The tail end of my three-part discussion of banking (link) ended with the argument that the circular nature of funding flows means that they do not represent a constraint on debt growth, instead the willingness (and ability) to absorb credit risk is the constraint. If we accept this, there is an important implication for our ability to forecast recessions that are driven by a contraction in “animal spirits.” I outlined this argument in the
Credit Growth And Recession Forecasting
Credit Growth And Recession Forecasting
Credit Growth And Recession Forecasting
The tail end of my three-part discussion of banking (link) ended with the argument that the circular nature of funding flows means that they do not represent a constraint on debt growth, instead the willingness (and ability) to absorb credit risk is the constraint. If we accept this, there is an important implication for our ability to forecast recessions that are driven by a contraction in “animal spirits.” I outlined this argument in the