Sunday, April 8, 2018

Lending and the business cycle

Since I think tight mortgage lending has been the key variable holding back more healthy economic expansion, I have been watching some bank lending measures for signals of contraction.  I also think monetary policy is too tight because the Fed is using inflation measures that include a large amount of measured inflation that is due to the non-cash effect of owner-occupied rent inflation.  That high rent inflation is also a result of tight lending, which is keeping housing supply low.

There is an interesting relationship between commercial and industrial lending and the yield curve.

Lending increases during an expansion, with a bit of a lag, so it has parallel movement over time with the yield curve (here, 10 year minus 2 year, inverted).  Commercial and industrial loans tend to grow the most when the yield curve is relatively flat.  Then, when the yield curve inverts, this seems to be correlated with economic contraction and a newly steep yield curve.

But, this relationship has changed recently.  The yield curve remained relatively steep even while C&I lending moved back to expansionary rates of growth.  I suppose this would commonly be explained with the incorrect idea that the Fed has been holding short term rates too low, and that has been the source of the steep yield curve.

I think the more accurate explanation is that when interest rates are low, the zero lower bound causes the yield curve slope to increase, because long term rates begin to act like at the money call options.  There is a sort of premium embedded in future rates.  So, from 2008-2012, the relationship is similar to the typical relationship, but the yield curve is unusually high (lower on the inverted chart).

Until QE3, lending was starting to slow down, and long term rates were declining because economic sentiment was declining.  QE3 turned that around.  The yield curve steepened, and with a bit of a lag, C&I loan growth recovered.

Since then, it appears as if the relationship has reversed.  The yield curve has flattened while C&I loan growth has declined.  The first part of this period is from the end of QE3.  QE3 had boosted growth, so the end of QE3 was somewhat contractionary, but by the end of QE3, the neutral short term interest rate had probably recovered to something close to 0%, whereas it had previously been negative.

Then, the Fed began to raise short term rates.  This has two contrary effects on the yield curve.  The first effect is that it pushes the base rate up from the zero lower bound, which causes the inflated effect on long term rates to decline.  In other words, long term rates start acting more like in the money call options, so the embedded premium is lower.  This flattens the yield curve.

To the extent that the Fed raises rates back above the neutral rate, this also will flatten the yield curve by pulling down economic sentiment.  Both of these things are happening at the same time, which is doubly flattening the yield curve.  One effect is caused by expansionary factors (a rising neutral rate) and the other effect is caused by contractionary factors (a rising policy rate).  So, the question is, what effect is most at work.

And, the fact that C&I lending growth has been declining suggests that monetary tightening has been too strong.  There are many economic measures that seem to be at fairly benign levels, so this hasn't been confirmed by other data, so I have been in sort of wait-and-see mode.  Inflation data also hasn't confirmed either thesis, as both backward looking (non-shelter) inflation and forward looking inflation have been fairly flat, even if backward looking non-shelter inflation has been quite low.

I have had a bias for expecting the bear-reading of this situation to eventually play out, but recent lending has only complicated this, because suddenly, there has been a little bit of a spike in lending, and real estate lending has very slowly been growing for a little while already.  Is this a turnaround to new recovery, or is this a liquidity grab by corporations because nominal revenues are starting to weaken?  There isn't much evidence that things are bad enough to expect that to happen, so I have to wonder if this is part of a turnaround.

The mystery continues.


  1. I wonder what fraction of C&I loans are collateralized by property?

    In other words, property loans in drag.

    That source has been tapped out?

    Great post.

    Maybe we are stuck in New normal: slow growth low inflation no recessions....


    1. Hi. We are a best of hackers called international Group and we offer hacking services for everyone. Some of our services are: - Get any password from any Email Address. - Get any password from any Face-book, Twitter or Instagram account. - Cell phone hacking (whatsapp, viber, line, wechat,wire wire transfer Western union/money gram etc) - Grades changes (institutes and universities) Blank ATM - Websites hacking, pen-testing. - IP addresses and people tracking. - Hacking courses and classes. Our services are the best on the market and 100% secure and discreet guaranteed. Just write us and ask for your desired service: OUR EMAIL ADDRESS: or Call/WhatsApp: +1(929)390-8581

  2. - You should look at "change in debt". As soon as the growth of the change in debt starts to go down (e.g. from say +2% down to say +1%) in a country then that country is already in recession.

    Source: Steve Keen

    (I would love to post using my DISQUS profile. Can this be added ?)

