Adding private and public debt into a single leverage ratio is one of the most common errors in macro commentary. The two operate on opposite cyclical logics — private credit amplifies the cycle, public debt can dampen it — with distinct risk holders and crisis profiles.
Central banks set the price of refinancing, not the quantity of credit actually extended. Commercial banks and borrowers retain decisive autonomy, and the asymmetry between expansion and contraction explains why rate cuts often fail to revive credit on schedule.
Dividend yield alone underestimates what equity holders actually receive. Adding net buybacks reshuffles the comparison between US and European firms, and exposes companies that distribute through one channel while diluting through the other.
Credit supports activity until it doesn’t. Beyond a certain threshold, expansion turns from a growth driver into an accumulation of vulnerabilities — a shift that is gradual, often invisible, and difficult to identify in real time.
Balance-sheet adjustment after credit expansion unfolds over years, not quarters. Deleveraging compresses spending, weighs on aggregate demand and prolongs the cycle's downward phase well beyond the initial shock — a structural asymmetry between borrowing and unwinding that reshapes the post-cycle phase.
Credit quality, not volume, determines the risk profile accumulated within the financial system. Lending standards filter what reaches balance sheets, and bank lending surveys often signal vulnerabilities long before aggregate stocks reflect them.
Mortgage credit's long duration, high leverage and illiquid collateral make it a natural amplifier of financial cycles. More than two-thirds of banking crises in advanced economies since 1970 were preceded by a mortgage credit boom — a regularity that explains why prudential supervision targets this segment specifically.
Financial crises rarely erupt during easy-credit phases. They surface afterward, when accumulated vulnerabilities meet tighter conditions — typically two to four years later. The temporal gap is a structural feature of financial cycles, not a measurement failure.
Low rates do not guarantee access to financing. Lending standards, shaped by lender risk perception and balance-sheet constraints, drive credit availability and economic activity more directly than rate levels alone — a distinction that explains why monetary easing can coexist with stagnating real activity.
Not every slowdown signals a crisis. Four observable signals — sectoral diffusion, credit flow direction, corporate margin trajectory and investment dynamics — separate a cyclical normalization from a genuine regime break, and their combination matters more than any single intensity.
