate – we are in the earning season and one after another the corporate CEOs will tell us that they plan to cut spending. Of course they will be forced to cut spending if they are forced the reduce debt.
Maybe I should call all this the year of The Great Deleveraging?