Something funny happened on the way to the bank: In August, commercial and industrial loans outstanding at all banks in the US fell for the first time month-to-month since October 2010, which had marked the end of the collapse of credit during the Financial Crisis.
In October 2008, the absolute peak of the prior credit bubble, there were $1.59 trillion commercial and industrial loans outstanding. As the Great Recession chewed into the economy, C&I loans plunged. Many of them were cleansed from bank balance sheets via charge-offs. But then the Fed decided what the US needed was more debt to fix the problem of too much debt, thus kicking off what would become the greatest credit bubble in US history. By July 2016, C&I loans had surged to $2.064 trillion, 30% above their prior bubble peak.
But in August, something stopped working: C&I loans actually fell 0.3% to $2.058 trillion, according to the Federal Reserve Board of Governors. That translates into an annualized decline of 3.8%, after an uninterrupted six-year spree of often double-digit annualized increases. Note that first month-to-month dip since October 2010:
The ugliest credit stories in terms of bonds, according to Standard & Poor's Distress Ratio, are the doom-and-gloom categories of "Energy" and "Metals, Mining, and Steel." Next down the line are two consumer-facing industries: brick-and-mortar retailers and restaurants.
But these metrics by credit ratings agencies are based on companies that are big enough to be rated by the ratings agencies and that are able to borrow in the capital markets by issuing bonds. The 18.9 million small businesses in the US and many of the 182,000 medium size businesses don't qualify for that special treatment. They can only borrow from banks and other sources. And they're not included in those metrics.
But when they go bankrupt, they are included in the overall commercial bankruptcy numbers, and those numbers are getting uglier by the month.
In September, US commercial bankruptcy filings soared 38% from a year ago to 3,072, the 11th month in a row of year-over-year increases, according to the American Bankruptcy Institute.
For the first nine months of 2016, commercial bankruptcy filings jumped 28% compared to the same period in 2015, to 28,789. Most of those are not the bankruptcies we hear about in the financial media. Most of them are small businesses that go that painful route - painful for their creditors too - in the shadows of the hoopla on Wall Street.
By comparison, just over 100 oil and gas companies in the US and Canada have gone bankrupt since the beginning of 2015. About a dozen retail chains have filed over the past year, along with about 12 restaurant companies, representing 14 chains.
Commercial bankruptcy filings skyrocketed during the Financial Crisis and peaked in March 2010 at 9,004. Then they fell on a year-over-year basis. In March 2013, the year-over-year decline in filings reached 1,577. Filings continued to fall, but at a slower and slower pace, until November 2015, when for the first time since March 2010, bankruptcy filings rose year-over-year. That was the turning point. Note that there is no "plateauing":
Rising bankruptcies are an indicator that the "credit cycle" has ended. The Fed's policy of easy credit has encouraged businesses to borrow - those that could. But by now, this six-year debt binge has created an ominous debt overhang that is suffocating these businesses as they find themselves, against all promises, mired in an economy that's nothing like the escape-velocity hype that had emanated from Wall Street, the Fed, and the government.
Restaurants are experiencing a wage of bankruptcies that rivals that of 2009-2010, with "very challenging" sales trends. Read... Restaurant Industry, Leading Indicator of US Economy Sours, Bankruptcies Pile up
Small and medium sized businesses are going to cease to exist in the future. It won't be possible for them to survive financially with so much competition. There are certain common misconceptions about the business
world. The first is that if you switch from an employee to an employer, you 'll make more money. That's hardly
the case. Most of the time the opposite is true.
Secondly, there are so many restrictions, rules and regulations especially if you 're running an international business that you better have a good legal department. If you don't you won't survive because there's so much scrutiny, "The authorities" will want to know if the bell boy wears his uniform.
As a result, businesses have to make everything they can to avoid taxation (that's if they have any profits to begin with) will resort to fraud (bribery for example), will relocate their businesses wherever wages are the lowest, will add products to their production lists if they can and so on and so forth. Pure paranoia. It was going to happen.
When borders of all sorts fall, stuff like that happens.