Lending Coming To A Halt?

Credit is the lifeblood of the economy, and there are signs that credit activity is pulling back.

Consider these two data points:

1) Agricultural stocks are down on word that fertilizer demand has been down--why? Agricultural stocks are getting hit hard today: CF Industries down 18 percent, Agrium down 12 percent, Terra Industries down 20 percent, Mosaic down 11 percent.

Citigroup downgraded the group on word that urea (a nitrogen product used in fertilizers) prices were down substantially on what appears to be weak demand.

Why is demand down? Traders have been speculating that the farm harvest now requires its largest seasonal financing requirements, and that farmers are having trouble getting funding.

2) credit appears to be tightening for restaurant franchisees as well. Last week Bank of America declined to increase lending on existing loans to McDonald'sfranchisees.

Now the CFO of Sonic Corp., a drive-in restaurant chain, told Dow Jones that franchisees have been notified by GE Capital that it will temporarily stop financing new loans, although GE Capital will continue to honor pre-existing financing agreements.

These are two small data points, but in two important industries: fertilizers and restaurants.

We need to improve the balance sheets of the banks and increase the liquidity in the system. Otherwise lending is coming to a halt.

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