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Re: FED Balance Sheet Breaks the 4 Trillion level
In the short run, in overleveraged economies such as we seem to have everywhere in the world today, new credit creation is less of an issue than debt service cost.
I will reiterate my view that the immediate and most important effect of the reversal of the interest rate trend, from up to down, is relief of credit stress due to previously rising debt service costs.
If the yield curve remains inverted for two or three quarters, then the issue of new credit creation and the inability of the banking system to secure risk-free returns from (the lack of) a positive yield curve, will certainly increase the risk of recession in 2020. But I think the odds favor a return to a modest, gentle positive slope yield curve later this year, at least in the USA. I have every confidence the Federal Reserve will do "whatever it takes".
Originally posted by MacroSA
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I will reiterate my view that the immediate and most important effect of the reversal of the interest rate trend, from up to down, is relief of credit stress due to previously rising debt service costs.
If the yield curve remains inverted for two or three quarters, then the issue of new credit creation and the inability of the banking system to secure risk-free returns from (the lack of) a positive yield curve, will certainly increase the risk of recession in 2020. But I think the odds favor a return to a modest, gentle positive slope yield curve later this year, at least in the USA. I have every confidence the Federal Reserve will do "whatever it takes".
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