Total Global Debt Has To Double To Over $200 Trillion By 2020 To Preserve Economic Growth

Tyler Durden's picture

A brand new study released by the World Economic Forum (WEF) in collaboration with McKinsey (which is a must read if only for its plethora of charts which we are certain will be used and reused in thousands of posts and articles over the next year), finds that while global credit stock doubled from $57 trillion to $109 trillion in just 10 years (from 2000 to 2010), it will need to double again to an incredible $210 trillion by 2020 in order to provide the necessary credit-driven growth (in a recursive way, whereby credit feeds growth, and growth requires additional credit issuance) for world GDP to retain its current growth rate. And while the goal seeked conclusion is obviously nothing but propaganda for the banking syndicate meant to facilitate the need for endless credit issuance spin (after all how on earth can world GDP growth occur based on something productive like manufacturing when there is only $100 trillion of free cash chasing worthless and rapidly amortizing assets), the study did warn (timidly) that leaders must be wary of new credit "hotspots" of excess lending, as the world emerges from a financial
catastrophe blamed in large part "to the failure of the financial
system to detect and constrain" these areas of unsustainable debt. In other words: credit doubling blew up the world financial system, but if you promise to behave this time, go ahead and double the world debt again.

Where does the WEF see the bulk of the credit growth coming from? Why Asia of course.

Rapid credit growth is forecast in developing markets, which will add almost US$ 50 trillion to their credit stock by 2020. China’s credit demand will lead global credit growth: it will require US$ 20 trillion more credit in 2020 than in 2009, with 80% of that growth going to the wholesale segment. In developed markets, including the large Western economies, most of the growth will come from the government segment. In North America alone, the value of government bonds is expected to grow by US$ 12 trillion to 2020. Deleveraging in overheated retail and wholesale segments of the developed world will be significant.

$20 trillion more credit in 10 years in China? That may, just may, lead to a slight pick up in food prices...

On the topic of hotspots, or areas where credit growth may be problematic, the WEF basically says that virtually every area that needs to double (or more) its credit in the next decade, could go boom.

Even though some economies will deleverage over the coming decade, the analysis projects a significant number of credit hotspots across the world in 2020 – including retail credit hotspots in countries representing almost half of global GDP. Government credit hotspots are projected for countries representing 13-14% of world GDP – although Western Europe will be more vulnerable. In wholesale credit, Asia and Western Europe will be the main drivers of hotspots in 2020 (Exhibit iv).

Yet the only relevant take home message is that absent reignition of the securitization markets, which as BofA, JPM and Citi are all finding out now the hard way, may have been nothing but massive fraud from the get go, in which nobody really tracked who owns what in that 4th and 5th layer of leverage, growth will simply not resume.

The need to revitalize securitization markets. Without a revitalization of securitization markets in key markets, it is doubtful that forecast credit growth is realizable. There is potential for securitization to recover: market participants surveyed by McKinsey in 2009 expected the securitization market to return to around 50% of its pre-crisis volume within three years. But to rebuild investor confidence, there will need to be increased price transparency, better data on collateral pools, and better quality ratings.

In other words, the world must give up all prudent hope to having a vibrant and stable credit system, and embrace without any doubt the same ludicrous model that led to the kinds of synthetic idiocy that virtually blow up the world when it had $100 trillion in debt, if we even hope to have the kind of growth that explosive credit growth (and nothing else!) afforded the world in the past ten years. Just imagine how this will play out when the total debt is $200 trillion instead. And one wonders why all the institutional whores are against the gold standard, with its fixed limitation on the issuance of credit-money. So much better to live on imaginary promises of repayment, coupled with guarantees of 4% GDP growth in perpetuity until the world certainly blows up all over again, only this time only Mars would be able to bail out earth. No seriously.

And while the assumptions and conclusions of the report are predictable from a mile away, the real goodies are the charts. Here are the key ones:

This is the broad summary of where we global credit stock was, where it is, and where it is supposed to go ($213 trillion) just to keep GDP flat!

"If it worked in the past, it must work in the future" - the rules of thumb that must be true in order to allow an exponential growth curve in global credit stock:

Nothing to see here- global Debt to GDP is expected to continue growing from its current base of about 200% (higher for OECD than total):

A forecast of growing credit stock by region indicates that China, Africa and the ROW better be equipped to handle the required pick up in lending:

Since past is prologue, here is how historic relationships between GDP/capita and total debt/GDP have worked out in the past. Take home: only massive (and preferably cheap) credit leads to growth:

Here is where the bulk of the bond issuance will have to come from: guess what - taxpayers will be on the hook, as the vast majority has to be sourced by government bonds: Austerity... really?

