The New (Global) Financial Cycle

The future lies in ourselves, not in our stars...

Twelve months ago most economists predicted the US would fall into recession in 2023: the out turn is likely to be a year of solid near-3% GDP growth, making this ‘miss’ one of the worst in a long trail of past errors. Part of the reason may be that the old-fashioned business cycle based on waves of new capital spending is dead. Our thinking needs to be updated. Consider instead an international financial cycle based on liquidity and driven by the need to refinance debt. The underlying Global Liquidity cycle fluctuates with a periodicity determined by the average 5/6-year debt maturity profile in much the same way that capital spending moved at a frequency governed by the average 10-year depreciation pattern of fixed capital.