1) Banks are tightening credit in response to fed rate hikes, economic uncertainty, and money supply contraction.
This tends to be a "leading indicator" of where the economy is heading.
And suggests a big slowdown in lending in H2 2023 that will lead to layoffs/bankruptcies.
— Nick Gerli (@nickgerli1) May 9, 2023
3) Loan Growth tends to be a "lagging" indicator. And doesn't bottom out until 1-2 years after the Recession has started.
So in that sense we are still in the early stages of this credit crunch.
It's kind of like watching a slow-motion car wreck.
— Nick Gerli (@nickgerli1) May 9, 2023
5) Such high reliance on lending means that the big Commercial Banks basically control the economy.
If they expand their loan book, money supply and economy grow.📈
If they contract their loan book, money supply and economy collapse. 📉
— Nick Gerli (@nickgerli1) May 9, 2023
7) But the current Credit Crunch makes that unlikely.
And if the current credit crunch gets worse, what will very likely happen is deflation.
Because the economy will run out of the money supply necessary to support economic activity at higher price levels.
— Nick Gerli (@nickgerli1) May 9, 2023
9) Now GDP can contract in two ways…
Prices of Goods (P) can decline. Which is outright deflation, or…
Quantity Produced (Q) can decline. Which is layoffs and business bankruptcies.
Perhaps we get some combination of them. Q declining is more common than P.
— Nick Gerli (@nickgerli1) May 9, 2023
Yellen: The U.S. banking system is sound and resilient.
The U.S. banking system: pic.twitter.com/oWQIBsPsgF
— Russian Market (@runews) May 9, 2023
You can't expand the balance sheet by $5 trillion then raise 0% rates at the quickest pace in U.S. history without breaking everything. pic.twitter.com/59b0MFt226
— Financelot (@FinanceLancelot) May 9, 2023
Debt Ceiling … 🥲
Should we all just raise our personal debt ceilings? pic.twitter.com/86JneR1vPf
— Wall Street Mav (@WallStreetMav) May 9, 2023
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