Financial Times (March 22)
Many hope that negative interest rates will “encourage banks to lend more plentifully and cheaply and help support economic recovery.” This might instead prove “a dangerous experiment with diminishing positive impact.” The optimistic forecasts overlook “how financial intermediaries may actually respond.” Negative rates “erode banks’ margins. They give lenders an incentive to shrink, not grow. They encourage banks to seek out opportunities overseas rather than in their home markets. They also risk disruptions to bank funding. All go against the grain of the central banks’ desire to ease credit conditions and support financial stability.”
Tags: Banks, Credit, Dangerous, Diminishing positive impact, Economic recovery, Experiment, Financial stability, Intermediaries, Lending, Margins, Negative interest rates, Overseas
Bloomberg (March 30)
“In order to steer China off its current trajectory, leaders are going to have to tolerate a bigger hit to GDP. They must also quickly build a transfer mechanism to allow banks, state-run enterprises and entire municipalities to dispose of bad loans.” China’s total debt to GDP ratio “now exceeds America’s 269 percent and Germany’s 258 percent. Even more worrying: If the credit buildup continues at its current pace, that ratio will explode to 400 percent by 2018.”
Financial Times (June 24)
“It is too early to say, but with the credit intensity of China’s slowing economic growth surging back this year to levels last seen in the 2009 credit boom, a severe credit squeeze could precipitate a big drop in investment, accentuate the downturn in growth and lead to financial and banking sector instability.”
Tags: Banking, Boom, China, Credit, Downturn, Economic growth, Instability, Investment, Squeeze
Barron’s (April 23)
A U.S. debt downgrade is “likelier than not.” Rating agency Egan-Jones placed the U.S. on a negative watch over a month before S&P generated uproar with its lower outlook. Moreover, Egan-Jones Ratings has a better track record. It foresaw corporate problems that other agencies missed or ignored. The extent of the Egan-Jones action should be worrying for the federal government. “On March 1, Egan-Jones put the U.S. government’s triple-A rating on negative watch—a further step down the credit ladder from a negative outlook. It means a downgrade to double-A-plus is more likely than not.”
A U.S. debt downgrade is “likelier than not.” Rating agency Egan-Jones placed the U.S. on a negative watch over a month before S&P generated uproar with a lower outlook. Moreover, Egan-Jones Ratings has a better track record. It foresaw corporate problems that other agencies missed or ignored. The extent of the Egan-Jones action should be worrying for the federal government. “On March 1, Egan-Jones put the U.S. government’s triple-A rating on negative watch—a further step down the credit ladder from a negative outlook. It means a downgrade to double-A-plus is more likely than not.”
http://online.barrons.com/article/SB50001424052970203583604576271080879008522.html?mod=BOL_twm_mw
Tags: Credit, Egan Jones, Ratings agency, S&P, U.S.
