Bank Ills Seen Hindering the Recovery

NEW YORK - The banking crisis will prevent the U.S. economy from entering a sustained period of recovery, according to S&P Credit Week, the Standard & Poor's Corp. publication out today.

Raul Nicho, an economist writing in the Credit Forum section, said that claims about the economy being in recovery are "overblown" and that a credit crunch will persist until the health of banks, thrifts, and insurance companies is restored.

Mr. Nicho, managing director of MMS International, said loans by all U.S. banks and thrifts declined 2% last year.

"As long as large banking problems persist - a problem that was long in the making - the U.S. economy will not have the financial wherewithal to support a sustained economic recovery similar to what has been observed in the past," he wrote.

Statistics Called Erratic

"Recent statistics suggesting that the U.S. is in a period of economic growth are so erratic that neither economists nor market participants are able to get a good fix on the underlying trends."

Mr. Nicho says consumer spending and housing purchases are "not likely to contribute strongly to any type of recovery." And businesses "have not increased inventories in a way that would indicate strong demand for goods."

"It should be made clear that this recession was not caused by high interest rates," Mr. Nicho said. It was "brought on by the lack of credit available from our depository institutions."

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