Wednesday, January 5, 2011

Credit crunch continues for UK firms



Credit crunch is a phrase that I haven't heard used much recently.

Nevertheless, it is one that applies perfectly to the UK corporate sector. Since November 2008, UK firms have been repaying their loans to banks. On a net basis, firms have repaid a massive £75 billion.

The massive financial sector intervention was justified on the basis that it would support British firms. Perhaps low interest rates reduced corporate financing costs and kept firms from going bust. However, that sits rather oddly with the massive corporate repayment of loans.

Scratch the surface of the UK economy and nothing makes sense.

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  2. It doesn't have to be a failure of banks to lend. It can also be that business is not willing to borrow more under current conditions.

    Why go into more debt for big investments when demand for your products is currently weak and the economy shows little signs of growth?

    As Krugman says: 'It's demand, stupid.'

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