and convince themselves that times will always be good. They eventually lend to folks they shouldn’t lend to... on terms they shouldn’t accept. The worst loans are made at the best of times. When things turn – as the economy slows and sales drop – the credit cycle can turn violently
and lead to faster, bigger bear markets. Right now, plenty of businesses can’t pay back their debts when they come due. However, the market believes that they’ll be able to find a new round of borrowing to pay off that debt and move it down the line. But when the credit cycle turns, lending standards tighten.
The Yield Curve and GDP 10-Year 2-Year Curve
2%
1%
0%
-1%
8%
Real GDP growth
Shaded areas indicate recessions
6%
When things turn – as the economy slows and sales drop – the credit cycle can turn violently and lead to faster, bigger bear markets.
4%
2%
0%
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
Source: Federal Reserve Bank of St. Louis, Bureau of Economic Analysis, Retirement Millionaire
The Yield Curve and Bear Markets
2%
1%
0%
10-Year 2-Year Curve
-1%
1,000 1,500 2,000 2,500
S&P 500
500
Shaded areas indicate recessions
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
Source: Federal Reserve Bank of St. Louis, Bureau of Economic Analysis, Retirement Millionaire
American Consequences
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