Hi!

Hier wieder ein Kasriel-Artikel:

<font="4">The"New Economy" Leverage Chickens Are Coming Home To Roost</font>

I want you to take a look at Charts 1 and 2. You don't even have to take a close look to see that there was a"paradigm" shift taking place in the early 1980s. That shift was a quantum leap in leverage in the US economy. Chart 1 shows that starting in the early 1980s, there was a steady increase in the amount of debt associated with a dollar's worth of capital stock here in the US of A. Chart 2 shows that in the past 20 years or so, there has been a steady increase in the amount of debt associated with a dollar's worth of GDP. Again, the relationship between debt and the US economy in the past 20 years has not been just a continuation of a postwar trend, but a major trend change. Moreover, this paradigm shift has been apparent for a number of years now for anyone who bothered to look. In the heady days of the"new economy," investors could have cared less about the economy's degree of leverage. Today, leverage is almost the only thing that investors care about.

<Center>Chart 1</Center>

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Nowhere can the concern about leverage be more apparent than in credit-quality yield spreads within the investment grade corporate bond markets. Chart 3 shows that in recent weeks the yield spread between the lowest-rated investment grade bonds and the highest-rated corporate bonds has moved to its widest reading since the 1990 recession. As I have mentioned numerous times before, in the second half of the 1980s, we witnessed an orgy of leveraged buyouts; in the second half of the 1990s, we witnessed an orgy of leveraged buybacks.

<Center>Chart 3</Center>

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The economy clearly has recovered from one of the mildest recessions of the post-World War II era. But if private-sector leverage continues to be an issue with investors, then this recovery also is likely to be one of the most anemic in the post-war period. And if leverage becomes an even bigger issue, who knows, we could even be in for a double dip.

Paul Kasriel

Quelle





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>Hi!
>Hier wieder ein Kasriel-Artikel:
><font="4">The"New Economy" Leverage Chickens Are Coming Home To Roost</font>
>I want you to take a look at Charts 1 and 2. You don't even have to take a close look to see that there was a"paradigm" shift taking place in the early 1980s. That shift was a quantum leap in leverage in the US economy. Chart 1 shows that starting in the early 1980s, there was a steady increase in the amount of debt associated with a dollar's worth of capital stock here in the US of A. Chart 2 shows that in the past 20 years or so, there has been a steady increase in the amount of debt associated with a dollar's worth of GDP. Again, the relationship between debt and the US economy in the past 20 years has not been just a continuation of a postwar trend, but a major trend change. Moreover, this paradigm shift has been apparent for a number of years now for anyone who bothered to look. In the heady days of the"new economy," investors could have cared less about the economy's degree of leverage. Today, leverage is almost the only thing that investors care about.
> <Center>Chart 1</Center>
><center> </Center>
>Nowhere can the concern about leverage be more apparent than in credit-quality yield spreads within the investment grade corporate bond markets. Chart 3 shows that in recent weeks the yield spread between the lowest-rated investment grade bonds and the highest-rated corporate bonds has moved to its widest reading since the 1990 recession. As I have mentioned numerous times before, in the second half of the 1980s, we witnessed an orgy of leveraged buyouts; in the second half of the 1990s, we witnessed an orgy of leveraged buybacks.
> <Center>Chart 3</Center>
><center>> To paraphrase Christine Richard, a Dow Jones Newswire reporter writing in the February 20 edition of the Wall Street Journal, the Fed has been encouraging corporations to take on more debt as lenders and ratings agencies have been discouraging them from doing so. Investors and ratings agencies are winning the tug of war. At a base rate of 1.75%, lenders are more reluctant to extend credit today than they were a couple of months ago. This would be expected to manifest itself in slower broad money supply growth. And, indeed, as Chart 4 shows, the M2 money supply growth rate has slowed in recent weeks. Prior to September 11, M2 was cruising along at about a 10% annualized clip. But of late, its growth rate has slipped to about 6%. Fed watchers are debating when the central bank will next tighten policy - the end of June or mid August? But, in effect, monetary policy already is tighter even though the Fed has not raised the funds rate.
> <Center> Chart 4</Center>
><center>[img]" alt="[image]" style="margin: 5px 0px 5px 0px" /> </Center>
>The economy clearly has recovered from one of the mildest recessions of the post-World War II era. But if private-sector leverage continues to be an issue with investors, then this recovery also is likely to be one of the most anemic in the post-war period. And if leverage becomes an even bigger issue, who knows, we could even be in for a double dip.
> Paul Kasriel
> Quelle


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