With rising interest rates, debt seems as good a candidate as any to cause the next downturn. How severe?
It depends on the rate and severity of interest rate hikes and inflation. It could be drawn out or sharp. My Magic 8-Ball doesn’t have the answer and neither do I.
None of this exists in a vacuum either. Interest rates, inflation, asset prices exist in a web of factors where changes in one have a multitude of possible effects on the others. And then you add humans to the mix. Spending a ton of energy trying to figure out what happens next seems like a wasted endeavor. But that’s just my take on it.
Besides, this post has more to do with where we are in the credit cycle, so we better understand the risks.
Howard Marks, in a 2001 memo, broke down the credit cycle like this: Continue Reading…