Magazine article American Banker

Economist Says Credit Demand May Spur Rates Higher This Year

Magazine article American Banker

Economist Says Credit Demand May Spur Rates Higher This Year

Article excerpt

NEW YORK -- Demand for credit has picked up markedly since the end of 1993 and has contributed to this year's rise in interest rates, Kevin Logan, chief U.S. economist for Swiss Bank Corp., said in the Standard & Poor's Corp. publication Credit Week.

Mr. Logan said the aggregate credit demand had not received much attention from economists and analysts. but he warned that if it continues to accelerate. "we can be almost certain that interest rates. especially short-term interest rates, will continue to rise this year and well into 1995."

Lagging Behind Business Cycle

The New York-based economist wrote that changes in the demand for credit are nearly contemporaneous with changes in economic growth.

"If anything, credit demands lag the business cycle slightly," Mr. Logan said. "The recessions and booms of the 1970s and 1980s are clearly marked by the corresponding bouts of expansion and contraction in the growth of credit.

"This pattern held until the end of the 1980s when an extraordinary development took place: growth in the creation-of credit collapsed.,

Total outstanding debt in real terms actually fell in 1991, 1992, and 1993. That, Mr. Logan said, helps explain why the recovery from the 1990-91 recession was relatively slow and why economic growth has accelerated in the past year.

The Federal Reserve's easier monetary 'policy in 1991 and 1992 "arrested the decline in credit demands, but did little to revive it," he said. …

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