The Life And Death Of A Massive Debt Bubble In Seven Charts

Tyler Durden's picture

On September 5, 2008, Citi's Matt King wrote a report titled "Are the brokers broken?" which in its rhetorical question (the answer was and still is yes), implicitly explained why ten days later the world would experience the largest bankruptcy in the history of western civilization, crushing confidence in the financial system to this day, and forcing the Fed for five consecutive years to be the marginal source of credit money in a "not without training wheels" world in which the longer the central bank is the only backstop of anything and everything, and where failure and risk are prohibited through artificial means, the less faith there is in any and every financial counterparty. So when Matt King sat down to pen his latest warning in which he showed how the world is now "positioning for the wrong sort of recovery", we naturally listened. Below are the key charts which not only show the lifecycle of the source of every modern Keynesian empire's boom and best, namely debt, but why 5 years later, "the slate has still not been wiped clean."

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Yen Cross's picture

tylers deserve "xtra credit" for this article. well done.

flacon's picture

I must be dyslexic because I read the last line wrong: "THE STATE HAS NOT BEEN WIPED CLEAN"

Arius's picture

Here is the BBC story how Goldman helped Greece turn a 2.8 billion dollar debt in 2001 into 1.2 trillion dollar debt by 2013 ... i doubt it Greece is the only place they have helped so ...

JohnG's picture



Goldman started with one company at a time and graduated to "helping" one COUNTRY at a time. 

The PHD will be a continent at a time.

Boris Alatovkrap's picture

Boris invite Lord Blankfein visit Minsk, surprise is waiting.

GetZeeGold's picture



Doom.......presented in vivid colors.

Black Swan 9's picture

Thank you, Boris, for my first morning chuckle, goes well with coffee.

prains's picture

And this is why "Bankers" are NOT bankers, they're criminals in a cartel and they'd fucked their own mothers over to save themselves. It's clear to anybody that a politician is merely their servant boys, valets and footmen whose only role is to preserve their staus quo and the politicians control the armies and the police. Ultimately for whom? The Oligarchs run the entire show, and they're so few in number, it's a pity we're all so fucking stupid. It's what butters their bread, our myopic stupidity that so few control so many

wisehiney's picture

Human ingenuity has always been the factor that forever changes the world. But genius needs cheerleaders. Some you make, some you accidentally kill.

Boris Alatovkrap's picture

You are borrow plot line from American popular series "Hero"?

Seer's picture

The game has always been the same.  Only thing changing is the time slices/frequency; just as the exponential function dictates, time "speeds" up.  If one doesn't have time to bring things back off a boil to a simmer to start it all again then we're stuck on boil and the steam is wicking it all away (as the frogs start to cook).

Al those thinking that math was boring will find out how much "excitement" is yet to be brought into their lives by it...

Boris Alatovkrap's picture

Plus ce change, plus ce le meme chose...

cabtrom's picture

A banker would stab his own mother in the back and then fuck her dead carcass.

max2205's picture

So....walk me through this. ....

Jethro's picture

Yes, this is a lot to absorb. Just when I thought I was gaining a general understanding of these various topics, some article like this comes along. 

falak pema's picture

I keep getting mind boggled by the size of the notional derivatives debt. We talk of 700T gross notional for OTC. But here we talk of 4T in that graphic.

What happened to the two bicycle wheels on that number?


Seer's picture

No!  Stop!  It's a trap!

blindman's picture

excluding the fine points which are lost on me
the story is this.
capital is not only created and of value
but becomes a burden and then must be/is destroyed
or transferred to where it could be valuable.
some financial capital is toxic as is some
instructional capital and needs to be destroyed
or it eats away at the market participants and
kills them.
it breaks the mechanisms of the " how leverage drives
growth " triangle. but you have to ask is growth
possible or desirable in the macro or micro view.
and some market participants are terrorist and use
toxic financial capital to destroy other capital that
is not theirs so they can they buy it cheap and flip it
to someone else for a "profit" or other capital.
the point is inside a credit, economic, asset capital
growth cycle is the corresponding bust cycle which
demands the destruction of these elements in the bust
phase. the bank loan mechanism of financial capital
creation bust will lead to loss of economic growth resulting
in asset price depression and destruction of capital.
deflation. the central banks serving as the mediums for
asset reallocation from the real economy to the financial
market actors, wiping the slate clean in cephalopodic manner
for the squid to wipe your plate clean before sinking it's
beak into your neck.
the leverage boom and lending good times contained speculation
of growth and easy credit going out 10-20 years. these capital
appreciations were priced right into the assets/houses and further
leveraged. the same sort of giddiness was applied in the profligate
bond market. the slate was made very busy and full and so there
is currently no room on the slate for any capital creation to
finance the demands of the former miss allocation, fraud and usury
that is systemic in this cephalopodic money creation scam by
whatever name they call it?
the banks will be recapitalized with the deteriorating assets,
property, resources and labor of the subject populations.
that they will call a "clean slate".
that's all for now, thank the fed!

ebworthen's picture

Senator Oral Hatch on Kudlow tonight.

That worthless peice of career politician shit deserves a "Scanners" style head blow up.

"We've got to cut entitlements like Social Security and Medicare (and keep bailing out banks and corporations...shhh!)."

Yen Cross's picture

  Ebbie you kick ass.  Don't you ever submit !  

ebworthen's picture

Never Yen Cross!  Never!

Back at 'cha!

falak pema's picture

never say never! 

Wasn't that the title of a movie?

That sounds like Justin and Miley. Wow, the golden nuggets of media idolatory! 

Seer's picture

I don't care what any of them "want" to do.  If they can pass the simple test of explaining how their solutions don't violate fundamental laws of nature then I'll stand back.  First test is to ask each and every "leader" to explain how the exponential function works, and then to answer how such a function could be maintained within a finite envelope.  If they can't answer these questions accurately and they demonstrate no intent on being educated and they STILL insist on getting what they "want" then they should be shot.

cnmcdee's picture




Everybody needs to be fighting this now!! First the 'float the idea' to see if you'll scream, then if not they bring it about.




You better care as much about what happens in the European union as your own bank account people - your accounts will be next.



Seer's picture

Hehe... he said "bank accounts"....

Most have nothing anyway.  And those that have a clue really don't have themselves invested in fiat.  This is nothing but a big scare tactic.  I suppose that it's just part of the recall of the defective product that is fiat... (and WTF would anyone really want fiat?)

RebelDevil's picture


Whether it's $500 or $500,000, it matters when you need it to live life.

btw, the only reason why fiat matters is because every other idiot prefers it. It's ease of exchange that comes from its status as the normal. Currency is one of the few things that gets better with popularity (in terms of MoE.)

Tim_'s picture

Resolving Globally Active, Systemically Important, Financial Institutions

"A joint paper by the Federal Deposit Insurance Corporation and the Bank of England"

"The financial crisis that began in 2007 has driven home the importance of an orderly resolution process for globally active, systemically important, financial institutions (G-SIFIs)."

"In the U.S., the strategy has been developed in the context of the powers provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Such a strategy would apply a single receivership at the top-tier holding company, assign losses to shareholders and unsecured creditors [individual depositors] of the holding company, and transfer sound operating subsidiaries to a new solvent entity or entities."

"In the U.K., the strategy has been developed on the basis of the powers provided by the U.K. Banking Act 2009 and in anticipation of the further powers that will be provided by the European Union Recovery and Resolution Directive and the domestic reforms that implement the recommendations of the U.K. Independent Commission on Banking. Such a strategy would involve the bail-in (write-down or conversion) of creditors [individual depositors] at the top of the group in order to restore the whole group to solvency."

"The goal is to produce resolution strategies that could be implemented for the failure of one or more of the largest financial institutions with extensive activities in our respective jurisdictions. These resolution strategies should maintain systemically important operations and contain threats to financial stability. They should also assign losses to shareholders and unsecured creditors [individual depositors] in the group, thereby avoiding the need for a bailout by taxpayers. These strategies should be sufficiently robust to manage the challenges of cross-border implementation and to the operational challenges of execution."

"Similarly, because the group remains solvent, retail or corporate depositors should not have an incentive to 'run' from the firm under resolution insofar as their banking arrangements, transacted at the operating company level, remain unaffected. In order to achieve this, the authorities recognize the need for effective communication to [corporate] depositors, making it clear that their [corporate] deposits will be protected."

Tim_'s picture

Canada's Economic Action Plan 2013

"The Government proposes to implement a 'bail-in' regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities [individuals' deposits] into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants."

"This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are 'too big to fail.'"

Yen Cross's picture

I'm pretty sure you guys read those charts perfectly / correctly...

IridiumRebel's picture

Living in a Kondratieff Winter
by I. Rebel

Opening bells ring, are you listening,
On the Street, blow is glistening
A beautiful sight,
We're happy tonight.
Living in a Kondratieff Winter,

Gone away is Bernanke
Here to stay is Ms Yellen
A taper love song,
And we go along,
Living in a Kondratieff Winter,

In the White House we can Hail! Obama!
And pretend that everything is well,

He'll say: Are you employed?
We'll say: No man,
But you can have free shit
While you're down!

Later on, we'll conspire,
As we dream pitchforks and fire
To face unafraid,
The debt that we've made,
Living in a Kondratieff Winter.

In the White House we can Hail! Obama!
And pretend that everything is well,

He'll say: Are you employed?
We'll say: No man,
But you can have free shit
While you're down!

IRS rings, taxed to death yet,
NSA taps, are they listening?
A beautiful sight,
The USSA just ain't right,
Living in a Kondratieff Winter...

Living in a Kondratieff Winter!!!!

sister tika's picture

I thought I would post this news release here, although it has nothing to do with this post.


FOR IMMEDIATE RELEASE: Friday, October 11, 2013

California Governor Jerry Brown Vetoes SB 374 Semi-Auto Gun Ban, Others
Brown Rejects 7 Gun Control Bills, Signs Lead Ammo Ban

SACRAMENTO, CA — Earlier today, California Governor Jerry Brown announced his official rejection of 7 gun control bills passed by the Legislature last month. The vetoed laws include SB 374, a ban on semi-automatic rifles authored by Senator Darrell Steinberg that served as the keystone of his failed “LIFE Act”.

Yen Cross's picture

moon beam brown. I'm selling off  what's left of my westcoast property.  west coast is doomed...

Milestones's picture

Yen,--Huh? Down on Brown for vetoing gun control bills??              Milestones

Yen Cross's picture

Brown iis a commie socialist just like his scumbag father!

falak pema's picture

soon the number of non commies & socialists in the USA will dwindle to the 1%. Plutocrats vs COmmies. What a world series that would make, in the land of the free. 

Coming up to pitch :  big Jon Corzine. At bat, little big man, of Hollywood commie fame. 

May the series begin! 

Seer's picture

Your "westcoast property," how fucking nice...  Really, WTF have you been waiting for?  A "rebound?" ha ha!

I love logic.  Keeps me from doing stupid things like letting my emotions run amok.

Bottom line: life is all about holding on to what you can- you thought it different?

BlueCheeseBandit's picture

Be interested to hear your west coast property is doomed thesis. I have an east coast thesis that's pretty simple: death of finance when this whole thing blows up.

I don't live on the west coast or own property there, but I could get the opportunity. I thought of west coast as relatively safe because of trade flows with Asia. I know the state finances of CA are an Fing mess, but a state default just means a loss of government services (not really an issue for me).

What are your thoughts?

Michelle's picture

Who's responsible for the state of the slate? People need to look in the mirror as everyone's hands are bloody - all of society is guilty of contributing to the crime, even if they aren't a lender, borrower, or investor. Just a simple purchase from an indebted retailer fuels the fire.

Seer's picture

Green: 0; Red:2

Yeah, folks here are different (not!).

All is based on being engaged in the Big Ponzi.  Yes, every fucking one of us here has been involved in it.

TPTB_r_TBTF's picture

and I hope it CONtinues for a few more years...


... errrr, I mean -- for a few more days.

superflex's picture

Holy Chit.

Tylers knocking it out of the park.


Skateboarder's picture

Excellent chartage. The last one, loan growth vs. bankruptcies vs. injected capital, is amazing. Thank you Tylers.

goldenbuddha454's picture

Notice Japan in the 3rd chart, that clear divergence is what happens to house prices here in the USA in the future.  You know they can't resist finding new and better ways to give you loans.

I am Jobe's picture

Excellent work- Tyler. 

ACL weekend , sheeples are too busy and then Haloween, T Giving, Christmas- Black Friday- ah the good ole distraction to keep the sheeples from thinking. It's coming to an end and how will sheeples cope?

Interesting times ahead. Let the games begin. 

Clowns on Acid's picture

Tyler - Excellent article by Matt King... one of his points requires elaboration however -

The "Centrally Cleared" concept via the Dodd Frank SEF (Swap Execution Facility) requirements are going to be very interesting. Replacing the interbank "credit lines" for Rates trades (Interest rate swaps) will be a collateral / cash requirement to be posted with the Central Clearer (LCH, CME, ICE).

Outstanding Swap trades will be able to be compressed (offset) with htois ematching price terms and maturity. The compression trade could eventually "compress" the Swaps amount outstanding to 60 or 70% of the figure that Matt King shows in his graph.

That said, the banks and OTC brokers are fighting and dragging their feet to switch to a SEF based trading environment because non banks (the Buy Side) will be able to trade directly and anonymously on the SEF. Banks will lose the risk free bid/ask spread business they enjoyed under the interbank "credit limit" system (which required NO collateral between banks for trading) that the Buy Side used to ahve to pay them. Also, the "information leakage" that Buy Side firms had to suffer through (banks knowing which side and how much the Buy Side client wanted to trade on) will be gone for the banks as well.

This represents a huge change in environment and risk free profits for the banks and a huge opportunity for ther Buy Side to increase the returns to clients.

The banks are crying that the Swaps market will lose its liquidity, given that the banks will now have to post collateral / cash with the Centralized Clearing House.

This is a huge market issue occurring right now and deserves a insightful ZH article. Get on your horse Tyler !!

Herdee's picture

For those who haven't seen it,punch in "Debt Bomb"ya really turn me on...