A couple of interesting pieces of research today are important. First from Morgan Stanley:
A sharp slowdown in US credit creation: Since October, bank lending in the US has slowed sharply. While higher debt issuance, lower M&A activity and new risk retention rules play a role, the slowdown could stoke concerns that a highly leveraged US corporate sector is reacting strongly to higher interest rates. A lack of clarity on tax policies and regulation likely adds to the headwinds.
Historically, credit downturns led economic recessions: In the past, US downturns have typically been preceded by a material slowdown in credit growth, if not a contraction in real lending volumes, in the run-up to a recession. Such slowdowns usually reflected a negative credit impulse. That said, in the mid-2000s lending dynamics failed to warn of the Great Financial Crisis.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
