Dr. John Rutledge: Far from Equilibrium Economics, Finance and Investing

Financial stress levels are spiking, one reason why the Fed announced a truly massive ($1.5T! ) liquidity injecti0n today. There are signs that rising financial stress and falling bank stock prices has begun to leak into credit restriction. We need to remember that during times of financial stress, the interest rates we see in the newspaper tell us little about the true cost of borrowing. Non-price credit rationing, not interest rates, are what triggers recessions.

JR

As I mentioned in my last post, just under half of outstanding corporate bonds are rated Baa, the lowest rung of Investment Grade. The collapse of oil prices this week has triggered a flurry of warnings of possible downgrades. See the previous 2 posts to know why that matters for both bond and stock investors.

JR