The Economy

https://cepr.org/voxeu/columns/market-impact-fed-press-conference

 

Central banks face an excruciating trade-off

 

I'll say this. ... there is a confidence game in play right now. They have stemmed the tide with the implicit (but ridiculous) guarantee that everyone's deposits have somehow now been guaranteed by the U.S. government.

But:

1) with the small amount of tightening the Fed has done, it created the cracks we just saw, and as a result, banks have now puckered up tighter than a snare drum when it comes to lending, which has the effect of even more tightening of financial conditions, which will put more pressure on banks. ... unless the bond market judges that the Fed is going to be able to get the party raging againg somehow (which was the wink wink game Jay Powell was trying to play yesterday, made more difficult by the fact that he has contradictory messages because inflation is still eating people up).

2) with what they have already done, we are already seeing cracks in other areas aside from holders of long-dated treasuries. ... for example, the commercial real estate market is showing serious signs of distress. There is an eye-popping amount of debt that comes due over the next 2 to 3 years (it has already begun) and will need to be refinanced at much higher cost UNLESS they can bring us back down to a free money environment. Now consider the regional and community banks that have big portfolios of commercial real estate loans. Even before we see the bulk of those refinancings coming due. ... we are already seeing people handing keys over to those banks: Commercial Property Debt Creates More Bank Worries

 

This was a European property. Blackstone defaults on a $562.5 real estate bond payment

But this was America: Blackstone Stops Making Payments on $325M Las Vegas Office Loan | GlobeSt

Blackstone is a HUGE private equity / alternative investment manager that probably has close to a trillion dollars of assets under its management. It attracted money from people who got pushed farther up the risk spectrum by Fed policy that stole safe yield from savers. Blackrock has spent the last several years loading up on a massive residential and commercial real estate portfolio that was made possible by the zero interest rate environment. Their whole business was predicated on money STAYING free.

 

It's all they got. ... it is f'ing us all.