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After keeping interest rates at record low levels for over a decade, global central banks did a complete 180 degree turn in the past year with the most aggressive period of rate increases in over 40 years. Given the sharp and unexpected reversals in policy and the addiction to low interest rates in the markets and the economy, we expected a sharp pullback in growth. Yet we watched in amazement as this ‘highly levered’ global economy continued to surge ahead, ignoring all of the well-established rules of monetary policy and pushing out the ‘long and variable lags’ that accompany the implementation of these policies. That apparent ‘economic immunity’ to these rate increases seemed to come to an abrupt end in the past month as something finally ‘broke’. But it wasn’t the economic data, it was the banking system! (more…)