CREDIT DEMANDS VERY WEAK (IT'S NOT JUST SUPPLY!)

The Atlanta Fed conducted a survey that was written on its 'macro blog' by John Robertson, Vice President in the Atlanta Fed's research department. The survey was striking.

It found that over half the businesses polled sought to obtain a loan in the past six months. And over half of those who accessed credit did so to roll over an existing loan; and not for any business investment or working capital needs. So when you do the math - no calculator needed - what you see is that only 1 in 4 of the business sector is borrowing funds to finance economic activity. It also pays to note that 55% of the respondents were not seeking credit was due to a weak sales/revenue backdrop.

David Fuller's view The telling graphics in this report commence on page 4 and I commend them to you. Judging from this data, deflation (ice) considerably outweighs inflation (fire). Moreover, some of these deflationary trends are continuing to deepen. This will be of concern to the Fed and may reduce upward pressure on long-dated government bond yields as quantitative easing is phased out from March onwards, if that is when US monetary policy actually begins to change.

The bounce in Jewellery prices (Chart 7), which I have also noted at auctions, may have more to do with hard money investments than the Wall Street bonuses cited by David Rosenberg. Not surprisingly items that we need most as a society, such as Medical Care Commodities and Hospital Services, have avoided the slide into deflation.