07-25-2012, 12:55 PM
Trans, there is good news and bad news (as I see it). In a way, the US is a bright spot. Although they pussyhandled the banks, but they did one thing right. They really forced them to go to the capital markets, hence their balance sheets are way more healthy than their European counterparts. Another positive thing is that the US if much further down the deleveraging process than most (Japan is a bit of a separate case).
But to quote Koo from Nomura, who is very familiar with this territory, if the central bank cuts interest rates to zero and nothing happens, you're not in an ordinary economy. Banks can lend. They sit on tons of excess reserves, but credit demand is pretty weak still. Companies have record profits and are sitting on $5 trillion in cash, while demand and capacity utilization is tepid at best.
But I expect nevertheless that central banks will throw everything and the kitchen sink at it if Europe starts to unravel, and equity markets might very well be the main theater of impact, as I can't see it having much effect in the real economy, to be honest.
But to quote Koo from Nomura, who is very familiar with this territory, if the central bank cuts interest rates to zero and nothing happens, you're not in an ordinary economy. Banks can lend. They sit on tons of excess reserves, but credit demand is pretty weak still. Companies have record profits and are sitting on $5 trillion in cash, while demand and capacity utilization is tepid at best.
But I expect nevertheless that central banks will throw everything and the kitchen sink at it if Europe starts to unravel, and equity markets might very well be the main theater of impact, as I can't see it having much effect in the real economy, to be honest.