The 10-2 Treasury yield curve inverted on Tuesday, March 29, 2022. This inversion has occurred for the first time since September 2019. Meanwhile, the 30-5-year Treasury yield spread has also inverted in late March, the first time such an inversion has occurred since 2006. Such inversions nearly always signal the economy has weakened sharply and is headed for a recession.

But right on cue, Wall Street apologists are data mining parts of the yield curve to try and explain why the economy is strong and that a recession isn't in the cards. They try to deflect your attention away from the most salient 10-2 curve inversion and instead point to the 3-month, 10-year curve spread to dismiss the whole flattening and inversion thing going on everywhere else. Why? Well, because they always need an excuse to stay bullish.

Newsflash, the 10-3month Treasury yield spread is only temporarily lagging behind the more relevant parts of the curve simply because the Fed has long dithered to raise the Funds Rate. The fact is, the 3-month T-bill is always pegged very close to the FFR. And since the Effective Fed Funds Rate is still stuck at around .33%–again, that to Powell's reticence to fight inflation– this part of the curve has yet to invert. However, once Mr. Powell really gets going with the tightening process, this part of the curve should invert too, as the overnight lending rate eclipses longer duration yields.

Allow me to briefly explain why all this curve inversion stuff is so important. It is all about money supply growth and the access to credit. You see, we have a debt-based monetary system. This means money is created when a bank makes a loan. Banks make a profit between what they pay to depositors (borrow short) and the income they receive from their assets (lend long). When the yield curve inverts, their profit motive is greatly eroded, just as the risk of making new loans increases. This dynamic occurs at the same time consumer's demand for credit decreases due to their need to reduce leverage. The monetary liquidity then dries up, and asset prices begin to tumble.