Looking at the non-financial commercial paper rate and juxtaposing recessions and depressions from the late 1800s to today provides a fascinating view of long economic cycles. It also potentially holds some important perspective and clues to the economic climate going forward, and the conundrum the Federal Reserve and all of us are now in.
First, for a quarterly series stretching back more than 100 years (ancient times as far as macro data is concerned), this series is surprisingly well synced with recessions and depressions. The general pattern typically sees rates climbing through expansions and crashing during recessions and depressions.
From a long cycle point of view, we can see that in the decades preceding the Great Depression successive recessions brought the rate down to successively lower lows, finally reaching an ultimate low of 0.56% in the belly of the Great Depression.
All told, the rate stayed below 1% for 12 years during the depression period of the '30s and '40s, before beginning a long uptrend after World War II. The rate then proceeded to trend up for more than 30 years, reaching a striking 16.27% crescendo in the early '80s that pitted the Fed against inflation in an epic battle.
Looking at the period of the last 30 years, you can see that, similar to the period preceding the Great Depression, rates have trended down with each successive recession, reaching what must surely be nearly the ultimate low. The pattern has a notably deflationary look to it. The Fed has more or less reached the zero bound with the lowest rates on record, a level which has not been seen since the '30s and '40s.
Are we stuck here as we were during the Great Depression? Are we over a decade away from any form of re-inflation? Will the next inflationary period be an epic generational trend building to a crescendo that dwarfs everything before? (Click to enlarge)
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