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ASRs ‘debt deleveraging’ theme in Bloomberg Opinion … and the risks from Non-Bank Financials

Beth McCann

21st APR. 2023

In discussion with Bloomberg’s John Authers, ASR’s David Bowers argues that “a decline in the money supply does matter . . . (he) points to total debt in the US as a proportion of GDP. For the first time since . . . the debts incurred to finance WW II, debt has come down, and sharply” . . .

 “The broader effects of the monetary and fiscal stimuli that arrived with the coronavirus in 2020 and then vanished in 2022 still appear to be profound, as this has created a true de-leveraging across the economy on a scale that hasn’t been seen before. And while the effect is particularly strong in the US, where the authorities were generous with their payouts, the pattern is the same if we look at the global picture. After a big spike, debt is coming down as a proportion of GDP. That is being led by central banks” (see ASR chart).  

“If deleveraging is hard to handle, then that naturally implies reason for concern about the health of the banks. As we learned last month, they face pressure holding on to their deposits. The latest news, with the larger US regional lenders announcing their first-quarter results, suggests pain for their shareholders, but not a crisis — at least not yet”.

ASR has argued for some time that “with the biggest banks now more tightly regulated, risk has migrated to non-banks” – see research links below. 

Bloomberg notes A flurry of reports showing regulators are also nervous about the risks: see papers from the New York Fed, the Financial Stability Board, and the International Monetary Fund

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