From Wolf Street, May 13:
After years of money printing and pandemic stimulus, it’s hard to wring all this liquidity out of the financial system?
Financial conditions and lending standards have become less loosey-goosey than they were during the free-money era when deposits paid 0% interest, and banks borrowed from their depositors for free. And “financial stress,” which spiked briefly during the SVB collapse, subsided again and returned to loosey-goosey, but just a little less loosey-goosey than during the free money era. It’s like the partying is over, but now they’re just relaxing in la-la-land, instead of suffering from a hangover.
The weekly St. Louis Fed Financial Stress Index, one of the products that came out of the Financial Crisis, measures financial stress in the credit markets and was designed to indicate when another financial crisis might be at the doorstep. It dutifully spiked when SVB collapsed in mid-March, but only briefly and not very much, and then settled down again in la-la-land.
A level of zero indicates normal market conditions. A level above zero indicates above-average market stress; below zero indicates below-average market stress. It’s below zero: -0.35 per the latest release on Thursday. During the SVB collapse, it was above zero for two weeks, on March 17, when it spiked to +1.54, and on March 24, when it fell back to +0.34. Then it returned to the negative readings of la-la-land (green line = current level):
