Recession Chain of Events

Posted on February 11, 2017 by Credit Flow Investor
  1. Inflation rises
  2. Fed raises rates (2005-Jul 2006)
  3. Highly indebted delinquencies start to rise (2006-2008)
  4. A breaking point arrives and Fed starts to drop rates RAPIDLY (Sep 2007-Dec 2008)
  5. USD falls rapidly (2007-Jul 2008)
  6. Oil and commodity prices spike ($70-$150) causing a recession and economic contraction (Jul 2007-Jul 2008)
  7. Spiking oil prices lead to a deflationary collapse (Jul 2008-Dec 2008)
  8. USD rises in response to deflationary collapse (Jul 2008)
  9. QE follows as a form of monetary stimulus and USD starts to fall again (Jan 2009)

Notice how slowly Fed raises rates from 2004 (3.5 years) and how fast they fall from Sep 2007-Dec 2008 (1.25y)!

fredgraph3

From 2005-2008:

2006-2008-fed-rates

Or easier to see the Y/Y change in delinquency rates:

all-loans-delinquency-rate-of-change-q316

delinquencyusdoil

Also VIX rose through 2007

 

Another related measure, check commercial and industrial loan growth for the last 3 recessions to see the effect of credit contraction or merely slowing:

comm-and-industrial

Or all loans and leases from 2005-2017:

yryr-growth-all-loans

 

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