Credit to GDP

I've been reading a lot of stuff about the recent credit and liquidity freeze in the fall. A lot of speculation is being discussed on how this will impact the economy. It's a given that credit has been loose over the past few years and has helped fuel the real estate bubble, and has helped bring on the financial crises. What if Credit has been loose longer than we have thought, and only recently the barn door was left wide open?

I took some data from economagic to take a look at Credit to GDP as a percentage. A couple of interesting items come out. First, there are two definite growth rates. One prior to 1985 and the other post 1985. Post 1985 shows a growth rate 2-3 times the rate from 1952-1983.

With trend lines added you can see that we are currently above trend from the 1985 onward, but we are also way above the 1952-1984 trend line. The big question is, if credit is going to contract because of this crisis where will credit retract to. Something along the 1985 trendline, or the 1952-1984 trendline.

I guess we will find out in the next few quarters where Credit to GSP is heading. Then that will tell us what to expect on the impact of the loss of credit to the economy.