And where total bank lending is supposed to originate from...

In the process of doubling global debt, there may 'even' be "hotspots" - here are the key regions and the primary drivers for debt growth: retail segment credit, wholesale segment credit, and of course, government segment:

Going back to the 2010 word of the year, contagion, here is who the WEF believes are the riskiest countries. Not surprisingly, the US is front and center...

For those who believe that Europe is far riskier than the US, here is a more granular look at the Eurozone's biggest contagion risks:

Lest we forget, massive credit growth leads to unfortunate side-effects... Such as sovereign bankruptcy, and near total financial armageddon:

But what is certainly the most important chart, and the one we will have much more to say about in the future, is the consolidate global balance sheet of financial institutions. The only thing worth nothing is the tiny sliver in the bottom left of sources of wealth, affectionately called "equity" - this is the error buffer currently built into the system. And somehow this 3% of total wealth uses is supposed to preserve systemic stability when total global debt doubles from current levels.

Full report:

 

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thepigman's picture

Won't happen. Global Japan, bitchez.

midtowng's picture

Much worse than Japan.

Japan had a high savings rate and trade surpluses. Plus they were able to export many of their deflationary problems.

We are talking a global problem, so none of those things apply here.

The problem is that we live on a debt-based global currency. Eventually we either have to default. It's the problem of compounding interest. It can't go on forever.

The thing is that a debt-based currency is exactly what the bankers worked hard to put into place, and what they rely on to maintain their power. So they aren't going to give it up without a fight to the death.

Michael's picture

I made this Youtube video with pieces from part 3 of the BBC documentary, “The Power of Nightmares”. It explains the Precautionary Principal and where it came from, that has caused so much damage to our way of life and the world. This will tell you why the eco-fascists, Neo-Libs, and Neo-Cons use their apocalyptic predictions.

The Precautionary Principal-International Banking Cartel Brainwashing
http://www.youtube.com/watch?v=4GIkWuuq45I

dogismyth's picture

The precautionary principle is a paradigm that should NEVER be used as the driving factor in action.  I worked in the environmental management arena for decades under the premise of the precautionary principle.  The absurdity that stemmed from this principle were Orwellian, just as they are today.  For example, we had hypothetical people digging in the ground to a depth of 6 feet and eating 100 mg of that soil a day.  That was the scenario the USEPA wanted adopted for all assessments for industrial waste released to soil.  It was fucking ridiculous and some companies had to spend millions to cleanup for a potential exposure that had a likelihood of occurring of about 1 in a billion.

So its a useless tool when logic, science and reasoning are thrown out the window in order to protect some  unnamed hypothetical person doing some irresponsible and highly improbable act.

Your video was good.  Blair is a crook.  Plain and simple.  He knows what he is doing.  All royalty and bloodlines need to be captured and placed on a island for there (and our) own good.  They are ruthless, arrogant, uncompassionate, selfish and fucking insane through their inbreeding.  90% of the worlds problems would be gone like that...(i just snapped my fingers)....if these evil fucks were exiled somewhere and the world was put into the hands of humanitarians, unbiased scientists and artists.

chopper read's picture

thanks for posting, mate. 

TheDavidRicardo's picture

Thank you, thank you , thank you.

If I hear one more person say that the US is not Japan (implying that the US is in better shape), I'm going to kick them in the balls or vagina!

SheepDog-One's picture

Or both! Depending on what part of town youre in!

JW n FL's picture

Luquidity BITCHEZ!!!!

TruthInSunshine's picture

Is there an 'app' for this 200 trillion?

I would like to see this impending 'issue' be resolved via the use of a simple iPhone app.

aerojet's picture

Damn, I only came over here to post some witty "_____, bitchez" comment and got beat out twice over.  How about, CREDIT, BITCHEZ!!!! ?

centerline's picture

After reading a little more of the material, I would go with "New World Order, bitchez!!!"

JW n FL's picture

"Going back to the 2010 word of the year, contagion, here is who the WEF believes are the riskiest countries. Not surprisingly, the US is front and center..."

 

how much of that metric is pass thru from the other idiots around the globe?

stormsailor's picture

why is there such a divergence on the dji and the s&p?  usually runs about 10:1.

