(For an audio version of the event, click here.)

NEW YORK CITY-“No one in this room is willing to buy government bonds,” declared Peter Linneman, chief economist with NAI Global, to a room filled with commercial real estate decision makers. Yet he added that government bonds are being bought, here and abroad—by the governments themselves, not by private investors, who want better returns than the bonds can provide.

The practice is keeping the capital markets “artificially fed,” and is among the reasons that the US economy is not deleveraging on a net basis. The leverage is simply shifting from the private side to the public side, said Linneman at NAI Global’s annual Market Outlook event, held at the New York Athletic Club here Thursday. Government debt, including the acquisition of treasuries, has gone up at the same rate that private debt has decreased, “almost to the penny.”

Linneman cited a number of factors that have contributed to the current $10-trillion federal deficit, ranging from the $3-trillion expense of the post 9/11 wars in Iraq and Afghanistan to an uptick in entitlement spending since 1974. “It’s nice to entitle, but it has a bill,” he said.

However, Linneman counted himself “bullish” about the economy’s prospects for regaining momentum, albeit with caveats. “We’re two years into a seven-year recovery,” or about one-third of the way through a typical cycle, he said. That means, Linneman added, that another recession is lurking somewhere in the future, a fact that ought to be taken into account in underwriting pro formas and rarely is.

The cycle of peak, trough, despair that a recovery would ever come and then a recovery has played out repeatedly over the past 50 years, Linneman said. He also displayed a pair of charts that could hardly have been more linear in their respective downward and upward progressions: the steady decline of manufacturing employment since 1940 and the equally steady increase in service employment over the same time period. The factory closings brought on by the 2007-2009 recession merely continued a long-term trend, he said.

As for job growth in general, it has picked up the pace only over the past quarter, Linneman said. It’s also been broad-based, with 65% of the Standard Industrial Classification code occupations seeing hiring, but “not very deep,” he said. The pace of adding jobs thus far has been far slower than normal, and even assuming that we see two years of three million jobs added annually, the unemployment rate will still be around 7%, Linneman said.

Far more rapid than anticipated has been the pace of bank closings related to the downturn. Bliss Morris, founder and CEO of First Financial Network, said in her opening address Thursday when her firm signed on as a consultant to the FDIC in ‘07, the agency told her it was expecting about five bank failures per year. Since then, 385 lenders have gone out.

Although the capital markets and commercial real estate are telling a positive story in New York City or Washington, DC, once you head into secondary or tertiary markets “there are huge issues,” Morris said. “There are commercial banks that have lent over the years to the secondary and tertiary markets where things are not getting better.”

Taking a page from the days of the RTC, for which her firm performed the final loan sale in 1995, Morris said when assets are back in the hands of the private sector, “that’s when we’ll see some sort of recovery.” FFN forecasts $50 billion in US whole loan sales this year, double the volume of what was brought to market in 2010.