Where is the money?

COMPUTN, Billions of US$, 2000 to 2013, monthly

Commercial paper is a key driver of business activity in The United States, so important that when the market started seizing up in in the throes of The Credit Crunch a bailout one (one of the few bailouts I agreed with) was engineered in the form of the Commercial Paper Funding Facility. This was necessary as businesses use commercial paper for many purposes – for example, and most importantly, immediate access to short term liquidity, as well as a temporary bridge to longer term financing [ .pdf ] (Kahl, Shivdasani, Wang (2010)).

The chart above shows outstanding commercial paper issued in The United States (COMPUTN, black line, in billions of dollars measured weekly) with recessions indicated as vertical gray bars. It is immediately obvious that the issuance of commercial paper has fallen sharply post Great Recession. In fact before The Great Recession commercial paper outstanding averaged $1,552B, when measured on a monthly basis. Post Great Recession commercial paper outstanding averaged $1,068B, or a contraction of over 31%.

So given that issuance has collapsed how are businesses financing themselves? Retained earnings, factoring receivables, all sorts of mechanisms that are relatively inefficient and illiquid when compared to commercial paper. Another manifestation of the risk off mindset. Not good.

Comments are closed.