What Is Happening In Credit Markets Is Signaling An Upcoming Recession

Since 1990, every time commercial & industrial loan originations from banks begin to decline, a recession follows.

Does falling loan originations cause an economic slowdown, or is it that an economic slowdown causes falling loan originations? This is the classic "Chicken or the Egg" dilemma.

But either way, the results are the same: a recession occurs. 

It has happened each time. And it undoubtedly will again. . .

Note: Shaded Lines Signify Recessions

But why does this situation of falling loans even matter? 

Simple. Because credit and debt are created in pairs. 

For example, Joe goes to the bank and borrows $100,000.

He now has a debt of $100,000 but also has $100,000 to spend as credit for himself. He goes out and blows his money on a car and various consumer goods, which increases the economies consumption.

Finally, over some time, he will hopefully pay that debt off. Causing both the credit and debt to disappear. 

So one thing we know is that taking out a loan is inflationary (expansionary). Paying back debt is deflationary (contractionary). 

And in the post-2008 economy, the Central Banks globally are desperately pushing for more loan creation. They need more Joe's borrowing and consuming to fuel economic growth. But Joe's aren't borrowing anymore. . .

And business loan demand is also falling. 

It's important to comment that corporations tend to use debt for repurchasing their own stock. If industrial loans are in decline - what does that mean for the stock market? 

We can assume it isn't good.

And what about economic growth in a time it is needed most of all to justify new future loans? Or even service the overload of loans currently outstanding?

Well, the growth the economy needs isn't coming. . .

Actually, it's in decline. 

The Bank of Japan, The U.S. Federal Reserve, and the European Central Bank have all pushed interest rates to 0% and even negative after 2008.

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