So if we start from the premise that anybody who wants a loan and is creditworthy can get one (which is why interest rates remain low out past the rates set by the Fed), we aren't really concerned with on-lending from people who are sitting on a pile of money and wondering what to do with it.
We are concerned only about net lending by banks. Paul Kasriel at Northern Trust has an Econtrarian article about how to figure this out: Declining Bank Loans - Write-Downs or Pay-Downs?
Kasriel uses an idea provided by Jim Fickett at Clear on Money Fickett has several posts on the subject of net change in loans, and references an article written by Michael Biggs et al at Deutsche Bank: The myth of the “Phoenix Miracle”
They show a very close correlation between the net change in loans and GDP (both are flows). Loans don't have to grow for GDP to grow, they can just start shrinking more slowly. In other words, it's the rate of change, not the absolute value.
