First: 2/3rds of the lending market has been all but obliterated. All that is left are the banks and 5 years ago, they were hardly players. It was Insurance Companies and other diversified corporations who were actively leveraging their balance sheets. No more.
Second: Zero real interest rates mean that insurance companies and other fixed rate players must take far greater risks, go out the yield curve, invest in synthetic securities (aka: derivatives. Eek!) to keep their promises to millions of annuity investors. When the rates inevitably rise, the value of these securities is going to collapse, triggering massive rating agency downgrades and concomitant breaching of all sorts of covenants. They will need to be bailed out. And everyone knows it.
Third: The service sector, outside of government subsidized bits, is strangling to death. And it has historically been that sector that has generated the job growth to keep the fruits of the economy at least a little bit distributed. These entities are now down 20 even 30 percent off of the peak. They aren't hiring, instead those that held on are beginning to fire to adapt to the new normal that in terms of its mix of public and private, in its reliance on banks and in the relative size of unsubsidized services is approximating Europe more and more each day.
It's as if Napoleon never sold Louisiana to us. Welcome to New New France.
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