    1. Thanks. Do you have non-video links to this idea?

      Do you know how to add Disqus on blogger? There are several profile sources that show up for me, but Disqus isn't one of them.

  3. - Watch the 1st video from about the 30th minute. From there on Steve Keen provides some info this concept of "change in debt".
    - Steve Keen has a stunning simple formula:

    Income + change in debt = aggregate demand

    Multiply that formula with "change in" then the formula becomes

    change in (income) + change in (change in debt) = change in (aggregate demand)

    Now assume (for simplicity sake) that "change in (income)" is zero then the formula becomes:

    Change in (change in debt) = change in (aggregate demand)

    This last formula has a devastating message: To get a rising aggregate demand with income remaining flat one needs to accelerate the GROWTH of debt.

    - Take the 1st formula (income + change in debt = aggegrate demand) and use some concrete figures:

    Let's assume that income is at 1000 and the change in debt is +200, then the formula becomes:

    1000 + 200 = 1200 (aggregate demand = 1200)

    Now assume that income remains at 1000 and "change in debt" still grows/is still positive but at a lower pace, say +100 then the formula becomes:

    1000 + 100 = 1100

    So, demand drops from 1200 down to 1100, merely because the growth of debt drops from +200 down to +100. And shrinking demand leads to rising unemployment.

    - About DISQUS: To be honest, I haven't got the faintest clue. I use DISQUS for a number of other websites. Haven't got any of the other profiles. Sorry mate !!!

    1. Interesting. That makes sense.

      I think one of the problems that has infected discourse about the bubble is that, regarding this relationship, monetary policy has been implicitly assumed to be fixed. To the contrary, an inflation targeting central bank will naturally adjust for this. So, there are many who argue that households used their housing ATM's to overconsume. But, that was simply a nominal issue, and the Fed pulled back currency growth to contradict it. It wasn't a shift to overconsumption so much as a substitution of households substituting debt for cash. Then, that debt growth collapsed in early 2008, and the Fed didn't take the extreme actions that would have been requied to counteract it in the other direction. If they had, they would have been accused of pumping up the alleged overconsumption.

      In the end, I'm not so sure there isn't some causation in the other direction - that slow growth in currency led to more growth in debt.


  4. We are dedicated in providing alternative funding options to those that don't fit into the conventional lending system.

    If you are interested in getting a loan text me or contact me so we can proceed with getting you approved and funded.

    Becky Ford
    WhatsApp:+1 404 400 4210

  5. Hi,

    Do you need funding to start-up or expand a business?

    We give out all kind of loan like:
    Business loan
    Personal loan
    Home loan
    Agricultural loan
    Educational loan
    Auto loan and other good Reason.

    With over 10 years of experience helping people acquire, recover and stay in their homes and expand/start their business.
    We help new entrepreneur and smart business owners to grow with adequate finance. Contact us at Ford Credit Centre LLC a private lending firm registered in Atlanta.

    We give you quality service and our interest rate is calculated at 3% per annul.

    If you are interested send us a mail for the prerequisite to begin the funding process.

    Kind Regards
    Daniel Ford
    Ford Credit Centre LLC
    409.293.4195 cell
    404.400.4210 whatsapp


  6. Hi. We are a best of hackers called international Group and we offer hacking services for everyone. Some of our services are: - Get any password from any Email Address. - Get any password from any Face-book, Twitter or Instagram account. - Cell phone hacking (whatsapp, viber, line, wechat,wire wire transfer Western union/money gram etc) - Grades changes (institutes and universities) Blank ATM - Websites hacking, pen-testing. - IP addresses and people tracking. - Hacking courses and classes. Our services are the best on the market and 100% secure and discreet guaranteed. Just write us and ask for your desired service: OUR EMAIL ADDRESS: or Call/WhatsApp: +1(929)390-8581

  7. Hello Everyone out there! I'm Alexanda hook, from Usa I am using this medium to announce to the general public on how Houston Loan Firm Company restored happiness to my home again, through the help of Mr Houston, When all hope was lost they granted me a loan sum of $50,000 on the 7th of February 2019 to settle my debts and start up a business of my own. They saved me and my family from loosing our home as we were not able to pay tax bills. I am writing this message cause I feel it might be important for you out there seriously in need of a genuine loan in other for you not to fall into the wrong hands in search of a liable loan,I strongly advice you to contact this company via email:

  8. Hello everyone, I am Oliver Erik Pauli a beneficiary of FRANKQUICK LOAN COMPANY. Do you think of getting a loan? Are you seriously in need of an urgent loan to start your own business? Are you in debt? This is your chance to achieve your wish, they give personal loans, business loans and corporate loans, and all kinds of loan with interest at 2%, for more information contact them via email:

