Financial Instability Looms as Credit Losses and Corporate Defaults Surge, Challenging a Smooth Economic Landing

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The financial landscape is showing signs of entering the second phase of the credit cycle, where financial institutions suddenly face the realization of credit losses. This is causing notable instability and liquidity challenges within the banking system. Simultaneously, many companies are struggling to meet their debt obligations.

August was a particularly troublesome month, witnessing the highest number of corporate defaults since the 2009 financial crisis. What’s even more concerning is that experts anticipate this trend to persist. It’s akin to witnessing controlled demolitions within the financial realm, and this may be just the beginning. Interestingly, many economic downturns initially appear mild before revealing their true severity.

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