Despite all that you might have heard, the credit markets have been broken since August 2007.
Companies usually borrow in the commercial paper market to rebuild inventories in anticipation of rising sales, but sales have fallen even faster.
"That shows there is a long way to go," said Robert C. King an economist at the Jerome Levy Forecasting Center in Mount Kisco, New York. "Although eventually inventories will get down to some point where they will have to be rebuilt, we are not there yet."
"That could be some explanation for the commercial paper market (trends) because it is used to finance inventories," King said.
The latest weekly Federal Reserve data released on Thursday showed the commercial paper market's dramatic contraction which began when the global credit crunch erupted in mid-2007 has continued unabated.
The collapse in commercial paper, and especially asset-backed commercial paper, has been devastating.
As of July 29, 2009, total outstanding (seasonally adjusted) short term commercial paper (the primary method of both financial and non-Marginal companies with marginal business models are going to crackshort term funding) was down from US$2.2 trillion in August 2007 to US$1.06 trillion. With the collapse of the shadow banking system (the network of "non-bank" lending facilities), asset backed commercial paper (ABCP) has stabilized at US$437 billion--a third of its peak volume in 2007. The Fed's commercial paper lending facility declined to US$124 billion as of June 24, 2009.