There's no such thing as "easy money" or "costless credit" contra what readers are told with great regularity by economists and their enablers in the commentariat. Evidence supporting this statement of the obvious can most easily be found in the powerful force that is compound interest or returns. Precisely due to the power of both, it's far too costly for those with title to money to part with it cheaply.
Despite these truths, commentators including Ruchir Sharma and Christopher Leonard have endlessly promoted the fiction of easy credit, and economists including the self-regarding Thomas Hoenig have routinely aided them in their promotion of fiction. Thankfully reality always intrudes.
The most recent intrusion has reached us care of HPS Investment Partners. Founded in 2007 by former Goldman Sachs partner Scott Kapnick, HPS is in the business of private credit whereby it lends directly to businesses. Crucial about what HPS does for the purposes of this write-up is that per a Wall Street Journal article describing HPS's $12 billion acquisition by BlackRock, "Its once-obscure business of lending directly to businesses has boomed in recent years while banks have pulled back from making risky loans." Which requires a pause.
Stop and think about when HPS opened its doors (2007), and in thinking about it, contemplate the years in which it grew from something small into a thriving business that rated a $12 billion purchase price. 2007 marked a brief beginning of the end of the Fed's allegedly "easy money" policies, policies that resumed with great speed in 2008 and beyond. In short, HPS's business of lending directly at higher rates of interest to businesses less able to attain loans from risk-averse banks soared at precisely the time when the Fed was at or near zero.
It all raises an obvious question: what purpose would HPS have served if and when credit was costless, as endlessly asserted by Sharma, Leonard et al? It's a good question, and it can be answered with the simple truth that the surest sign of tight bank credit is low or "zero" rates of interest care of a Federal Reserve that is invariably following actual banks with its vain rate machinations.
When banks are charging exceedingly low rates of interest on loans, that's the surest sign that they're only lending to the safest of safe borrowers. Translated, low rates of interest signal tight credit whereby risk averse banks lend to sure things.
All of which speaks to the genius of Kapnick and his partners for operating in the real world, and in operating in the real world, seeing well beyond the simplistic economic analysis that takes what the Fed does literally. Please. If the Fed could decree credit "costless" or "cheap" as the conventional in thought tell us over and over again, there would be no credit. Something about price controls leading to scarcity.
Instead, we see through HPS's grand success that actual markets prosperously work around the central planners at the Fed. While a central bank desperately searching for relevance made headlines with toothless rate interventions, companies like HPS were providing actual credit to actual businesses at market rates of interest that reflected actual credit costs that no central bank or government associated with a central bank could ever erase.
Which is a positive signal, but also an obvious one. It's positive in the sense that HPS's multi-billion dollar acquisition reminds us yet again that credit prices aren't planned by central planners, and it's obvious simply because if the Fed could do what economists and commentators think it can, the U.S. economy would be too wrecked to write about in the first place.