In fact, Fed banks only control 4% percent of CMBS lending market while shadow bank funds control 45% percent. The shadow banks and low-interest rates have kept CRE valuations high both in the US and Europe. In most cases, the private debt funds interest rates were lower than the banks. This gave over-leveraged owners a chance to refinance the shadow wealth at lower rates. In Europe private debt funds are showing cracks, according to RCA, European CRE debt funds capital raise amounts have declined by 46% percent to $5.4B in 2019. According to PERE capital inflows to CRE debt funds across the board fell by 48% in 2019 after peaking at $39 billion in 2018.

After the last “tamper tantrum” the Fed has led to a $4.2 trillion portfolio of United States Treasury debt and mortgage-backed securities as part of a strategy known as quantitative easing (QE). The majority of the QE capital flow has went to the top 1 percent and is concentrated in derivatives and speculative instruments which has no meaningful stimulus effect on employment, the  feds 2% inflation targets or wages. Today,many of the theories presented by western economist over the last 30 years appear to be no more than mathematical mythology of the Trinity. Such as the  1.3 trillion dollar Trump tax break for corporations will provide the incentives for businesses to invest and create more jobs with a living wage.

In 2013 the fed set the stage for expansion of the global wealth gap when the head of the Federal Reserve voted to implement the asset injection in to the veins of the QE addicted speculators, he felt something in his gut that that they could have created perpetual speculation and leverage. J Powell said he voted in favor of the Fed’s final round of asset purchases, known as QE3, which begin September 2012, but he told his colleagues that he did so “with a certain lack of enthusiasm.” He was particularly concerned that the Fed’s bond buying would undermine financial stability.(NY Times 2019). Now the same economist wants sell you austerity after they have emptied the treasury with smoke and mirrors. In contrary to the IMF, World Bank the US needs to increase public spending with strategic targets that add value to the US infrastructure, human capital and not a speculative assets bubble based on falling wages.

In 2018 commercial real estate loans in the US reached a record of $4.3 trillion. This number is 11% greater than it had been during Dante’s peak of the prior commercial real estate bubble before it imploded into the financial crisis. In today’s US CRE core markets, leverage is everything. Many small banks are on the hook for shadow debt, see if they get a blanket.

However, without a mutually beneficial trade policy, the mature economies face foreign capital outflows and a quantitative tapering process that will bring about a firm downturn and then a flattening stair step process which could last for 3-6 years in the top cities in the US and Europe. The shadow banks have created a “stealth bubble” by 2020-2021 which occurs when the flow of debt has concealed the true property value for years- become exposed, and the chicken.s comes home to roost. In a stealth bubble the key risk indicators do not show up on the radar, because the value creation (equity) does not exist, it is a form of shadow wealth(debt) created by an oversupply of capital flow(financial imbalances). As orderly increasing capital outflows gradually deflate property values. the CRE market feels normal. Another factor is in 2018 the majority of CRE loans were variable rate loans. It becomes a process of gradual asset deflation month after month, year after year, in essence, a “quiet exit”. But for the late cycle shadow wealth it becomes 12 noon for the shadow.