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A Better Way to Anticipate Downturns

Abstract: Executives of the world are evenly split on the question as to whether the global recovery will build or lapse into another recession.The article concludes that the credit markets can provide a concise indicator that a recession is on the horizon.

The article’s conclusion is that economists with the tenacity and the willingness to take time to study the relationship between financial transactions and real economies can easily see the signs of an oncoming downturn and avoid getting caught up in credit market hazard. An example of this was the increasing collateralization of debt obligations during the great credit crisis even when these financial transactions were not creating real economic value. This is believed to have resulted demise of Lehman Brothers two years ago.

 Published: McKinsey Quarterly, October 2010

Authors: Tim Koller

Link: Better Way to Anticipate Downturn


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