The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis

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Carry, Financial Bubbles, and the Business Cycle

The Business Cycle in the Carry Regime

There have always been different theories about the business cycle, the cycle of recovery, boom, and recession that economies typically experience. A conventional perspective would be that as an economic expansion matures, the economy’s unused capacity is gradually diminished and the “output gap” narrows. Wage growth tends to pick up as unemployment falls. Gradually, inflationary pressures build and interest rates rise. At some point these pressures sap spending power; higher interest rates squeeze mortgage borrowers and other debtors, and the economy tips over into a downturn.

An old-fashioned monetarist perspective would put more emphasis on central bank ...