McAlvany Weekly Commentary Shadow Banking Time Bomb
Oct 29, 2025
Explore how recent failures in major brands have ignited fears of a looming financial crisis. Delve into the implications of government debt prioritizing financing over price stability, risking inflation. Discover the potential dangers of rising margin debt and leveraged ETFs in the market. Learn why insurance companies may transform into shadow banks, amplifying systemic risks. Finally, consider the possible repercussions of unresolved credit stress spreading from peripheral markets to core areas.
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K-Shaped Economy Widening
- David McElveney describes a K-shaped economy where the wealthy gain while the less well-off fall behind.
- This divergence shows up in asset prices, income share, and inflation impacts across groups.
Sand-Dune Race Metaphor
- David recounts a recurring family tradition racing down a giant sand dune in Moab, Utah that sometimes ends with tumbles.
- He uses the sand-dune race as a metaphor for credit momentum that starts well but can end poorly.
Policy Prioritizes Debt Financing
- The Fed appears willing to cut rates despite inflation metrics that the Taylor rule would argue need higher rates.
- Financing government debt has become a higher priority than strict price stability.
