The velocity of loan money for small businesses is low, a problem Ash Bennington and Roger Hirst hope to see addressed in the next phase of the government relief package. During today’s Real Vision Daily Briefing, the pair discussed the problem of smaller, high-productivity businesses struggling to access government support while larger, less productive companies secure funding.

This failure in the disbursement of loans is just another sign of the pressure the real economy is under, even as equity markets continue to rally. Bennington and Hirst said we are seeing this pressure play out in the oil market. A commodity that reflects actual consumption and physical delivery, like oil, is much more indicative of the true state of the economy than equities, which are responding to central bank largesse, they said.

There’s a tremendous amount of risk lurking beneath the surface, as the very companies that we will need to lift the economy out of this crisis are the ones that are probably not getting loans right now.

Hirst said that forward-looking growth prospects are very much subdued because the companies that have been accessing funding are the ones effectively capping productivity and growth by acquiring more debt to buy back their own shares and prop up their share price. 

“Central banks will be at the center of maintaining that status quo unless the system has been broken by the experience of the last six weeks,” he said. “To move into a new paradigm, we need to break something. We need to get central banks out of backstopping everything and slowing the velocity of money.”

“We have to take pain on asset prices now so that growth in the future post-COVID will be far better,” he said.