A market analysis published by MarsBit on Oct. 26 argues that asset prices are being shaped less by headline macro totals and more by the slope of credit expansion, the cost of rolling debt, and the willingness of the financial system to keep funding both new positions and existing leverage.
The article, written by Benjamin Usachi, says investors remain fixated on GDP, nonfarm payrolls, and current output, but those indicators do not fully capture what is happening on balance sheets. In the author’s framing, markets can stay under pressure even when economic activity has not clearly rolled over, because financing conditions can tighten before that weakness shows up in conventional macro data.
Why output data can miss what matters for markets
The piece starts by arguing that a macro framework centered on output and income growth leaves out a large share of activity that changes financial conditions without directly adding to current-period production. It uses an existing-home sale as an example. A buyer can take out a bank loan, combine it with equity, and purchase a house from a seller. Money changes hands, the property is transferred, deposits and loans are created, and the balance sheets of both parties and the bank change. Credit may rise. Yet, aside from brokerage, legal, and related services, the resale of the house itself does not count toward current GDP because it does not add newly produced goods or services.
The author says financial asset transactions work in much the same way. They may not enter output statistics, but they still matter. After a transaction closes, the key questions are where the money goes, whether credit has expanded, whether the seller repays an existing loan, and whether the proceeds are spent or recycled into another asset purchase. Looking only at output growth, the article says, does not tell investors enough about what is happening on private-sector balance sheets or whether the financing conditions supporting asset prices are improving or deteriorating.
That matters because asset prices are driven by expectations about the future, but they are constrained first by current funding costs, credit availability, and risk tolerance. The article says an economy can keep growing, demand can stay firm, and productivity can improve, yet asset prices can still fall if the marginal buyer needs borrowed money and the existing holder needs to keep refinancing. In that setup, whether financing is available and affordable directly affects both the ability to buy and the ability to hold.
The author compares this to a contradiction from the gold-standard era. Demand for production and trade can keep rising, but if the financial system must preserve convertibility while gold supply does not keep up, credit eventually has to tighten. Bank capital, funding costs, collateral terms, and policy choices all shape how elastic credit supply can be. Demand may exist, but trades may still fail to clear. Assets may still look attractive, but holders may not be able to keep them.
Fed H.8 data point to a steady slowdown in bank credit growth
The article then turns to the Federal Reserve’s weekly H.8 report, Assets and Liabilities of Commercial Banks in the United States. It says commercial bank credit growth is not the same thing as total credit growth across the entire U.S. financial system, but it still offers a useful signal.
According to the Oct. 16, 2026 release cited in the piece, Bank Credit growth was 7.7% in the first quarter, 6.6% in the second quarter, 5.3% in the third quarter, and 3.3% in September. The direction, the author says, is clearly lower.
The securities holdings component was 4.4%, 3.1%, and 3.5% before dropping to negative 6.2% in September. Commercial and industrial loans, after a weak third quarter, recovered somewhat in September.
The article says those figures can be read as evidence that bank credit expansion has started to slow. What they do not prove on their own is whether that slowdown is already creating broad financing stress in asset markets, because borrowers may still be able to fill funding gaps outside the banking system. A supply constraint at banks is one possibility. Weaker loan demand could produce the same data pattern, and the author says that outcome would be worse because it would suggest companies are pulling back on expansion, inventories, and hiring as orders, profit expectations, or expected returns weaken.
In the author’s view, bank balance-sheet growth is never just about one more asset or one more liability. It reflects a change in the system’s capacity to extend credit and absorb risk.
Large-bank earnings calls suggest a more selective lending backdrop
The second line of evidence comes from earnings-season commentary by major U.S. banks.
The article says Goldman Sachs was asked specifically about SLR and whether its current funding outlook was enough to handle fourth-quarter business volumes. The author describes SLR as one of the major bank-capital topics widely discussed in the first half of the year, when markets focused on whether regulatory relief would allow banks and institutions to hold more Treasuries, especially long-dated bonds.
But long-duration Treasuries sold off sharply in prior months, and the article argues that looser capital treatment may not have translated into more appetite for long bonds. Instead, banks may have used that room to take on more corporate credit and institutional business while reducing exposure to long-duration assets that had become a drag.
As summarized in the piece, Goldman said its fourth-quarter funding should be enough to complete business with institutional and major clients, with overall leverage and total assets likely to remain roughly in line with the third quarter and adjusted around SLR. Goldman also said the fastest expansion came in January and February, and that similar growth would be hard to repeat in the period ahead. The author says the company’s reported numbers show the same pattern: the fastest growth in the first quarter, a peak in the second quarter, and a slowdown in the third.
The article adds that JPM gave a similar answer, saying lending and project support in the fourth quarter would become more cautious and more selective.
That, the author argues, is the more important point. The problem is not only that incremental credit may be slowing. Even if the headline increment does not collapse, balance-sheet choices themselves are becoming more conservative. The article repeatedly stresses that slope and rate of change matter more than absolute size. That applies, in the author’s view, to GDP, inflation, and credit growth alike.
