CYCLES OF SECURITY ISSUES
EVIDENCE presented and discussed at some length in Chapter XII indicates that the growth of bank credit in this country over the past 70 years or so has not been characterized by well-defined cyclical fluctuations corresponding to the cycles of business activity as reflected by industrial production. It appears that bank credit has usually increased more rapidly in periods of business expansion than it has in times when production was being contracted, but the curves representing the growth of bank credit do not clearly exhibit the wave-like fluctuations that might well be expected to correspond to the recurring business cycles.
This absence of pronounced cyclical fluctuations on the part of bank credit raises an interesting and important question with respect to the well-defined fluctuations that have been shown to exist in the flow of new security issues. If bank credit does not regularly increase and decrease with the expanding and contracting phases of business cycles, why should the flow of new security issues do so? If the amount of outstanding short-term bank debt of business tends to show a long-term secular growth without much regard for the business cycles, why is it that we find well-defined cycles in the flow of new security issues, and why do the upturns and downturns of these cycles regularly precede the upturns and downturns of the business cycles?
The answer is not to be found in the fact that bank credit as reflected in the diagrams presented in the preceding chapter includes bank investments as well as loans and discounts. That possibility has been carefully checked and the results show that the flow of loans of national banks has shown over the years much the same sort of disregard for business cycles as has that of the