What Credit Crunch?

In an article in the New York Times, Edmund L. Andrews and Mark Landler report that the U.S. government will inject taxpayer money directly into private banks by purchasing their corporate shares, in addition to purchasing “troubled assets” from them, as authorized by the bailout law enacted on October 3. And why not? After all, the taxpayers have plenty of money. And even if they don’t cough it up right now, the government can simply borrow the money from the Chinese, Japanese, and Middle Easterners and put the taxpayers on the hook to service this new debt. Nothing to it, really.

In explaining the government’s resort to this partial nationalization of the banking industry, the Times reporters note that “financial markets have been going downhill faster than anyone had seen before. Credit markets seized up and all but stopped functioning, making it impossible for most companies to borrow money on more than an overnight basis.”

For some time, most recently in a commentary I posed yesterday, I have been citing comprehensive, systematically collected evidence from the Fed’s website that this “seizing up” claim is false. Although the data show some evidence of diminished lending in some credit markets, they do not comport with allegations that the credit markets have “seized up,” “locked up,” or “frozen up” or with claims that “nobody is lending” or that the credit markets have “stopped functioning.” All such turns of phrase, which appear in virtually every report in the mainstream media, are sheer hyperbole—which, I might add, serve only to heighten a sense of panic among the public and within the inner sanctums of Our Blessed Rulers and Saviors.

- Robert Higgs