Newspaper article THE JOURNAL RECORD

Phrasing Offers Assistance in Understanding Credit Crunch

Newspaper article THE JOURNAL RECORD

Phrasing Offers Assistance in Understanding Credit Crunch

Article excerpt

How can surveys show no credit crunch on a national scale when so many businesses complain about financing restrictions?

It will be a year before enough hard data are available and analyzed to say whether or not a national credit crunch exists today, which means, of course, that the answer will be too late for practical purposes of policy.

Meanwhile, anguished shrieks of pain can be heard from operators of startup companies, from those involved in any way with real estate or building, from companies with little collateral to offer, and from otherwise solid outfits.

Have their complaints fallen into that no-man's land, that intellectual desert where economists debate, equivocate, qualify and toss questions from one hand to the other and never reach even a tentative conclusion?

Some help in resolving the apparent contradiction - between those who rely on economic statistics and see no credit crunch, and those small companies that complain of being squeezed almost to death - can be found in phrasing.

Most surveys, for example, make a distinction between a general credit crunch and regional ones. A key phrase in this distinction is ``national credit crunch.'' To many economists, anything regional doesn't qualify.

Surveys also tend to look at business in general, whereas most complaints seem to come from small or medium-size businesses, which often use real estate as collateral. Some economists tend to think only in big-business terms.

And, it has been argued, those companies that indeed are hurt, even when they represent only a small fraction of the whole, squeal so loudly there is a tendency to think the entire barnyard is in an uproar.

One of the most cogent explanations offered is that of economist William K. MacReynolds, who makes a sharp distinction between a general credit crunch, which he says may not exist, and a specialized one, which he says does exist.

MacReynolds' thesis, developed for the U.S. Chamber of Commerce, is not a cop-out but an explanation. While stating that ``to date, there is no conclusive evidence that a general credit crunch exists,'' he provides this observation:

``However, there is a clear sense from published economic data, credit market behavior, new credit availability, bank examiner actions, bank reactions, and anecdotal evidence provided by bankers and small-business people in more than half the states in the country that a credit crunch is underway. …

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