Many US policymakers are still in denial about the underlying causes of the downturn. They argue it is due to a lack of liquidity, and are thus encouraging ‘hot money’ to flood into financial markets.
But the new ‘bubbles’ created by this wishful thinking, such as today’s $80/bbl oil prices, are making the underlying problem worse, not better.
As the blog noted last March, the real problem is that too many US banks are actually insolvent. Many loans made during the 2003-7 Boom to property developers and homeowners will never be fully repaid. Already 120 US banks have gone bust this year, and the Federal regulator has another 416 on its watchlist.
Insolvent banks can’t lend, which is why lending to businesses and individuals remains so weak. Until policymakers start to tackle the solvency problem, the blog fears that we are unlikely to see any major recovery in the US jobs market, or in chemical sales.
Helping you navigate the new normal