In case you’re curious where the losses are, the PE industry has been acquiring and then raiding the floats of c.10% of US life insurance assets. They’ve been filling them with private credit and direct lending, all using the same private ratings agency to misclassify the loans. For some unknown reason, these lifeco acquisitions were allowed and took off from 2020 and beyond. The advantage of these faulty ratings is both eligibility and highly advantageous capital treatment. Insanely low, in fact. Like Greek bonds at Dexia in the GFC. Plus, the loans are backed by widespread fraudulent collateral, already defaulting at 10% or more even with PIK and rampant debt-for-equity restructurings.

@PauloMacro After watching this it’s much worse than just the rate cuts advice…line by line it’s almost entirely the opposite of true. Low income wages are rising the fastest not the slowest. Floating rate consumer debt is a tiny fraction of overall income and debt, not a large one. High rates of debt service due to rates largely get paid to foreigners given the huge gross external debts (therefore not impacting domestic spending much at all). The fiscal deficit didn’t blow out due to rates. It blew out because of a lack of capital gains in 2023 after the bubble bust.

Gonna do a little thread here (will not use the emoji to suppress gag reflex) about US money printing and deposits...a couple misconceptions are bugging me. 1) When the Fed buys a bond from a commercial bank, no deposit is created. It's an asset switch. One fewer bond, one more reserve asset (base money).