https://eco3min.fr/en/real-estate-credit-rate-cycles/
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.
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.
An expanding economy is not necessarily a sounder one. When growth rests on debt accumulation, it borrows demand from the future without guaranteeing it can be paid back. The same GDP print carries opposite meanings depending on which side of the balance sheet is moving.
Credit tightening rarely shows up in activity data for 12 to 18 months. Existing contracts keep the prior regime running while underlying conditions deteriorate. Reading the lag as resilience is the most common mistake of every late-cycle phase.
Analysis of threshold effects and feedback mechanisms explaining the abruptness of credit cycle reversals. TL;DR Credit cycles break rather than glide: covenants, margin calls and capital ratios act as switches that absorb stress until a threshold flips them, turning gradual…
