The path-dependent lens: crises erupt from the mismatch between short-dated liabilities and long-dated assets — not merely from headline debt levels. How debt is funded matters more than how much debt exists. A bank holding 10-year assets against demandable deposits, or a firm financing a 5-year project with 1-year paper, functions fine until policy collides with a refinancing wall. Every Fed hike "moves the liquidity clock forward" — shortening the runway for borrowers who need to roll. Watch for SOFR drifting above the T-bill rate: that's institutional cash refusing to fund counterparty risk, and it's the first place a squeeze shows up before it reaches the primary market.

The real rate path — not the level of liquidity — determines the regime. A system that grew accustomed to 0% for a decade reacts very differently to a 5% shock than one that saw rates rise gradually. The distribution of outcomes from here runs through a single first branch: how much of the current inflation impulse transmits into core CPI, which determines the Fed response function, which sets the real rate trajectory, which drives FX carry and the equity risk curve. Phase 6 is triggered when the Fed loses control of the long end — real rates spiking aggressively back to positive, or 10Y breakevens rising alongside energy. That's when the Fed is "caged" and the put vanishes.

Duration risk breaks the system; credit risk is where forced liquidations appear. A rate hike only causes defaults when it collides with near-term maturities and stretched borrowers — structure and timing matter more than aggregate leverage. Decompression (IG holding firm while HY and CCC widen) is the classic tell of a balance-sheet problem forming beneath the surface: the marginal borrower is being cut off while the blue-chip credit still rolls. Labor is the last pillar holding up the soft-landing narrative — if jobless claims break trend while HY spreads widen, the asset-liability mismatch has reached the household, and the path has already flipped.

FX is the pressure valve for global imbalances — but direction alone is not the signal; context is everything. Dollar weakness is accommodative when equities are rising alongside it — it loosens financial conditions, makes US assets cheaper for foreign buyers, and pushes capital into risk assets. That's constructive. Dollar weakness becomes dangerous only in specific contexts: (1) Capital flight — DXY falling alongside equities = foreigners unwinding US assets to repatriate; (2) Stagflation risk — DXY weakening while inflation is elevated and growth is softening = the Fed is trapped, can't defend the dollar without killing growth; (3) Global tightening — a rapidly strengthening dollar squeezes EM dollar-denominated debt. The FX Context card classifies which regime is active based on cross-referencing dollar direction with equities, breakevens, and labor data.