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Thursday, July 07, 2005

Once Upon a Time in Mexico

This month's Dallas Fed issue of Southwest Economy has an interesting picture depicting loan growth rates in Ol' Mexico:

The green bars represent annual growth rates in consumer loans and the red bars represent annual growth rates in business loans. From 1991 through 2005, there were seven years of negative growth in business loans. What does this mean? Businesses retiring debt and not taking out new loans, which implies no new investment and reduced chances of economic expansion in the future.

Whether the federal government crowds out private business investment, whether corruption reduces the incentive to invest, or there are other reasons is only slightly material - perhaps if we knew exactly what was retarding private investment it might be possible to encourage more private investment.

It is interesting that consumers have no fear of the future, that is, consumers seem to be borrowing at a steady clip - the green bars do not include mortgages.

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