Clearly, the United States and the world economy are undergoing a major nancial crisis. Interbank borrowing and lending rates have risen to unprecedented levels relative to U.S. Treasury Bills. Several major nancial institutions have failed. These real problems have also been associated with four widely-held myths about the nature of the nancial crisis and the associated spillovers to the rest of the economy. The nancial press and policymakers have made four claims about the nature of the crisis.
Bank lending to non financial corporations and individuals has declined sharply. Interbank lending is essentially nonexistent. Commercial paper issuance by non nancial corporations has declined sharply and rates have risen to unprecedented levels. Banks play a large role in channeling funds from savers to borrowers.
Here we examine these claims using data from the Federal Reserve Board. At least based on data up until October 8, 2008, we argue that all four claims are false
Diciamo le cose come stanno…
The press loves a spectacle. There’s a good reason for this: panic increases paranoia, which increases the desire for information, which increases their advertising revenues. Thus, the press has an incentive to exaggerate the importance of the events they report. As such, we shouldn’t be surprised to find the press amping up fears about the next threat to the “real economy.”