Is there going to be another credit crunch in the next 2 years?

Yes, an inverted yield curve always destroys equity/capital in the banking system. As banks cannot survive indefinitely borrowing short term funds at a higher cost than they can invest over the long term.

However, the process of bail-ins is fundamentally deflationary, ie: creditors of banks will see their creditor position in banks converted to an ownership (equity) position.

A 'credit crisis' is a crisis in the eye of the beholder. If you're a low quality borrower, such as a subprime mortgage borrower, and credit tightens up to such an extent that renewing a $500k mortgage against a Toronto house is impossible on reasonable terms, is that really a 'credit crisis'? Sure, it might be to you, but its not to the economy broadly. I'd personally suggest that there's really no such thing as a 'credit crisis', but rather, just a shift in investor credit preferences. Today creditors may feel comfortable lending against real estate and dot-com stocks. Tomorrow they may develop an aversion to such, and decide to lend their money elsewhere or not lend at all. Over the long term, creditors will act in a way to maximize their conversion of invested funds into assets.

If things stay as they are and don't get much worse, can we expect status quo? Assuming we tumble along without an actual recession, will credit still tighten because of the bond rate situation? What are your views.

Credit against any asset class or type of borrower is always cyclical over the long term. I would expect consumer credit to tighten up considerably over the next number of years. Credit availability to businesses that primarily serve consumer consumption will also follow. Certain sectors of the economy which have little to no access to credit probably will see credit loosen as the particular credit cycle for that asset class turns.


For example: 2.5% floating rate mortgages are very common against residential real estate.

Producing gold mining companies have to pay 5%-6% rates of interest currently. (ie: this company )


At some point in the future, I'd expect those numbers to reverse, ie: the gold miner will get a much better interest rate, and the mortgage borrower will pay a higher rate.

I think we're going to get screwed at some in the future -- hopefully we don't owe a lot of mortgages and loans and CC's.

Thank you for all of your insight.

burnt69 wrote: ↑ Yes, an inverted yield curve always destroys equity/capital in the banking system. As banks cannot survive indefinitely borrowing short term funds at a higher cost than they can invest over the long term.

However, the process of bail-ins is fundamentally deflationary, ie: creditors of banks will see their creditor position in banks converted to an ownership (equity) position.

A 'credit crisis' is a crisis in the eye of the beholder. If you're a low quality borrower, such as a subprime mortgage borrower, and credit tightens up to such an extent that renewing a $500k mortgage against a Toronto house is impossible on reasonable terms, is that really a 'credit crisis'? Sure, it might be to you, but its not to the economy broadly. I'd personally suggest that there's really no such thing as a 'credit crisis', but rather, just a shift in investor credit preferences. Today creditors may feel comfortable lending against real estate and dot-com stocks. Tomorrow they may develop an aversion to such, and decide to lend their money elsewhere or not lend at all. Over the long term, creditors will act in a way to maximize their conversion of invested funds into assets.

I wasn't saying "Crisis", just a "crunch" (IE a tightening up). There is subprime, and then with a credit crunch even prime clients may have difficulty getting approved, and limits, loan amounts, or even how much mortgage they can borrow may even get scaled back for those that do qualify.

burnt69 wrote: ↑ Credit against any asset class or type of borrower is always cyclical over the long term. I would expect consumer credit to tighten up considerably over the next number of years. Credit availability to businesses that primarily serve consumer consumption will also follow. Certain sectors of the economy which have little to no access to credit probably will see credit loosen as the particular credit cycle for that asset class turns.


For example: 2.5% floating rate mortgages are very common against residential real estate.

Producing gold mining companies have to pay 5%-6% rates of interest currently. (ie: this company )


At some point in the future, I'd expect those numbers to reverse, ie: the gold miner will get a much better interest rate, and the mortgage borrower will pay a higher rate.

So you are saying one type of credit get's easier when another get's more difficult? Is a "floating rate" mortgage a variable rate mortgage? And you are saying that loans for mines would go down when mortgages go up? Why is that? If mortgages go up it's generally due to an interest rate hike in the overnight rate. If that goes up how can a loan be lower than the overnight rate?