There is a report floating around arguing that with the collapse of the consumer credit market, there is newly room for more than a trillion dollars in additional U.S. government debt on global markets without causing rates to get squirrely.
That strikes me as an awfully simplistic view of things. First, there is a reason why consumer credit has gone south, and that plays back into debt needs at the sovereign level, from stimulus to housing bailouts. In other words, a trillion isn’t what it once was.
Second, the U.S. isn’t the only sovereign racing to bring debt to market in support of wild-eyed stimulus programs. Let’s not kid ourselves that whatever unoccupied credit market space there is globally gets taken over, squatter-style, by the U.S. as the first and most aggressive arrival.
Finally, and perhaps most importantly, I remain convinced that global debt markets have shrunk materially in a more secular way. In part that’s a function of structural changes in syndication, but it’s also about trust, security, returns and wealth destruction. Just because debt markets globally used to be size X, in other words, doesn’t mean they still are — because they aren’t.
A quick chart of global debt markets to backstop these musings: