Charting The Undoing Of Credit-Fueled Globalization

Tyler Durden's picture

For two decades the rate of growth of world trade volumes considerably outstripped that of industrial production as credit-fueled globalization created huge imbalances in the world. As Diapason Commodities' Sean Corrigan indicates in these three simple charts, all that vendor-financed circular exuberance has come to an end. The bottom-line is that forced deleveraging (not least of which in Europe) is crushing the credit-fueled (and unsustainable) dream of endless growth as debt saturation has been reached (on private and now public balance sheets). To wit: Global Trade Volume growth is deep in the danger zone and about to turn negative; as the hopes of so many Sinomaniacs and Pollyannas is slowly peeled back to a righteous recognition of reality.

The ratio of Global Trade Volumes to Industrial Production remained in a relatively stable uptrend as imbalances fueled by credit averaged 3.4% annually more trade than production. All that ended when whatever Keynesian Endpoint or Debt Saturation barrier we hit in 2008 and the impossible was proclaimed entirely possible.


What this means - simply - is that without credit expansion, world trade volumes are decelerating rapidly.


With Europe on a path to considerable deleveraging (as is clear below)...


...things do not look set to get better any time soon - and expectations for world trade to enter contraction any minute now is highly likely.


And as Sean Corrigan notes - on the dreams of China saving the day once again:

The minor uptick in China’s ‘flash’ PMI estimate for October – from 47.9 to 49.1 ? has sparked the usual explosion of uncritical hopefulness (on the part of those who, by and large, thought there never could be a slowdown under the aegis of the all?powerful CCP to begin with,) that this finally marks a bottom in that country’s economic cycle.


In giving vent to such optimism, the Sinomaniacs conveniently overlooked the fact that much of the improvement was down to the fact that it was the price indices, rather than those relating to output or employment, which struggled back above the expansion/contraction threshold of 50 – a circumstance which might just temper their extend?and?pretend expectations of an ever imminent monetary relaxation, were they to reflect on it for a moment between jubilations.


Worse still, the Pollyannas appear to have forgotten that the PMI simply gauges whether things are generally better or worse than they were last month – and that in a non?quantitative manner, to boot. The unequivocal answer is worse (if marginally so, this time) for the twelfth consecutive month and for the fifteenth out of the last sixteen occasions. Thus, it may be true that the rate of decline seems to have slowed – how enduringly, only time will tell ? but the fact of that ongoing decline itself remains, even after so many uninterrupted months of economic deterioration.


China bulls and the other assorted, ?next quarter? blue?skyers may have either venal or psychological reasons to puff this one reading , but the test of an analyst who knows his stuff – and who is not afraid to be honest with you ? is whether he makes this simple, but crucial, distinction in his commentary.

and on extrapolating this recent China growth, Michael Pettis has a few words:

If you want to make economic predictions, in other words, whereas a long historical view will be very useful because it allows you to consider the dislocations created by a reversal of unsustainable imbalances, recent economic data are largely useless, as are predictions based on linear adjustments of recent economic data. Instead of projecting from past data you must model the various paths by which rebalancing can occur, and your prediction must be limited to those paths.

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Sam Clemons's picture

It's sad when one realizes that what they thought was growth due to deregulation,free trade and classical capitalism was really nothing more than a huge credit bubble.

michael_engineer's picture

And it was the cream off the natural resources bell shaped "Hubbert" like curves too that it was built on at the structural and support levels that is the underpinning and real foundation of the credit level/layer. It's mostly all buttermilk now folks.

Sam Clemons's picture

Hey, but now we've got parking lot after parking lot of vacated and rebuilt shopping centers.  What a terrific investment.

disabledvet's picture

does the human race know any other way? i mean the purpose isn't to "prevent the bubble in the first place" (unless you are advocating a full on Andrew Jackson "kill the banks AND the speculators" which he in fact did do) but to mitigate the it not? Not that i don't find what you say to be utterly truthful and therefore hilarious....

Shelby Moore III's picture

If you do a little math on relative scale (yeah I know math hurts the brain), China has 1/10 GDP per capita of the USA and 4 times the population, so China's 64 million unoccupied condos (priced at 20 times the annual wage), is comparable in terms of misallocative impact on the economy, to the USA having 160 million unoccupied condos priced at $100,000 each or 16 million of them priced at $1 million each.

The good thing about wasting money on common areas, is that the waste is spread much thinner on a per capita basis. And parking lots and single story developments are much less expensive per sq.ft. than high rises (as is case in China). Yeah it was wasteful and we have serious financial imbalances ($100+ trillion in unfunded liabilities), but we are much better positioned than China is, assuming we reneg on socialism (let the boomers get what they sowed which is an old age in poverty without medical care) and focus on our youth and our entreprenuerial culture.

So far though, it is not so promising with our youth running up their college debt, rather than being frugal and learning on the cheap (which is always better education because the person will prioritize and chose a more pragmatic area of study).

Shelby Moore III's picture

cream off the natural resources bell shaped "Hubbert" like curves

Another gullible (naive) peak resources fool who can't see the forest from the trees:,%20Rise%20of%20Knowledge.html#WherestheBeef?

eddiebe's picture

Yeah Sam, not only that, but 'free trade and classical capitalism' are nothing but mirages and a sham hiding crony capitalism and corporatism.

marxist's picture

A close trading dependency between Western "free marketeers" as well as Chinese "communists" can but be, nothing other than a sham, and it goes without saying.

