apologies for late reply -- our computers have been crashing left right n centre. Damn embarrassing given the ongoing due diligence process on us!
[bounced bec of an attachment - this is all a way of saying the credit markets are getting nervous about risk, and marginal borrowers are having to pay higher interest rates than before, right? and the big question is will there be a credit crunch, i.e., will it get harder for those riskier borrowers to find a loan at any price?]
Yeh, that's a fair summary, although it's Warby's view rather than strictly mine. Credit is getting tighter, and the big question, as you say, is whether a few more rate rises will turn off the tap. Rumours are that we're looking at a 50bp incrase next time, which ought to spook the markets. As 1998 proved, certain parts of the bond market (asset backed securities, mortgage bonds, junk) are really prone to crunch. In 1998 the banking system came in and basically propped up the system; presumably the Fed's extension of the tripartite repos (don't ask me, 'cos I don't know) is intended to keep the banks stuffed with liquidity so that they can do so again. But the US (commercial) banking system in 2000 isn't as strong as it was in 1998 -- bad debts have been rising all the time, a fair few banks have had profits warnings, and there's a lot more margin debt (and consumer debt which is really margin debt) out there, which has to be considered bad in the event of a crash.
The thing that really worries me about the USA -- my tip for the "black hole" -- is the fact that it has a huge uninsured banking system in the money market mutual funds, a lot of which are big customers of the asset-backed market. If the effect of a crash is to knacker the commercial paper and short-dated instruments, and if that leads to a collapse of a couple of MMMFs, and if that leads to a couple of runs on the MMMFs, and if a largish chunk of Americans get reacquainted with the initials "FDIC" .... you don't want to be around when that happens.
ooohhh, scary
dd
PS: I personally am sceptical of whether credit crunches can occur in well-capitalised banking systems. On balance, my view is that the USA remains secure; this is the downside.
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