What credit crunch? (Investments & Finance).

WHAT if the Federal Reserve cut rates and no cared?

That's the gist of stories suggesting the U.S. is experiencing a 'credit crunch."

"What good is cheap money if banks won't lend it and firms don't want it?" asked the New York Post in a Sunday article, "Credit Crunch Looms."

The authors of this and similar articles don't understand what a credit crunch is, which is probably why they use the term without defining it.

The support data for the credit-crunch articles are confined to one category of bank loan -- commercial and, industrial loans, which are used primarily to finance business inventories. A glance at C&l loans, available in a weekly report from the Fed, reveals that C&l loans peaked in February 2001 and have declined steadily since then.

Given the plunge in inventories, the drop in that category is no surprise. Business inventories peaked in January 2001 and declined for 15 consecutive months before inching higher since April. The inventory-to-sales ratio is at an all-time low of 1.34 months.

Outside of loans to finance inventories, it's quite a different story. Real estate loans increased at a 21 percent annualized rate in the last three months; home equity loans were up 24 percent, which is. less than half the rate from three months earlier. Total loans and leases, which is bank credit less securities purchases, rose 10 percent annualized in the 13 weeks ended Oct. 30, up from a 2.6 percent rate six months earlier.

Add in securities, the other category of bank assets, and bank credit expanded at an 11 percent annualized pace in the past 13 weeks.

"It seems, banks are supplying more, not less, credit. C&I loans may be headed south but the other categories are expanding briskly.

If companies posing a high risk can't borrow or have to pay penalty rates for loans, that's not a crunch. It's credit risk being priced by the lender.

The current situation "is not like the early 1990s, when banks were raising their capital-to- asset ratios and would not lend to anyone," said' Neal Soss, chief economist at Credit Suisse First Boston.

"Banks are eager to lend to the household sector," Soss said. "And some businesses have no trouble getting credit. But to a certain class of companies" -- such as telecom and energy companies -- "credit is unavailable."

There's another reason focusing on C&l loans creates an inaccurate picture of the availability of credit in the economy. "As a fraction of bank assets, C&l loans have been in a trend decline for 15 years," Soss said.

More corporate credit demand is being satisfied in the credit markets. While corporate debt sales have slowed this year from last year's record pace, the $447 billion sold year-to-date isn't exactly shabby. Credit is available for creditWorthy borrowers while households are encouraged by teasers and promotions to borrow more.