DNY59
I’ve written a lot lately about how much money is still available in the financial markets despite the fact that the Federal Reserve has been tightening monetary policy for about 15 months.
First: “Personal credit has boomed in the decade since the global financial crisis…”
In the past, loans from personal loans went to companies that were smaller or riskier.
But the times have changed.
Eric Platt tells us, “Alternative money managers like Apollo, KKR and Blackstone are increasingly funding blue-chip companies as companies seek new sources of capital to offset the impact of higher interest rates and a slowing economy.”
The growing reach of the private lending industry is helping companies bypass traditional banks and bond markets to raise money.
Thank you Federal Reserve.
“Retail loans are rated investment grade.”
above that In the last decade or so, the personal credit financial markets have been flooded with funds and decided to exploit the availability of money.
I’ve written about the asset bubble that the Federal Reserve created with three rounds of quantitative easing as the economy recovered from the Great Recession, and then another round, an overly generous one, as the Fed worked on it , to prevent a resulting financial collapse from the spread of the Covid-19 pandemic.
I’ve written many articles about where these funds have found their place, such as in the world of “blank check funding” and the world of cryptocurrencies.
I’ve written about how these funds found rest in other areas of the financial market.
And I’ve written about how these funds found their place in the “excess reserves” of the commercial banking system.
In total, trillions of dollars have been pumped into the US financial system over the past five to ten years, and the private credit sector has grown to total assets of $1.4 trillion. Not a bad amount to “play around” with.
Additionally, private debt funds have found ways to multiply this into even more assets to work with.
As Mr. Platt writes, “Private equity groups have bought or invested in an insurance company over the last five years, earning hundreds of billions in investment premiums.”
Marc Rowan, CEO of Apollo explains:
“We opted for private investment grade.”
“We, too, are beneficiaries of this global de-banking, because the assets we need…were the kind of things that used to be on banks’ balance sheets, investment-grade personal loans.”
And the insurance entities that the funds have acquired will be required by state regulators to “invest the vast majority of their holdings in investment-grade debt to protect policyholders.”
Clever.
So the beat goes on.
And that’s just another reason the Federal Reserve and other central banks around the world are finding it so difficult to “tighten” their financial systems.
Trillions of dollars in cash have been created by the Federal Reserve over the last decade or so, and large amounts of that money are still “hanging around” in the financial system waiting to be loaned out to keep the market investment grade lively.
And that’s what the Federal Reserve must overcome in order to defeat inflation.
Because of this, the investment community has doubts that the Federal Reserve will actually achieve its goal. The Federal Reserve’s goals just don’t seem substantive enough to eliminate all of the “credit” that has been or can be created in the economy.
That is, by creating the asset bubble, the Federal Reserve has pumped a huge amount of money into the financial system.
Now we’re on the other side of the bubble. And there is still work to be done for the Fed.
In addition, other “segments” of the financial system, such as the personal credit segment, still need to be identified and discussed.
The consequences of the emergence of asset bubbles usually last for a long time.
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