> I've never read or heard a definitive explanation of why an inverted
> yield curve is a reliable predictor of slowdown and/or recession,
> though it is; it's a much better forecasting tool than, say, the
> stock market.
>
Gretchen Morgenson's explanation in the NY Times yesterday was that an inverted yield curve reduces banks' incentive to lend, since they borrow short and lend long. But how much investment is financed by banks, anyway?
Seth