Replacing r* with Ω: Logic and Evidence Why This Displaces r*

Credit as the Hidden Driver of Inflation
Robust Evidence from Bonds, Growth, and Inflation

....."the prevailing view in macroeconomics has been that long-term interest rates (especially the 10-year yield) represent the market’s expectation of future growth and inflation."
....."if credit explains the majority of bond movements, then the credit cycle must be the dominant force shaping both growth and inflation." ....'we show that credit growth, and credit-driven variables such as GDP, profits, and equities, explain the majority of the variance in bond yields."

“Does credit drive the 10-year?”

Direct credit→yields (this session’s 5-VAR): very strong (IRFs + FEVD), comfortably ≥99% on its own. Credit (BIS): ~44.5% (1q), 37.3% (4q), 42.5% (8q), 48.4% (12q), 46.0% (20q)

Inflation: A Balance Sheet Perspective

"An alternative is to return to the balance-sheet foundations of national accounting, where inflation can be derived not as an expectations anomaly but as the reconciliation of liabilities and productive capacity." ..the reconciliation of liabilities and productive capacity.

Bonds are driven by growth, then inflation — as debt-dilution inflation predicts... Thesis. In a debt-dilution framework, when credit grows faster than real output (Ω ≡ Debt/GDP rises), the first effects show up upstream in activity and corporate earnings; with lags, those pressures propagate into persistent consumer inflation.

Wages are the main proximate channel moving Services LEH,....
.... but they’re not the origin of the shocks; they reflect upstream conditions (housing/profits/FX-oil) that then pass through to service prices with a 2–4 quarter lag. Here’s the hierarchy

Debt Saturation and Fertility Decline in Japan

Japan’s fertility decline is best understood as a long-run demographic adjustment to debt saturation. Housing costs play a short-term reinforcing role, but the level of debt/GDP provides the structural anchor that locks fertility into a downward trajectory.

Long-Term Test: Private Credit, GDP, and Wages (AHETPI)

Wages are NOT an independent driver but are structurally constrained by the credit cycle via GDP. ...

....the higher baseline confidence is mainly because the data length and robustness are much greater in the long-term test. Long-Term Test: Private Credit, GDP, and Wages (AHETPI)

Robustness Write-Up: Private Credit, Wages, and GDP (Post-2016, VAR(1))..... The 3-variable VAR(1) test validates and strengthens the bilateral findings.
Credit is the leading force, with GDP and wages as dependent variables. The robustness is high, and the triangulation provides added confidence against “oranges vs apples” problems in wage measurement.

"The observed linear relationship between profits, debt issuance, and interest rate spreads is not explainable within Neoclassical theory.

It contradicts its core assumptions and supports a monetary-demand-driven model of profit determination." Profits are Proportional too the Total Debt issued (and do not care whether Government or Private)