Battle lines are drawn

Credit Bubble Bulletin/Doug Noland/7-14-2023

Cartoon courtesy of MichaelPRamirez.com

Selected quotes

“I’m challenged to find significant evidence Fed policy is ‘starting to bite hard.’ My analytical framework prioritizes financial conditions. Generally, tighter market liquidity conditions presage tighter lending, slower Credit growth and weakened demand. Markets lead economic performance – not vice versa. Booming markets generate self-reinforcing liquidity, loose conditions and asset inflation, which work to bolster confidence and boost spending.”

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“I see inflation ebbing and flowing – with much more flow than ebb over time. But what conventional analysis sees as the previous inflation normal, I view as aberrational. Inflation risk remains highly elevated in New Cycle Dynamics. This exceptionally hot weekend will remind us of newfound climate hostilities. And there is deglobalization, with heightened China tensions adding to trade, supply-chain and pricing uncertainties.”

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“Bubbling markets readily disregard myriad stability risks. Inflation is seen in full retreat, with policy tightening having about run its course. Recession risks have dissipated. It’s difficult for me to imagine a backdrop of greater stability risk. Inflation risk remains highly elevated. The risk of bursting financial Bubbles is extreme. Fed rate increases have failed to tighten market conditions, with speculation and speculative leverage becoming only more acute. And fearless markets are more confident than ever that underlying fragilities ensure central bankers won’t risk bursting Bubbles.”