TechFlowPost published a market analysis arguing that a visible slowdown in commercial bank credit growth, combined with pressure from debt issuance and reserve competition, is eroding the financing conditions that support asset prices. The article, written by Benjamin Usach, says three liquidity headwinds are quietly pulling away the “invisible ladder” under markets.
Why output data does not fully explain asset prices
The article says investors often stay fixated on GDP, nonfarm payrolls, and current output, even though those indicators do not capture the balance-sheet changes that shape financing conditions. In the author’s view, asset prices are driven less by absolute economic size than by marginal financing conditions and the slope of credit expansion.
To make the point, the piece uses a resale home transaction as an example. A buyer can take out a bank loan, add equity, and purchase an existing home from a seller. Money changes hands, the property is transferred, and new deposits and loans are created. Balance sheets change for both parties and for the bank. Yet the home itself does not count toward current-period GDP, aside from transaction services such as brokerage or legal work, because no new good or service was produced. The article argues that this accounting treatment may be reasonable, but it does not mean the transaction is irrelevant to the economy or to financial markets.
The same logic applies to financial assets. Trading activity may not show up as new output, but it still changes leverage, collateral use, and financing demand. If the seller uses the proceeds to repay an existing bank loan, the buyer’s new borrowing may be partly or fully offset. If the seller spends the money or buys another asset, the effects are different. Looking only at output growth, the author says, does not reveal what is happening on balance sheets or whether financing conditions for asset prices are improving or deteriorating.
That matters because risk assets are constrained first by funding costs, credit availability, and risk tolerance. Even if economic data do not weaken in an obvious way, markets can still come under pressure when credit growth slows and financing costs rise. The article says investors need to ask how fast credit is expanding, where it is flowing, and whether the financial system still has the capacity and willingness to support new borrowing and the rollover of existing positions.
The author puts it more plainly: the economy can grow, demand can stay firm, and productivity can improve, but none of that guarantees higher asset prices. If marginal buyers need leverage to buy and current holders need to roll debt to keep positions on, then the availability and cost of financing directly shape their ability to buy and hold. An asset can still look attractive and yet fail to find support if buyers cannot borrow, or be sold if holders cannot refinance.
The article compares this to a tension seen under the gold standard. Demand for production and trade can keep growing, but if the financial system must maintain a hard constraint and the supply of credit cannot expand enough to meet financing needs, then bank capital, funding costs, collateral terms, and policy choices all limit the elasticity of credit supply. In that setting, transactions with real demand behind them may still fail to happen, and assets that remain fundamentally attractive may still be hard to hold.
Fed H.8 data show a clear slowdown in bank credit growth
The article cites the Federal Reserve’s weekly H.8 report, Assets and Liabilities of Commercial Banks in the United States. According to the version released on Oct. 16, 2026, 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, marking a steady slowdown.
Within that, securities holdings were 4.4%, 3.1%, and 3.5% before turning to -6.2% in September. Commercial and industrial loans, after weakness through the third quarter, recovered somewhat in September.
The author says these figures support the view that bank credit expansion has started to slow, but they do not by themselves prove that financing pressure has already spread across asset markets. One reason is that borrowers may still fill funding gaps outside the banking system. Another is that slower credit growth can come from weaker loan demand, which the article describes as the worse outcome because it could mean companies are cutting expansion, inventories, and hiring as orders, profit expectations, or expected returns weaken.
The piece stresses that bank balance-sheet expansion, or credit creation, never represents just one more asset or liability. It reflects a broader shift in financial conditions.
Bank earnings calls pointed to more selective lending
The second signal in the article comes from comments made during bank earnings season.
Usach says Goldman Sachs was asked directly about the supplementary leverage ratio, or SLR, and whether its funding outlook was enough to handle fourth-quarter business volumes. The article describes SLR as one of the major topics debated earlier in the year, when markets discussed loosening bank constraints so institutions could hold more Treasuries, especially longer-dated bonds.
The author notes that long-duration Treasuries had already fallen sharply in prior months. From there, he offers a possible interpretation: easing capital constraints may have encouraged banks to take on more corporate debt and institutional business while selling some long-end Treasury exposure that had become a drag, allowing them to keep expanding balance sheets into areas they viewed as more valuable.
On Goldman’s actual comments, the article says the bank indicated it had enough funding in the fourth quarter to serve institutions and major clients, while overall leverage and total assets would likely stay roughly in line with the third quarter and be managed around SLR. Goldman also said the fastest pace of expansion came in January and February, and that similar growth would be hard to repeat in the period ahead. The author says the financial statements show the same pattern: the fastest growth in the first quarter, a peak in the second, and a slowdown in the third.
