Demand for lending remains brisk across the economy. But a look at loan growth over the past year illustrates a large divergence in loan provisions to traditional borrowers versus non-depository financial institutions.
The divergence speaks volumes about risk—think private credit, private equity and crypto—and the growing imbalances underscoring the American economy.
It vividly portrays the growing risk of leverage across financial institutions inside an increasingly financialized economy.
Through mid-October, credit to non-depository financial institutions had increased by 44.6% from one year ago in contrast with the more pedestrian 4.5% increase among traditional borrowers.
Given the increase in leverage across the economy to chase returns, the idea of a K-shaped lending market should be of little surprise.
It fits within the context of a financialized economy driven by low rates, liquidity and leverage.
Anyone who has been paying close attention to the evolution of risk and the American economy understands that imbalances like that cannot indefinitely endure.
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