There has been a great deal of concern about the tightening of credit from within the banking system. Commercial banks have made their lending requirements more stringent, and that has led to a curtailment of commercial and industrial loans. Many analysts point to this phenomenon as a precursor of a deep recession.

A contrary view comes from John Paulus, the chief economist at the investment firm of Morgan Stanley & Co.

It is true that the amount of lending by depository financial intermediaries -- thrifts and banks -- has taken an astounding drop over the past three years. In the early 1970s, these institutions accounted for about 70 percent of the lending, an abnormally high amount. From the 1970s on, their share of lending began to slide. By 1988, they accounted for 40 percent of the lending, just about average for the past 35 years. However, concern has risen as that figure has fallen to under 10 percent in 1990.

But Paulus points out that there is another kind of intermediary: securities intermediaries. (In Japan, 70 percent of the lending is done through deposit-taking institutions because Japan does not have a corporate bond market. If you had a bank-lending paralysis in Japan, you would have an overall financial paralysis.)

Paulus contends that the debt securities market and the commercial paper market have picked up the slack in lending to corporate America as commercial banks curtailed their lending. Also, the sale of mortgage-backed securities from savings and loans has backstopped the decline in loans from the thrifts.

The latest commercial paper figures from the Federal Reserve support Paulus's premise. By the end of 1988, industrial borrowers had $103 billion of short-term commercial paper outstanding. As of the end of November, they had $147 billion outstanding, an increase of 43 percent.

As short-term interest rates continue to decline, corporations should increase their pace of borrowing. With the one-month commercial paper rate around 7.35 percent and the stated prime rate at most major banks at 10 percent, corporations that have access to the paper market will have an incentive to finance by selling commercial paper.

In the debt securities market in 1989, according to Securities Data Co., industrial and utility companies borrowed $60 billion. In 1990, through the week of Dec. 9, they had borrowed $41 billion. Paulus says that represents a "slower rate of increase, but an increase nonetheless."

It's important to note that since November, long-term interest rates have declined 70 basis points, or 0.70 percent of yield. In November, $13 billion worth of corporates were issued, the most of any month of the year. And so far in December, the corporate financing pace has been frantic.

Paulus's conclusion is that as long as corporations can continue to finance, the recession will not be as deep as many fear. He also thinks that long-term Treasuries could fall to 7.75 percent and that the federal funds rate will hit 7 percent. Both numbers are conducive to more corporate borrowing through the financial markets.