The creation of money by the deficit-spending of the Treasury and the loan creation of the private banking system is what allows the economy to grow. Certain analysts have been questioning the health of bank credit — aggregate bank credit, car loans, and Treasury and agency debt held by banks — and concluding that the weakness is a sign that the economic expansion is coming to an end. We disagree with this assessment because it ignores the fact that the reduction in bank credit at this time of year is a normal seasonal reduction. The chart below shows the regular seasonal weakness (pink rectangles).

Bank credit in the aggregate fell slightly again last week, but car loans and Treasuries and agency debt held by banks continue to recover. We will continue to watch this, but we expect that the bank credit will start to recover soon as well (chart below).