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2021-09-09

There could be a grave error of first tapering off asset purchases and only later raising rates

The crisis of 2008 had many of us looking up the works of  economist Hyman Minsky, who held that stability creates instability

Where Minsky would find more grounds for concern is in the credit market. The calm there is stupefying. And in many ways it is legitimately terrifying. 

Bloomberg U.S. Corporate High Yield index is closing in on its record tightest level set ominously on the eve of the credit crisis in summer 2007

Credit spreads in Europe haven’t been this tight this consistently since, again, the summer of 2007. 

There could be a grave error of first tapering off asset purchases and only later raising rates

Raising rates while keeping the liquidity going would discourage yet more debt issuance, while ensuring that existing debt can be rolled over safely. 

That way, conceivably, it might be possible to retreat from the current extraordinarily lenient financial conditions without creating a crisis along the way. 

John Authers Bloomberg 9 september 2021

https://www.bloomberg.com/opinion/articles/2021-09-09/debt-markets-eerie-calm-echoing-2007-is-reason-for-unease


I think I have found a good historical parallel for what is happening in the markets. And it is with spring and summer of 2007, on the eve of the credit crisis.

I dislike admitting this because I do not want to be accused of alarmism

John Authers, FT 6 February 2018

https://englundmacro.blogspot.com/2018/02/authers-i-hate-to-admit-this-but-i.html


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