About $7 trillion of sovereign bonds now yield less than nothing. Lenders give their money to governments… who swear up and down, no fingers crossed, that they’ll give them back less money sometime in the future. Is that weird or what?...
Economic growth rates are falling toward zero. And at zero, it normally doesn’t make sense for the business community – as a whole – to borrow. The growth it expects will be less than the interest it will have to pay.
That’s a big problem… Because the Fed only has direct control over the roughly 20% of the overall money supply. This takes the form of cash in circulation and bank reserves. The other roughly 80% of the money supply comes from bank lending.
If people don’t borrow, money doesn’t appear. And if money doesn’t appear – or worse, if it disappears – people have less of it. They stop spending… the slowdown gets worse… prices fall… and pretty soon, you have a depression on your hands.
How to prevent it? If you believe the myth that the feds can create real demand for bank lending by dropping interest rates below zero, then you, too, might believe in NIRP.
It’s all relative, you see. It’s like standing on a train platform. The train next to you backs up… and you feel you’re moving ahead. Negative interest rates are like backing up. They give borrowers the illusion of forward motion… even if the economy is standing still. Or something like that
It’s all going the wrong way now, with fewer proactively spending more than their incomes to ‘offset’ those desiring to spend less than their incomes. That is, as previously discussed, the private sector tends to be highly pro cyclical
Feb 19 (CNBC) — A cash crunch is impeding the online lending industry’s growth as the cost of borrowing grows, funds become increasingly scarce and ratings agencies maintain a cautious outlook toward the space.
Next, start-ups that have grown into unicorns originating billions of dollars’ worth of loans may find themselves doing less lending or, conversely, putting more of their loans onto their own books.
The asset-backed securities market is slowing and issued a meager $40 billion in January — the lowest total since at least 2012, according to Dealogic data — and generated a paltry $10 billion in ABS loans in February. In terms of deal volume, ABS deals in 2016 have also dropped to lows the market has not seen for years.