The majority of indicators are painting an increasingly dismal picture of the economy (see here, here and here for a few examples). With that in mind, we need to take a step back and check out the credit market to see if any improvements have been made since its near-meltdown last month, as that was the catalyst for the worsening economic outlook. It does appear the logjam in credit markets has eased. That's not to say that all problems have disappeared, as evidenced by the fact that financial institutions are loath to lend due to fears of not being paid back, plus consumer credit demand weakening in response to deteriorating labor market conditions.

Nonetheless, when examining the credit market backdrop, to borrow a medical phrase, the patient is out of the OR and has been moved to the recovery room. LIBOR, the TED, 2-year swap and commercial paper (A2/P2) spreads (all of which were once of interest mainly to bond traders or relegated to banter on CNBC or Bloomberg, but have emerged recently as widely watched barometers of the economy) by and large show that the worst has passed and that credit is slowly beginning to un-freeze and circulate thanks to the unprecedented efforts by the Treasury and Federal Reserve.


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