As part of my ongoing series on the seemingly never-ending credit squeeze, it’s time to briefly review the big picture as it pertains to credit markets, lending and credit spreads.

The credit picture has been worsening since late May.

Following the rescue of Bear Stearns in mid-March, which marked a temporary lull in the credit crisis, credit spreads narrowed for most securities. But since late May, credit markets have reversed violently and, in fact, now exceed the previous depths of early March when credit spreads were soaring.

The TED Spread, or the difference between 3-month LIBOR and three-month T-bills, remains elevated. Both the Fed Funds rate and the ECB’s target bank rate also remain far above three-month money market targets. This continues to suggest that banks are still reluctant to lend to each other overnight and don’t trust what’s on the other guy’s balance sheet.

Credit indexes measuring investment grade and junk (non-investment grade) bond markets in the United States and Europe have reversed violently since June and now sit at all-time highs, meaning spreads are at extremes. Default rates are now rising sharply.

Credit remains hard to secure.

U.S. lenders are demanding higher borrowing standards and charging more for credit, which threatens to crimp growth and drive up unemployment. An index compiled by the Federal Reserve shows that companies now pay more for their money than they did when borrowing costs peaked in 1991 and 2001. It will be very difficult for the economy to grow if companies can’t secure the best terms for borrowing. So here we go again. Things aren’t getting better -- they’re getting worse. This helps to explain why a global bear market has dug deep into financial stocks and most of the broader market recently; the global economy is slowing. That implies corporate earnings remain overly optimistic and will have to be revised even lower.

Also, the housing market joins the contraction of bank credit as a formidable obstacle facing the American economy. England is also in the same mess – and was recently joined by Ireland and Spain.

Stay defensive. So far, this is one nasty summer.

Have a good weekend.