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U.S. Consumers Are the Pillar Holding It All Up: KBRA Analyst

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Van Hesser says the U.S. economy looks pretty good — if you avoid thinking too hard about “70 years of stability all coming unglued.”

Hesser, a senior managing director at Kroll Bond Rating Agency, gave his assessment of the how the economy might perform in 2020 today in New York, at a KBRA media briefing.

(Related: Some Years Produced Many Sour Mortgage Conduits: Kroll)

KBRA is one of the rating agencies that’s been trying to compete with A.M. Best, Fitch, Moody’s, Standard & Poor’s Ratings Services and a few other firms for bond rating business. It’s especially well-known for efforts to rate commercial mortgage-backed securities, collateralized loan obligations, and fraternal insurers.

Hesser said he sees some of the strengths supporting the economy being strong bank profitability and williingness to lend, low borrower default rates, and an accommodative Federal Reserve System.

But he said an even more important factor may be a U.S. consumer who’s employed, confident and shedding debt.

“The pillar of the world economy is based on the U.S. consumer,’ Hesser said.

Hesser said one major concern is the U.S. government’s financial status. KBRA views the United States as being a AAA credit because everyone uses the U.S. dollar as a reserve currency, Hesser said.

If the U.S. dollar weren’t such a central currency, it’s hard to see how the United States could even qualify for a AA rating, based on fiscal measures, Hesser said.

Hesser also worries about accounting and capital markets rule changes, made since the 2007-2009 Great Recession, that reduce the ability of big banks and other players to act as financial shock absorbers in time of stress

But Hesser said a fundamental question is what will happen in the 2020 U.S. general elections.

“It really is a referendum on capitalism,” Hesser said.

If the voters end up supporting redistributionist candidates, like Bernie Sanders, or other forms of populism, that could lead to big changes, Hesser said.

— Read U.S. Life Insurers Hold 15% of U.S. CLO Assetson ThinkAdvisor.

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