We’ve been saying for quite some time that the various government programs have broken the credit markets in a way that make them useless for telling whether or not the economy is recovering. For years, the credit markets were some of the best indicators or distress at both the individual company level and the broader economy level. Now they don’t tell us much besides the fact that there are lots of government guarantees.
Here’s Floyd Norris making that point in the NY Times.
Corporate bond markets around the world are functioning in large part because of government guarantees. Eight months ago, before the collapse of Lehman Brothers and the rescue of the American International Group, the idea of a government-guaranteed corporate bond would have seemed contrary to basic capitalist principles. Now, such bonds account for a substantial share of corporate bond issuance, generally by banks and other financial companies.
His charts are great for demonstrating this point. Click here to check them out.