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As if the credit markets aren’t already under enough pressure, the mass intrusion of state and federal debt will only make matters worse.
At a time when credit availability is at a premium, the federal government has launched its biggest series of Treasury auctions yet while more states are issuing debt in order to support their spending needs.
Consumers and businesses looking to borrow and investors trying to find a way to navigate a marketplace heading toward higher interest rates will find the conditions daunting, experts say.
“Clearly the government is not the 800-pound gorilla—it’s the 8,000-pound gorilla in the credit markets nowadays,” says Mike Larson, analyst at Weiss Research in Jupiter, Fla. “These numbers are just so mind-boggling. Really what’s going on is you have intractable debt and deficit problems in the country that neither side wants to tackle in a meaningful way, so the market is doing it for them.”
The phenomenon in which public entities push private borrowers out of the market is often referred to as “crowding out.” The result usually is higher borrowing rates and more difficult choices for investors who have to make sure they’re not putting their money in assets that are sensitive to interest rate moves.
While that problem specifically has not hit the market full bore yet, the signs for intense credit pressure are there.
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