The article says JPM gave a similar answer, signaling that fourth-quarter lending and project support would become more cautious and more selective.
For the author, the bigger issue is not only that incremental growth may be slowing, but that balance-sheet choices have become more conservative even if the headline level of activity does not collapse. The article repeatedly argues that slope and growth rate matter more than absolute size. That applies, in the author’s view, to GDP, inflation, and credit expansion alike.
At the same time, the piece says it is still too early to conclude that these supply-side changes will broadly reset asset prices or that tighter standards or weaker demand have already hit the fundamentals of sectors such as technology stocks. What it does say is that funding conditions are drawing more attention, including through corporate bond spreads and what the author describes as institutions selling projects to retail investors.
First headwind: balance-sheet crowding
The article says the most certain part of the story is not a call on fundamentals but a call on liquidity shocks.
In the author’s framework, slower credit growth confirms that institutions are becoming more selective about projects and leverage exposure. That does not mean balance sheets cannot keep growing. Banks can still 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 differently, banks need to sell some old assets to make room for new ones. The article calls this the first potential liquidity negative: balance-sheet crowding.
It then asks what could force institutions to keep adjusting their balance sheets. The answer given is Treasuries.
Second headwind: more short-dated 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.
- One is a shift in issuance mix, with more short-dated debt and less long-dated debt in an effort to push down long-end yields.
- The other is a possible halt to 20-year Treasury auctions.
The author says the Treasury already made a similar move last summer. He adds that his own preference remains a heavier focus on 7- to 10-year issuance, with less at the very short end and the ultra-long end.
The article also says that while markets often mock the Treasury and the Fed for having a small total repo capacity, the amount is meaningful on a proportional basis. The side effect, in the author’s telling, is that the Treasury issued a considerable amount of debt in order to secure repo funding capacity. If the goal is to reduce borrowing, then stopping repo operations and ending 20-year issuance could both help. Whether both happen at once, he says, depends on the new guidance.
The article pushes back on the view that more bill issuance is automatically positive because it eases pressure on the long end and supplies high-quality collateral. Drawing on historical material, Fed research, and the market experience of last summer, the author argues the opposite: short-dated issuance crowds out cash, speeds up reserve usage, and makes liquidity events more frequent when reserve levels are already low.
Institutions have to take down the debt and hold it. Long-duration bonds crowd balance sheets mainly through rate volatility, which is why the article says a second leg lower often comes after settlement. Short-dated debt, by contrast, crowds balance sheets through cash usage and its effect on repo, which is why the author says declines can be sharper before settlement and on settlement day itself.
If the Treasury does shift issuance again and raises both the amount and frequency of short-dated supply, the article expects more frequent liquidity-driven selloffs. In the sequence described by the author, cash equivalents such as precious metals fall first, then overseas assets decline, causing a second drop in precious metals, and only after that does the pressure spread into dollar assets, bringing a third decline in precious metals.
Third headwind: the dollar’s upward momentum has faded
The third liquidity negative in the article is the dollar.
Usach revisits the post-Bretton Woods debate over why the dollar retained reserve-currency status. He cites Hyman Minsky’s explanation that the Federal Reserve can actively create dollar scarcity. The article also references Minsky’s view on inflation: excessive long-bond issuance effectively brings future money into the present, lowering the value of current money and future investment returns at the same time, which raises required yields and erodes purchasing power.
Back to current markets, the article says the dollar should, under a traditional reading, be in a strong position. Energy price swings, a possible rise in commodities, a potential European sovereign debt problem, war, and the tendency to sell overseas assets for dollar cash during liquidity shocks all support that case. The author says those forces did show up, with the dollar pushing to a high in mid-October, but then the pace of the move disappeared.
He says the reasons are complicated. The dollar has stayed firm to a degree, and the U.S. would like that strength to continue because it helps offset import prices, nominal growth, and Treasury financing pressure. But the strength is not strong enough. In the article’s simplified framework, dollars have only four main destinations: cash, Treasuries, equities, and gold. If gold is falling, equities are falling, and the dollar is not strengthening enough, then money has to move into Treasuries. The article says that is exactly what the market has seen, with Treasury yields moving lower.
The author ties that to lower expectations for U.S. rate hikes, safe-haven buying, and a weaker view on dollar assets without separating short-term and long-term horizons. He adds that bond yields cannot rise forever in a free market because buyers eventually step in, while exchange rates are driven in large part by rate-differential expectations. Over a longer horizon, he says, the euro should stay relatively weak while the yen should strengthen on a relative basis.
