| Where Have All The Lenders Gone? |
| One of the defining characteristics of the current recovery has been a widespread risk-aversion; in fact this has been the most risk-averse recovery ever. | |
| This in turn has led to significant deleveraging and increases the money demand. Households, investors, Wall Street and Main Street are all stockpiling massive amounts of reserves (cash). The asset-to-liabilities (cash-to-loan) ratios of many financial institutions are approaching record levels. This has translated into a tight credit market… has anyone tried to get a loan recently? | |
| On the residential front, the leverage of the household sector, as a % of assets has fallen by almost 25% in just over four years. This takes us back to the mid-1990s. There has never been such a dramatic deleveraging of household balance sheets in the past 70 years. | |
| Households have the lowest financial burdens in the past 30 years. Alongside this the average delinquency rate on credit cards and other consumer loans have declined through Q3/13. Both of these measures are at a 20-year low and this is good news for consumers and banks alike. | |
| Not surprising, banks’ profit margins are up, and households’ financial health is greatly improving. All of this is due to a dramatic increase in risk aversion. | |
| Since the 2008 downturn, the Fed has injected bank reserves by $2.7 trillion and more than 97% of these funds are being held by banks as “excess reserves.” These are not needed or required to back up new loans or deposits which have soared by over $3 trillion since 2008. In this environment, banks should be aggressively lending. | |
| In this same time period after-tax corporate profits have hit all-time highs, doubling since the end of 2008 and tripling since the end of 2000. | |
| So the question is: Where have all the lenders gone and where are the jobs, higher wages and economic expansion?
Reference Brian Peitz |
