If Federal Reserve Doesn’t Re-Implement QE, a Spread Inversion (And Economic Dislocation) is Imminent

by Chris Hamilton

Once upon a time, banks were about lending money and banks business model depended upon the spread or difference of borrowing short and lending long. The greater the differential in the spread of short term and long term lending, the greater the profit. So, it should be noteworthy when the spread begins shrinking. At present, spreads have fallen 65-75% from 2011 peaks…and are rapidly gaining speed to the downside. The chart below shows the spreads based on the 30yr and 10yr Treasury’s minus the 2yr.

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