At the same time, the piece stops short of claiming that these signals already prove a broad hit to prices or to the fundamentals of technology stocks. It says market divergence has been visible for a long time and the real economy is weak, but there is still not enough evidence to say funding stress has directly damaged tech fundamentals. What is becoming harder to ignore, the author says, is the growing attention on funding conditions, including wider corporate bond spreads and institutions selling projects to retail investors. The article notes the author’s own futures positioning, saying he only shorts NQ and does not go long, but says the discussion is limited to what can be stated with more confidence.
First liquidity drag: balance-sheet crowding
The part the author sees as more certain is a liquidity shock, broken into three headwinds.
The first is balance-sheet crowding. Slower credit growth, the article says, confirms that institutions are becoming more cautious and more selective about projects and leverage exposure. That does not mean balance sheets cannot still grow. Banks can, in theory, expand leverage alongside capital while keeping SLR unchanged.
The constraint appears when banks do not want to reduce capital buffers and capital growth itself is not enough to support financing demand. In that case, new business has to compete for limited balance-sheet space. Put simply, institutions have to sell some old assets to make room for new ones. That is the first potential liquidity headwind identified in the article.
The asset most likely to force frequent balance-sheet adjustments, the author says, is Treasury issuance.
Second liquidity drag: more bill issuance could drain cash and reserves
Looking ahead to the Treasury’s new quarterly refunding guidance in November, the article says the market has formed two broad expectations.
- First, the Treasury may adjust issuance structure by selling more short-dated debt and less long-dated debt in an effort to push long-end yields lower.
- Second, it may stop 20-year bond auctions.
The author says the Treasury already made a similar adjustment last summer. He also adds a personal view that if the Treasury wants to change duration structure, issuing more 7- to 10-year debt and less at the very short and ultra-long ends would make more sense.
The article also says the Treasury issued a substantial amount of debt in order to obtain repo funding capacity. If the goal is to reduce borrowing, then stopping repo operations and ending 20-year issuance could both have an effect. Whether both steps will be taken, the author says, remains to be seen when the new guidance arrives.
The piece pushes back on the common argument that more bill issuance is automatically positive for liquidity. A shallow reading, it says, is that more bills relieve pressure on the long end and provide the market with high-quality collateral, which sounds like a liquidity release. But the author says historical evidence, Federal Reserve research, and the market experience of last summer all point the other way: bills crowd out cash, accelerate reserve usage, and can trigger more frequent liquidity events when reserve balances are already low.
Institutions have to take down the debt and hold it. Long bonds crowd balance sheets mainly through rate volatility, which is why the article says a second leg lower often comes after settlement. Bills crowd balance sheets through cash usage and the effect on repo, which is why declines can be sharper before settlement and on settlement day itself.
If the Treasury does shift issuance again and increases both the amount and frequency of bill supply, the author expects more frequent liquidity-driven selloffs. The sequence described in the article runs like this: cash equivalents such as precious metals fall first, overseas assets follow, precious metals fall again, and then the pressure spreads into dollar assets, producing a third decline in precious metals.
Third liquidity drag: the dollar is no longer accelerating higher
The third headwind is the dollar.
The article briefly revisits the post-Bretton Woods debate over why the dollar retained reserve-currency status and cites Hyman Minsky’s view that the Federal Reserve can actively create dollar scarcity. It also references Minsky’s inflation logic: excessive long-bond issuance effectively pulls future money into the present, reducing the value of current money and future investment returns at the same time, which pushes required yields higher while eroding purchasing power.
Back to current markets, the author says the dollar should, under a traditional framework, be in a strong position. Energy-price volatility, a possible uptrend in commodities, potential stress in European sovereign debt, war, and the tendency to sell overseas assets for dollar cash during liquidity shocks all support that case in theory. The article says those forces did show up, with the dollar pushing to a high in mid-October. After that, however, the acceleration faded.
The reasons are described as complex. A strong dollar has held up to some extent, and the U.S. would naturally prefer to keep it that way to offset import prices, nominal growth pressure, and Treasury financing needs. But the strength has not been strong enough. In the author’s simplified framework, dollars have only four destinations: cash, Treasuries, equities, and gold. If gold is falling, equities are falling, and the dollar is not strengthening enough, then money has to be moving into Treasuries. The article says that is consistent with the decline in Treasury yields.
The author ties that move to lower expectations for U.S. rate hikes, safe-haven buying, and a weaker view on dollar assets. Bond yields, he says, cannot rise without limit in a free market because buyers eventually step in, while exchange rates are driven in large part by interest-rate differentials. Over a longer horizon, the article says the euro is likely to remain relatively weak while the yen may strengthen on a relative basis.
Focus has shifted from nominal growth to the balance between credit growth and debt growth
The article says that at the end of the first quarter, the author’s concern centered on whether future nominal growth could outpace inflation. After a very strong second quarter, the third quarter opened with three straight months of declines, with overseas markets especially volatile because they were being drained of liquidity. At that point, the focus narrowed to the current account, or trade deficit, and the balance between nominal growth and debt growth.
