A tremendous amount of malinvestment has accumulated after a decade of artificially low interest rates, which is going to result in serious pain when the cycle inevitably turns – make no mistake about that.
Commercial and industrial (C&I) loan activity is watched closely by economists to gauge the strength of the economy and estimate where we are in the business cycle. C&I loans are used to finance capital expenditures or increase the borrower’s working capital. The C&I loan cycle often takes up to a couple of years to turn positive after a recession, but provides even more confirmation that an economic expansion is underway. For example, the U.S. Great Recession officially ended in June 2009, but the C&I loan cycle didn’t turn positive until late-2010. C&I loans also help to warn when the economic cycle is approaching its end (as they are now).
Total outstanding U.S. commercial and industrial loans have increased by 92% in the current cycle, which surpasses the 80% increase during the mid-2000s cycle and the 88% increase during the late-1990s cycle:
BANKING CRISIS IS OVERDUE
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