TruthInSunshine's picture

The Bernank and his minions realized a while ago that it is easier to target 30 stocks for hot beef injections, to get them into the green (or at least keep them from falling as far into the red), and thus give a warm, fuzzy 'wealth effect' feeling to the masses, than to do so with 500 stocks.

thepigman's picture

Step right up, sir, and get your

jacked-up, ramped-up equities from

the PDs.

What could possibly go wrong?...it's the Dow.

Hephasteus's picture

Every dog show has a best of breed and best of show category.

rubearish10's picture

IBM is a heavily weighted DJIA stock.

Yancey Ward's picture

Realistically, there are net debtors and net creditors.  At some point, enough net debtors reach the point where they decide that they spend enough of their working day servicing their debts and no more.  When that point is reached, they will do one of three things, default, stop taking on debt, or actively start taking it on with every intention of defaulting.

hedgeless_horseman's picture

At some point, enough net debtors reach the point where they decide that they spend enough of their working day servicing their debts and no more. 

In 2010, an incredible 9.42% of all housing units in Nevada were foreclosed upon.

http://finance.yahoo.com/real-estate/article/111848/the-eight-states-running-out-of-homebuyers?mod=realestate-buy

SilverRhino's picture

When that point is reached, they will do one of three things, default, stop taking on debt, or actively start taking it on with every intention of defaulting.

 

And if Joe6pack follows the lead of the .GOV?   Option 3 will win out every time.

Financial_Guardian_Angel's picture

+100

Then it's the net creditors turn. They will have options too. Take it up the a$$, restructure the debt, or call in the military to ensure all assets now belong to them. Which do you think they will choose??????

Duffminster's picture

Is the growth measured in inflation adjusted dollars and if not, perhaps closer to $1 Quadrallion in new credit will actually be required to compensate for massive hyperinflation???

Duffminster

plocequ1's picture

200 Trillion? Meing. Thats alot of money

JW n FL's picture

it is almost 1/4 of JP Morgans Global Holdings.. in one market place, not gross.

plocequ1's picture

2020. Hopefully by then i will be sleeping with the fishes

JW n FL's picture

i hope not... live long and prosper!

Caviar Emptor's picture

Debt instruments of mass destruction.

Hard to make someone deep in debt become a responsible citizen.

wisefool's picture

Not a problem. Just tell that to the OBGYNs so they spank/stamp american future taxpayers with their 10 digit SSNs. 10% more patriotic Keynesianicity!.

tonyw's picture

It's obvious now why Tunisia and Egypt are having problems (see the fifth chart) - they don't have enough credit to buy things so people are rioting!!! Just slip them all a few large ones and they'll be happy as Larry won't they?

But seriously why do they keep calling it credit when it's a debt.

 

DonnieD's picture

credit to the bank, debt to the poor people that need it.

Monday1929's picture

"floated a bond issue" sounds much better than

"mired themselves further into debt"

bugs_'s picture

save that ponzi

 

jus_lite_reading's picture

Why wait? Print NOW. That way every man has a castle and a roast duck on his plate.

JW n FL's picture

Mc-Mansion... not castle thats so last century..

TruthInSunshine's picture

McMansions with Chinese Drywall/Sheetrock and shitty ass construction.

JW n FL's picture

I do feel for all those poor souls out West in Broward and Miami...

Sudden Debt's picture

Didn't OBAMA sell out the US for 45 billion to the Chinese today?

Which state did they get?

Yancey Ward's picture

We tried to give them Illinois, but the state employee unions objected under 5th Amendment grounds that it was an illegal taking and they required just compensation.

TruthInSunshine's picture

A fiat tree in every yard!

NotApplicable's picture

QE to infinity!

ZIRP to the rescue!

 

gwar5's picture

We can double it ....easy!

irishlink's picture

and then the politicians can blame the citizens! Barrosa went ballistic on the poor IRISH MEP in the European parliament today when he suggested that the high interest rate on the Irish bailout loans were to bail out the TBTF banks around the world. OH we are a nasty piece of gum stuck to their shoes now!

Rainman's picture

The worldwide credit future is so Rumsfeldian : There are things we know, things we don't know and things we don't yet know we don't know......or something like that.

The only thing we know we know for sure is that E-Z promiscuous lending is the golden egg but sadly the goose is in menopause. 

buzzsaw99's picture

Cool. Does anyone know how I can buy me some Facebook?

Bastiat's picture

And all that debt will be paying interest -- to whom?   The ponzi debt fiat money machine will meltdown before 2020.