The Institute of International Finance, Inc.
Credit Gaps and the Cheapening of Credit April 9, 2014 — As we move into the sixth year of recovery in mature market economies, supported mainly by extraordinary monetary accommodation, it is important to ask where we are in the credit cycle. Or more precisely, where is the credit gap? This can help us gauge the potential duration of the economic expansion as well as possible implications for financial stability given plentiful liquidity. In a related development, plentiful liquidity may have contributed to a “cheapening” of credit—the implications of which are yet to be fully understood. Increasing issuance by lower quality borrowers has added to “fallen angels” to cause a noticeable deterioration of credit quality—as measured by credit ratings—of outstanding sovereign and corporate debt over the past decade.
Related: 4.6.3. World Finance Cooperation