Loading ...Credit Bubble Bulletin
There are powerful inflationary biases percolating throughout the economy – unlike anything experienced in decades. Importantly, securities markets no longer completely dominate and dictate system financial conditions. Lending and bank Credit have become powerful drivers of Credit growth, along with ongoing deficit spending and the expansionary GSEs.
While it’s mum’s the word when it comes to Credit growth, Fed officials undoubtedly know the numbers. They must also know that inflation will not be moving back to their 2% target until they orchestrate a marked Credit slowdown (with myriad negative consequences). They’ve been forced to abandon the notion that tinkering with market financial conditions would do the trick. Now, it’s press ahead with a major tightening cycle until something works. And between the Z.1 and recent speculative market dynamics, there is certainly no reason to backtrack from the “they’ll hike until something breaks” thesis.