Our money system requires that ever larger
amounts of new credit be issued or else the banking system becomes
really unhappy. Consumers with credit cards is one form of credit,
mortgages another, but the a really, really huge piece of the credit
pie is the corporate debt markets. This article points out that a
massive shortfall in this arena has happened.
BOSTON (MarketWatch)- April 3, 2008 – The credit crisis that began in
July has been responsible for global debt underwriting volumes falling
by more than $2 trillion and by $1.3 trillion in the U.S., on a
period-over-period basis, analysts at Oppenheimer & Co. said in a
research note. "As more than 80% of corporate funding came from the
capital markets during 2007, we can’t help but believe that such a
massive extraction of liquidity from the market will have a profound
impact on the U.S. economy," they wrote. "As bank balance sheets show
similar strain to brokers’ own balance sheets, there is little room in
the system to ‘pick up the slack’ vis a vis corporate lending."
The story here is that several very
significant areas of borrowing are being curtailed raising the obvious
question. "where will the new borrowing come from?"
We are now seeing declines in:
- Home mortgages
- Auto loans
- Corporate borrowing
I would expect it’s only a matter of time
before we see actual declines in commercial and industrial loan
amounts, and even credit card debt, as well. This credit bubble is well
and truly bursting, and I am not at all comforted by the unprecedented
and possibly illegal maneuvers by the Fed these past couple of weeks.
Rather, they seem to speak of an even larger problem that we’ve not yet
been told about.
Okay, so the forecast of a fall in commercial loans is not all that astute. I mean, check out the recent data:
Vacancies at community and neighborhood shopping centers in the United
States rose in the first quarter to the highest level in more than a
decade, and rent growth was the lowest since the last recession, the
research firm Reis reported on Friday. The average vacancy rate rose to
7.7 percent from 7.1 percent a year earlier. It was the highest since
1996, the real-estate researcher said. Demand for retail space is being
hurt by a drop in home prices and sales, rising food and gasoline
costs, and job cuts, Reis said.
It’s not much of an analytical stretch to go
from decade highs in retail vacancy to predicting a fall-off in
construction loans. So we can pretty much put that one in the bag.