[jakelarkin]

a better way to understand the causality between yield curves and recessions is to look at it from the perspective of the banking sector ... banks/lenders primarily borrow short-term and lend long-term. They pay depositors short-term rates and earn the long term rates on loans. If this carry trade turns negative, it makes it difficult to make money lending, they get more conservative and collectively they tighten credit conditions on the economy as whole.