Recently, I wrote about IMF findings that the corporate and household debt mountains in the euro area remain unaddressed. Here is the World Gold Council chart on issuance of new covenant-lite corporate debt in the US:
The new age of complacency is emerging, defined by the ease of debt raising and low volatility:
Which, of course, can mean only two things:
- There will be reversals out of status quo.
- Low volatility implies reduced returns on investment and capital. This, in turn, implies lower investment and capital, which means lower growth and higher inflation into the future
With a caveat that we do not know the timing of the above changes, one has to keep in mind that the longer the status quo pre-1&2 remains in place, the worse 1&2 will be.
So there it is, a set up for gradual, painfully stagnant and prolonged unwinding of the extraordinarily accommodative monetary policies of the recent past...
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