Shelby Moore III's picture

Absolutely, but understand they are losing, because they can only control (finance) what doesn't stay in our head:,%20Rise%20of%20Knowledge.html

Wrap your mind around the bigger picture, and it will provide much inspiration. You have to have a decent size mind to grasp this. And you must read slowly and fight any erroneous prejudices.

Death and Gravity's picture

Agreed. The pro-globalizers will have a long line to work through on their way to the sink.

disabledvet's picture

really? i'm down 100 billion in Social Media while shorting treasuries "all the way up" and i'm not barfing in the sink yet? sorry but i don't want to be part of that unwind...

eddiebe's picture

Wow, maybe people are finally realizing that maxing out their credit cards is a bad idea.

Death and Gravity's picture

Theyll realize it the hard way; in that they bough iPads, Playstations and fancy gizmos, and when the glitter of that faded, they found that in the end, they'd rather have enough to pay for a decent meal.

But hey, the US obesity epidemic might be reversed in the coming years.


(And the walking lard repositories will serve as make-do bacon if the bacon shortage gets serious).

hairball48's picture

You got it. Most of the sheeple I know  spend every spare dime they get as soon as they get it, and then going deeper in hock on their CC's Amazing....and 99% of the spending is on "crap". And of course they have zero savings of any kind.

I can't wait to see what they do and how they react when the shit finally hits the fan.


cynicalskeptic's picture

Hard to reverse the obesity epidemic when the only food available is GMO - super glycemic wheat and corn.  

eddiebe's picture

And let's not forget sodium fluoride in the public water supply.

q99x2's picture

The china bull has entered the closet.

Banksters as middle men used fraud to create the housing bubble and thereby fund the mechanism of global trade so they could siphon off the profits. This time they better pay me and the star of the Obamaphone video directly or we will arrest them and send them to the Hague.


Fuck You Bernanke

JackT's picture

That artificial 2009 recovery sure stands out. If anything it should be used to gauge the dept of the abyss

disabledvet's picture

Already had my "run in for the day" with Mr. Petis of Guangzhou University. Is he right about China and "the new paradigm"? maybe. the complexities of East Asia are so vast i'm not sure anyone is qualified to sum it all up with "this is Japan in the 90's only worse." We're talking 1 BILLION people...kapiche? Anywho..sure.."it's doom alone that counts...

Shelby Moore III's picture

There is no new paradigm. Get a clue about how socialism fails every time:

(note the second linked comment is awaiting Pettis to approve it, so it may or may not appear when you click it. And it is most detailed in explaining how people screw up their analysis of China)

zorba THE GREEK's picture

If you don't think the U.S.A. can become a third world nation because we were the

the top dog for +/- 65 years, look at Greece or Italy, both of which were top dogs

for at least a 100 years. Welcome to serfdom.

Shelby Moore III's picture

Any country better than the USA now? Please don't tell me China, because that is very ill informed:

USA has serious problems and an underbelly of ignorant eaters, but it still has the most innovative thinkers and entrepreneurs in the world by far. China isn't even in the same galaxy.

USA has abundant natural gas and we will be the low priced manufacturer with robotics. Software is where all the action is. The useless eaters had better realize this. And China sucks at knowledge production (because they don't value it and authorize stealing it).

Ignorant people don't understand that hardware does not drive software, i.e. ignorance or lower knowledge activity does not drive knowledge or higher activity-- it is the other way around:

Snidley Whipsnae's picture

SM III... Your avatar should include pom poms with cheer leaders. Every country, including US, steals knowledge. If not, why were we in such a scramble to whisk the German rocket scientists to the US after WW2? Merely one of millions of examples.

In war, whether military or economic, good spys are worth far more than any number of battalions of troops or research facilities.

Taken from the writings of Churchill and Sun Tzu.

Shelby Moore III's picture

Thanks for taking the time to explain what you were thinking. It gives me the opportunity to explain why you are way off course. So maybe my pompoms are necessarily huh. How else are these readers going to get their mind of out the rut they are in.

You've entirely lost the thesis. I am not talking about the government stealing knowledge, I am talking about the citizens refusing to pay for any knowledge. For example, in China no one pays for software, because cracks are published in full view without any fear, and thus there is no time cost to stealing the knowledge production. We typically will pay for software, because the cost is not great compared to our time, and because if we searching for a crack it will be hard to find, as our companies (e.g. Google) are legally bound to remove such copyright infringements.

And more importantly because we value the performance and quality and want the developer to be able to continue to support and improve the product. Because we value our time. Chinese don't think this way. They think always in terms of what is cheaper and not the value of their time. In socialism, time is worth nearly zero. They haven't broken out of that mental state yet.

But it doesn't stop at software. This is much more pervasive point. China's government so heavily subsidizes failure (negative profit margins) that those companies have no (or much less) incentive to strive for knowledge production to gain valued added.

How could you even conflate the two, China is as I said galaxies away from the western system when it comes knowledge production. We don't see any significant research like the following out of China:

You have a culture of failure and socialism in China. The only thing the people understand is that if it isn't bolted down and you don't have the force to defend it, then it isn't yours. They've learned this after being bludgeoned in the head for decades by the thick boot (or threat of it). They have no concept of creating and paying for knowledge. They have no conceptualization of what Henry Ford did to pay higher wages so his employees could buy his cars. What Ford really did was motivate his employees to use their brains and produce a higher quality product. To take pride in their knowledge and their work.

That you could even think that China is any where near to the west, is simply ludicrous. It means you haven't really thought about it. It seems your mind is off on thoughts of war strategies, and not on economics.


If anyone can show me evidence otherwise, I am very interested to evaluate such evidence.