In 2008 and again in 2020, similar steep drops in credit were quickly followed by aggressive Fed rate cuts and liquidity injections. This time, we’re seeing the same kind of credit contraction, but the Fed is still holding rates high, and there’s no sign of emergency fiscal support coming either. That’s what makes the current setup more dangerous than prior crises.
The decline in credit usage is because they’ve hit a wall. Excess savings from the pandemic are gone, debt burdens are higher than ever, and the cost of borrowing has exploded. People aren’t pulling back on credit spending by choice; they’re being forced to. That’s the kind of environment where the economy begins to stall out, because when credit dries up in a system this financialized and consumption dependent, the feedback loop between spending, employment, and lending starts to break down.
What comes next is likely a demand shock. We’ll see weaker retail sales, falling corporate revenues, margin compression, and a rise in layoffs. That puts more stress on households, and the cycle reinforces itself. If the Fed doesn’t pivot soon, financial markets will start pricing in not just slower growth, but outright contraction. A delayed response risks triggering a deflationary spiral, where lower prices, tighter credit, and rising unemployment feed off each other.
Eventually, the Fed will be forced to respond with cuts and liquidity support, but by that point, the damage to the real economy could already be severe.
In 2008 and again in 2020, similar steep drops in credit were quickly followed by aggressive Fed rate cuts and liquidity injections. This time, we’re seeing the same kind of credit contraction, but the Fed is still holding rates high, and there’s no sign of emergency fiscal… https://t.co/oW02yrxESb
— EndGame Macro (@onechancefreedm) July 27, 2025
Much lower prices will do it pic.twitter.com/i9eCUtHaQQ
— Darth Powell (@VladTheInflator) July 27, 2025
— Darth Powell (@VladTheInflator) July 27, 2025
Remember when Japan did QE and slammed rates to zero and real estate fell for 20 fucking years anyway?
Good times….. pic.twitter.com/NY7rHyNPPe
— Darth Powell (@VladTheInflator) July 25, 2025
Rent in LA about to drop pic.twitter.com/J92Z5xxHp9
— Darth Powell (@VladTheInflator) July 27, 2025
The housing market is set to get even worse this year, experts have warned in the latest dire forecast.
New research from Oxford Economics found that the alreadyfrozen market is barely holding steady — and conditions are expected to deteriorate further.
‘The supply of existing homes for sale is approaching pre-pandemic levels as a combination of high prices, elevated mortgage rates, and concerns over the labor market keep buyers sidelined,’ Oxford Economics analyst Mathew Martin said.
‘The new-home market is also being challenged, with builders continuing to offer incentives including price cuts in an effort to move unsold inventory,’ Martin wrote in the report titled ‘Recession Monitor – Real test for economy is just beginning.’
Thirtyyear mortgage rates will average 6.7 percent across 2025 and end the year at around 6.4 percent. That is slightly higher than previous forecasts.
Median home prices have jumped 52 percent since May 2019, far outpacing wage growth of just 30 percent, NAR data shows.
Indeed, home sales are set to plunge to a 30-year low this year, according the latest figures.
Just four million transactions are expected in the US this year, according to new data from Realtor.com.