  9. May I introduce you to Evergreen Loan & Investments Group. Evergreen Loan & Investments Group is a company into pure loan and debt financing of project(s) i.e. oil and gas, real estate, renewable energy, Health Care, transportation, construction, hotels and etc. We can finance up to the amount of 500,000.000 USD in any region of the world as long as our ROI can be guaranteed on the projects. If Interested in loaning from us Contact today.
    Chloe Ray
    Evergreen Loan & Investments Group

  10. I am Leah Hart I live in Ohio USA I’m 32 Years old, am so happy I got my blank ATM card from united hacking company  blank ATM card that can withdraw $5,500 daily. I got it from him  last week and now I have withdrawn about $15,000 for free. The blank ATM withdraws money from any ATM machines and there is no name on it because it is blank just your PIN will be on it, it is not traceable and now I have money for business, shopping and enough money for me and my family to live on.I am really glad and happy i met united hacking company  because I met Five persons before him and they could not help me. But am happy now united hacking company  sent the card through DHL and I got it in two days. Get your own card from him right now, he is giving it out for small fee to help people even if it is illegal but it helps a lot and no one ever gets caught or traced. I’m happy and grateful to the united hacking company   because he changed my story all of a sudden. The card works in all countries that is the good news contact. email address: or whatsApp:  +1 (208) 425-7799

  11. Dear sir,

    I am a Direct Mandate to a genuinely renowned Investment Finance Company offering Cash & Asset Backed Financial Instruments on Lease and Sale at the best rates and with the most feasible procedures.

    Instruments offered can be put in all forms of trade and can be monetized or discounted for direct funding. For Inquiry contact.



    Whatsapp : +1(661)262-9225

    Warm Regards
    Simon Federman

  12. Do you need an urgent loan of any kind? Loans to liquidate debts or need to loan to improve your business have you been rejected by any other banks and financial institutions? Do you need a loan or a mortgage? This is the place to look, we are here to solve all your financial problems. We borrow money for the public. Need financial help with a bad credit in need of money. To pay for a commercial investment at a reasonable rate of 3%, let me use this method to inform you that we are providing reliable and helpful assistance and we will be ready to lend you. Contact us today by email: Call/Text: +1(501)800-0690 And whatsapp: +1 (315) 640-3560

    Ask Me.

  13. Genuine provider for BG/SBLC specifically for lease, at leasing price of 4+2 of face value, Issuance by HSBC London/Hong Kong or any other AA rated Bank in Europe, Middle East or USA.

    Contact : Mr. EASON RONNIE
    skype :

    Contact me for more details.

    Whatsapp: +19893413179

  14. I am writing to inform you about the offer of our credit, my company offer to help individuals and organization including small business owner. Our offer is as low as 3% interest rate for 1-20years duration, your interest will be urgently responded to by the company online agents. All requirements will be introduced to you by our online agent, kindly contact us via email: ( or for urgent responses on whatsapp text:(+35677692162) for more information..

  15. Hi. I want to run small businesses, and what is your suggestion for the capital? Please let me know your email or phone to contact. Thanks.

  16. I just have to introduce this hacker that I have been working with him on getting my credit score been boosted across the Equifax, TransUnion and Experian report. He made a lot of good changes on my credit report by erasing all the past eviction, bad collections and DUI off my credit report history and also increased my FICO score above 876 across my three credit bureaus report you can contatc him for all kind of hacks . Email him here via Email him here via or whatsapp Number: +1 213 295 1376.

  17. My name is Mohammed Ahsan I'm a financial Consultant of a reputable firm Operating out of the United Kingdom
    we provide Discrete Financial, Services for High Net Worth CEO's/Executives of Corporation & Senior Government Officials globally.
    What we do is Legal & within the ambit of the law but following the Leakage of the Infamous United Kingdom
    Papers & subsequent threat by the International Consortium of Investigative Journalists (ICIJ)
    International Criminal Court (ICC)
    Below is what my Sender can offer.
    1, MT103 gpi automatic
    2, MT103 wire transfer
    3, MT103 TT
    4, MT103/202 manual download
    5, SBLC lease and Purchase

    All bank instrument will be done via bank officer to bank officer, Receiver has to provide bank officer details
    on DOA all brokers are welcome and guarantee of there payment after successful deal
    kindly send me a message via email and WhatsApp.


    WhatsApp- +19893413179