Now, in the fourth quarter, the focus has shifted again, this time to the balance between the pace of credit expansion and the pace of debt growth. The author frames that as an intertemporal mismatch between promises of future cash flow and cash that has to be paid today, calling it a matter of cash management and cash commitment.
The article says AI capital expenditure has not been cut in any meaningful way, if it has been cut at all. At the same time, Treasury issuance has not fallen in any visible way either. With what the author describes as a government inclined to stir things up and an economy whose fundamentals are gradually becoming more fragile, the market broadly expects debt problems to become more serious. In that setting, congressional efforts are described as too limited to change the trajectory. Debt totals are not falling, and the growth rate is not slowing. The author says that after he spent a month short in June, the news flow finally began to focus on what he calls the “Supply Monster.”
Wider corporate spreads show risk is being repriced
From there, the article introduces the idea of a hierarchy of credit, meaning the credibility of the issuer.
When funding is plentiful, the market can tolerate higher rates, and investors remain optimistic about the future, higher-return projects attract more capital. In that environment, the main concern is how long it takes to recover costs and how many projects will do so. Growth valuations matter more than current corporate cash flow. If Treasury supply rises sharply, the market does not question whether Treasuries will default. It simply decides they are not attractive enough.
The current environment is different, the author says. When the source of funding, the price of funding, and the level of expected return all come under question, default risk becomes a larger issue, and Treasuries are still harder to default on than corporate borrowers. That is why corporate bonds become less attractive and spreads widen.
The article is careful on what that does and does not mean. Wider spreads do not mean companies can no longer rise, and they do not automatically mean sector fundamentals are broken. But more uncertainty means a higher risk premium, and that leads investors to adjust positions. If the denominator rises while the numerator stays the same, prices still fall.
The piece also distinguishes between different kinds of borrowing. In the author’s description, Treasuries are effectively debt whose principal cannot be repaid and whose interest cannot be repaid either. Some companies roll debt by issuing new debt to cover old interest. The companies drawing the most attention now, however, are still mainly issuing new bonds under the assumption that future revenue can cover both principal and interest. The market is adjusting for default expectations, but it is not fully reclassifying the nature of those assets.
The argument returns to one question: is credit still expanding effectively?
The article closes by returning to the point it raised at the start. Claims that consumption is fine, nominal growth is fine, and employment is fine do not answer the core question of whether credit is still expanding in an effective way.
The author lists a series of questions: Are companies willing to borrow to expand capacity? Are households and markets willing to borrow to buy homes? Are banks willing to loosen lending? Do commercial banks still have room on their balance sheets? Does the Federal Reserve have room to expand its own balance sheet in a meaningful way? And even if the Fed does expand, cut rates, and add liquidity, will new credit offset old credit or flow into investment and consumption? If it is the former, what happens to inflation?
That is why the analysis keeps returning to credit growth. At one level, the author says, this is a question about the neutral rate. At another, it is about the channels through which money can be deployed, a problem current tools do not really solve. If those layers remain unresolved, the issue falls back to credit growth itself. If growth becomes fast enough, markets may be willing to put money back to work and divergence may widen further, with the strong getting stronger and the weak getting weaker. The other path is for the Federal Reserve to release credit, whether preemptively or after the damage is done. One thing the author says is certain: a group of overseas countries will break one way or another.
European sovereign divergence, Treasury demand, and the author’s own bond positioning
On overseas markets, the article specifically mentions France and European sovereign debt. It says the divergence between French and German government bonds shows both the benefit flowing to Treasuries and the spread of stress in Europe. The author says he has written about this before and points to 2011 as a reference point. In his view, the eventual path depends on whether Europe or the U.S. cuts rates first. The article also says that while China and Japan have been selling Treasuries, Europe has been gradually buying them since August.
Based on that view, the author discloses his own bond positioning. He says he is overweight a batch of 2- to 5-year maturities, locked around 5%, to capture both safe-haven demand and rate cuts two years out. He also says he locked in a batch of 5-year exposure at 9.2% through products. The positioning, he says, is entirely duration-based. He has done little with long bonds because if conditions deteriorate, long-duration debt could still suffer another sharp drop first, and he would rather wait for that point.
Gold remains vulnerable in a liquidity shock
The article ends with gold, a market that the author says people always ask about. His answer is that under a liquidity shock, gold remains exposed to all three pressures described above. In that sense, it still trades as a short on cash equivalents.
Even if the first and third layers are set aside, the second layer alone can make gold highly unstable, the article says. The author’s test for a liquidity shock is straightforward: if Treasury yields are falling, the dollar is no longer accelerating higher, and gold is still underperforming equity indexes, then liquidity stress is the dominant force.
Gold, in his view, only rises cleanly when the market starts to doubt whether central banks can contain inflation or whether debt can be contained at all. That is when confidence in money and purchasing power is truly in question. The article ends on a short line: it is not there yet.