The question most asked in economic circles is, “How and when will our economy return to normal?” My response is always, “What is normal?”
I find it most impactful to explain to people looking to gain a greater understanding of our economy and our markets that the normal economy of the late ’90s through 2007 was driven by the shadow banking system. This shadow banking system provided upwards of 40-45% of the total credit employed by our economy.
The shadow banking system incorporated the credit origination, securitization, and distribution businesses of Wall Street investment banks as opposed to the traditional lines of credit provided by commercial banking activities.
The crisis on Wall Street 2008 brought this shadow banking system to a virtual standstill. While it has begun to resuscitate itself, it remains a mere shadow (no pun intended) of its former self. What is the result? An economy that is trying to adjust to operating with only 60% credit capacity. Picture yourself trying to carry on a normal course of business while scaling a mountain. While it may be nice to be back at sea level with nary a cloud in the sky, the fact is we continue to have a very steep economic landscape in front of us.
Government programs are trying to help us navigate on one hand, but come with the burden of increasing our debts and taxes on the other.
How do business CFOs view our landscape ahead? CFO Magazine provides an outstanding overview this morning, The Long and Grinding Road. These graphs and pictorials provide an awesome overview of our economy chugging along in the absence of a vigorous shadow banking system.
I STRONGLY encourage you to review them. They provide a clear snapshot of our economic landscape. Look particularly at the disparities between our domestic situation and that in Asia. Look at the availability of credit. Look also at the cuts companies have made and the likelihood of reversing those cuts.