According to economic data from the Federal Reserve, commercial and industrial loans have increased to a total of $ 2.8 trillion.
Loans are useful to start a small business or finance business expansion, but it is unexplored to keep the entire economy alive with credit. However, this is the reason for the coronavirus pandemic, and commercial banks are expanding record-level loans to keep the business alive.
Business loans break records
According to the latest FRED data, commercial and industrial loans have increased dramatically. This drastic movement is unlike anything that has been seen before.
Of course it is Credit upward trend it is worrying by itself. We have always had an economy that was largely leveraged and accelerated by bank reserve requirements. However, the recent surge is unprecedented.
What happened here? pic.twitter.com/bvXYYgFnz7
– Silver Watchdog (@Silver_Watchdog) April 7, 2020
There is a theory that more loans will be taken out, mainly due to fears of a liquidity crisis. In other words, as a precaution, companies may require more loans than they need because they are not sure if they can do so in the future.
What happens next?
When commercial banks lend in record amounts, the next question for me is: will these companies be able to repay them? This will likely depend on how long the crisis lasts.
Here at BeInCrypto we have often reported rising debts and debt financing that control the global economy.
The United States government, for example, was notorious for accumulating more and more. In mid-January, global debt is said to have hit a record $ 253 trillion, which at first glance seems absurd. However, this only shows how effectively we benefit from economic growth through endless debt.
It has been proposed as an alternative to debt financing due to the strict limits of its current offering. As a deflationary currency, it differs from traditional fiat money. There has been fierce debate over whether assets like Bitcoin could reduce the rush for debt financing or whether this is inherent in the current growth model.
So is debt a “time bomb”? And will the drastic increase in commercial credit only add to this debt growth? It all depends on whether the global economy can be opened again in the coming months.
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