The focus has shifted from nominal growth to the balance between credit 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, markets then fell for three straight months at the start of the third quarter, with overseas markets seeing especially frequent volatility because they were being drained of liquidity. At that point, he narrowed his focus to the current account, or trade deficit, and the balance between nominal growth and debt growth.
By the fourth quarter, the focus had shifted again, this time to the balance between the pace of credit expansion and the pace of debt growth. The article frames this as an intertemporal mismatch between promises on future cash flow and cash that has to be paid today, which it describes as cash management and cash commitment.
Usach argues that AI capital expenditure has not been cut in any meaningful way, if at all. At the same time, Treasury issuance has not fallen in a meaningful way either. With those two forces combined, total debt is not shrinking and its growth rate is not slowing. The article notes that after the author spent a month shorting in June, market coverage finally began to focus on what it called the “Supply Monster.”
Wider corporate spreads mean higher risk premia, not necessarily weaker fundamentals
The article then brings in the hierarchy of credit, which it defines as a question of issuer credibility.
When funding is plentiful, markets can tolerate higher rates, and investors are optimistic about future returns, higher-return projects attract more capital. In that environment, the main concern is when projects break even and how many eventually do. Growth valuations matter more than current cash flow. Even if Treasury supply looks excessive, 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 returns all come under scrutiny, default risk becomes a bigger issue, and Treasuries are harder to default on than corporate borrowers. That is why corporate debt starts to look less attractive and spreads widen.
The article is careful on what that means. Wider corporate spreads do not mean companies can no longer rally, and they do not mean sector fundamentals have already broken. They do mean more questions, more risk premium, and portfolio adjustments. If the discount rate rises while the numerator stays the same, prices still fall.
The piece also discusses the nature of borrowing itself. In the author’s description, Treasuries effectively cannot repay not only principal but also interest, while some companies roll debt by issuing new debt to cover old interest payments. The companies drawing market attention now 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, he says, but not fully reclassifying the nature of the assets.
The article returns to one question: is credit still expanding effectively?
The final section circles back to the starting point. Strong consumption, solid nominal growth, and stable employment do not answer the question the article is asking. The question is whether credit is still expanding in an effective way.
The author lists a series of related questions: Are companies willing to borrow to expand capacity? Are households willing to borrow to buy homes? Are banks willing to loosen lending? Do commercial banks still have room on their balance sheets? Does the Fed have room to expand its own balance sheet in a meaningful way? And even if the Fed does expand, cut rates, or add liquidity, will new credit offset old credit or flow into investment and consumption, and what would that imply for inflation?
In the article’s framework, the first layer is the neutral-rate problem, with markets facing two different return profiles under a K-shaped split. The second layer is the channel through which money is deployed, which the author says current tools cannot really solve. The third layer is credit growth. If growth accelerates enough, markets may be willing to put money back to work, widening the gap between strong and weak players, from markets to countries. The other path is for the Fed to release credit, either preemptively or after the damage is done.
The article says one thing is certain: a group of overseas countries will break one way or another. On that point, the author mentions France and European sovereign debt, saying the divergence between French and German government bonds shows how Treasuries can benefit while stress spreads through Europe. He adds that the eventual path depends on whether Europe or the U.S. cuts rates first. China and Japan, he says, have been selling Treasuries, while Europe has gradually been buying them since August.
The author’s own positioning in bonds and gold
Usach also discloses his own positioning. On bonds, he says he is overweight the 2- to 5-year part of the curve, locking in yields around 5% to capture safe-haven demand and potential rate cuts two years out. He also says he used products to lock in a batch of 5-year exposure at 9.2%. The positioning, he writes, is entirely duration-based. He has done little in the long end because if conditions worsen, long-duration bonds could still see another sharp drop before becoming attractive.
On gold, the article says liquidity shocks would subject the metal to all three pressures described above. The author frames that as a short on cash equivalents. Even if the first and third layers are set aside, he says, the second layer alone can make price action highly unstable.
His test is straightforward: if Treasury yields are falling, the dollar is no longer accelerating higher, and gold is still clearly underperforming equity indexes, then the market is dealing with a liquidity shock. In the article’s view, gold only rises cleanly when markets believe central banks cannot contain inflation or cannot contain debt, in other words when confidence in money and purchasing power is breaking down. “It’s not time yet,” the author says.
The piece ends on a personal note: “I’m tired. I’ll stop here for now. It’s been a long time since I wrote a long article and I don’t have the stamina anymore.” It is signed by Benjamin Usach.