A breakdown in credit flows

One sentence in the Newseek story The Bernanke Era Has Begun by Robert J. Samuelson has stuck with me for the last few hours and it is worth repeating here for those who haven't already seen it:


The subject sentence probably means little to most of the magazine's readers who now readily accept that their credit score should be "protected" as their grandparents savings accounts might have been generations ago (as one commenter here at this blog remarked some time ago), but, to me it is profound simply due to the ease with which it seems to have been written and how well it meshes with the rest of what is a very good commentary on recent actions taken by Fed chief Ben Bernanke:

The Fed is trying to prevent a fear-driven breakdown of credit flows: the modern equivalent of a bank run.

The "modern equivalent of a bank run".

Decades ago (or last week in London), a "bank run" would occur when depositors sought to remove money held in savings accounts by institutions whose future may be in doubt.

Today, the equivalent of a bank run is when banks stop lending - when credit, the lifeblood of nearly all Western economies, stops flowing because lenders fear that they may not be repaid.

How profound is that?

This works nicely with an anonymous comment left on an earlier post today:

Good luck everybody! The spin offs of Reaganomics are finally really coming to roost, and its looking ugly!

It is as if we have all accepted and embraced the two decade long transformation from being a nation of savers to a nation of debtors and no one really seems to have noticed.