Last December there was a lot of concern that European financial chaos could kill the American economy. Then came several months of strong growth in the United States. But more recently, America's economic numbers have turned sour again. What explains it? I'm beginning to worry that it may be the return of Euromageddon. Specifically, the latest IMF financial stability report sees massive $2.6 trillion in deleveraging by European banks over the next 18 months.
The problem here for non-Europeans is that a fair amount of domestic American credit is actually laundered through Europe by European banks who raise funds in the United States wholesale market and then lend them back to U.S. borrowers. The upshot is that a banking squeeze in Europe can squeeze credit availability in the United States which could explain the otherwise puzzling failure of the United States to respond to steadily rising rents with new multifamily house construction.