Busch: Credit Crunching The Credit Crunch
The Association of Financial Professionals (AFP) has released a report detailing how finance executives have taken defensive measures to deal with the credit crunch. (AFP is a membership organization that serves more than 16k corporate treasury and finance executives.)
From the AFP Short-Term Credit Access Survey, these actions include reducing capital spending, freezing hiring, considering layoffs, and delaying payments to their suppliers. "Forty percent of finance executives report that their organizations have less access to short-term credit than they did one month ago, with 16 percent reporting significantly less or no access to short-term credit. As a result, 62 percent of finance executives report that their organizations have already taken defensive actions. These organizations have:
• Moved all or most of short-term investments to bank deposits and U.S. Treasuries (41 percent);
• Reduced capital spending (37 percent);
• Shortened the duration of their investment portfolios (29 percent);
• Frozen or reduced hiring (26 percent);
• Drawn on existing credit facilities to build cash (26 percent); and,
• Considered staff reductions or layoffs (22 percent).
These actions could increase should the credit access not improve by year end. Federal Reserve data shows that the U.S. commercial paper market contracted for the 3rd week in a row and has dropped 11.5%. Along with other conduits of short-term borrowing, the commercial paper market is freezing up with companies and banks unable to access borrowing. I would caution anyone who thinks that the credit crisis is only impacting the marginal borrowers or those with marginal credit. Clearly, these two reports illustrate the stressed nature of credit markets and a bleak future for the economy should credit not improve.
This plan is just the start of government programs that will be brought up and voted on in Congress until something works. If we go back to the Great Depression, FDR tried everything legal and not legal to get the gears of the economy moving again. It re-wrote the rules for the economy and for government intervention.
In his proposals, FDR went far beyond what was permissible by the constitution and the US Supreme Court struck many of his proposals. It got was so contentious that FDR tried to change the size of the court and pack it with his cronies. This is my assessment for the future especially if we have a Democratic president and a Democratic Congress. We should expect more aggressive programs if we see no response shortly from the economy.
- September Payrolls Plunge; Jobless Rate Still at 6.1%
- Jobs Outlook Darkens As Financial Crisis Grows