Record Failures of '23
“Every victory is only the price of admission to a more difficult problem”
― Henry Kissinger
Markets hit new highs recently now that inflation appears to be under control. To Kissinger's point, does a more difficult problem await us? The following three images suggest that could be the case . . .
Bank Troubles
Last year was a record for bank failures -- surpassing even 2008. Somehow this bit of trivia has escaped the broad public's attention. Three of the four largest banks failures in history all happened in 2023. We fear the full ramifications are not behind us. Per the chart below, commercial loans (green line) continue to languish, especially in comparison to growing federal borrowing (red line):
Banks are struggling with deteriorating real estate loans on their balance sheet (especially those backing office buildings). Making matters worse, banks face increasingly onerous regulatory capital requirements, which make it more expensive to hold commercial loans on their balance sheets. No surprise, banks have been less willing to lend to businesses. This is a headwind for economic growth.
Debt Doubles
Washington is on track to more than double its pre-COVID debt levels within the coming decade:
(These are Congressional Budget Office (CBO) forecasts, which we believe are optimistic.)
Crowding Out
Finally, it's worth noting that the interest expense on federal debt will soon exceed defense spending according to the Congressional Budget Office (CBO).
As interest expense consumes a growing portion of Washington's budget, important spending could get crowded out - not just defense, but ultimately critical social programs such as Medicare or Social Security. Steve and I summarize how Fielder is positioning client portfolios given these crosscurrents in this short video:
Yours in the Field,
Frank Byrd, CFA
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