Every market transaction requires both a buyer and a seller. They are called counterparties. Unfortunately, there’s a shortage of buyers in a whole lot of marketplaces right now. For example in home real estate. After there were so many foreclosures during the Great Recession, home ownership fell to its lowest level in the last fifty years. Investors started to buy up homes. They increased the market price of home real estate by doing that and blew another home real estate bubble. The trouble is that there aren’t counterparties who can buy homes at these inflated prices. Foreclosures wiped out the real estate investment monies of previous buyers and real estate inflation has hampered real estate market recovery for new buyers. Taxes on home real estate went up and that helped cities to pay for their city services (and vexed homeowners). But finding a buyer for your home when you are ready to sell isn’t easy right now. There’s a shortage of counterparties that can take your place as a resident home owner.
Another example of counterparty shortage is the car market. While the average car in the United States continues to advance in age, a sub-prime car market has been nurtured. A lot of cars have been sold to people who can’t afford a new car and these sub-prime buyers have begun to default on their payments, keeping the repo man busy. If they try to sell their car to get rid of those payments, there’s a shortage of buyers. The job market has had few good-paying jobs, and the economy just isn’t robust enough to cycle much money into the car market.
Another counterparty shortage example is on Wall Street. A lot of corporations have kept their stock price elevated by buying back their own shares. This isn’t the way that Wall Street used to work. Wall Street was once a place where a new company could get established and then grow by selling shares to stock holders. Then later, after much success, the company could sell itself to a buyer. There were lots of counterparties on the way to greater success and that worked to allow profitable businesses to grow and then to be sold off at a profit. Not so much now. The stock market has gotten thinner and there are fewer IPO’s, now. But worst of all, the market isn’t robust enough to sustain the growth of new companies.
A shortage of counterparties shows us that the economy we’re living in isn’t a virtuous one. In a virtuous economy, money circulates robustly among many buyers and sellers and prosperity is more widespread. Several steps will be required to restore our economy to prosperity. One is to re-regulate banks and reduce their size. Another is to reform our monetary system with sounder money which will put us on the road of ending fiscal overspending by the government. To understand more about how we got here, to understand more about fiscal policies, monetary policies, financialization and the Sub-prime Mortgage Crisis, read Political Catsup with Economy Fries available at Amazon.com.