One of the interesting things about the data in the previous post (can click here), is how a reduction in US treasuries held by US commercial banks preceded both the most recent economic recessions. I am not, repeat not, suggesting a tight correlation, or even any correlation, let alone cause/effect. What I am saying is, these and similar data suggest a reason US economic recovery could remain anemic into the near future: government need for private capital. Because the US isn’t turning into a socialist state any time soon (good), or even passing a significant stimulus bill (alas), recovery won’t be realized through government initiative. Recovery requires an increase in private spending. The problem: the latter is a difficult proposition for an economy using so much of its private capital to finance the government. Or, as I put it here: “it is difficult to see a proper private re-leveraging as long as so much private capital seems to be necessarily devoted to supporting US bonds instead of private spending.”
I would love to be wrong about this, and even better, to be explained how and why the understanding is wrong.