Deutsche Bank: "We Think Something Structurally Changed Since The Great Financial Crisis"

Tyler Durden's picture

The topic of whether central banks have destroyed the global business cycle to the point where all we have is phase jumps from one bubble to another (with an intervening depression in the interim) where central banks inject record amounts of new debt-created liquidity to cover up the credit excesses of the most recent bubble, has gained prominence following the recent comments by none other than the almost-Fed head Larry Summers who advocated the creation of an even bigger asset bubble to push the economy onward and upward. Below we present some much more sober and rational thoughts on this topic by Deutsche Bank's Jim Reid.

Do we need bubbles for growth?

The worrying feature of the DM economy over the last decade or so (and perhaps longer) is that it seems that we’ve needed to pursue ever looser policy to enable us to hang on to what has actually been lower and lower trend growth. However the consequence appears to be that markets have moved from bubble to bubble. On the slowing growth front, Figure 7 tracks real GDP growth by decade for the G7. It’s quite clear that growth has been on a declining trend now for several decades with this century’s growth being very disappointing across the board in spite of very accommodative monetary and fiscal policies and the inflating of at least two major asset bubbles around the globe.

Since 2000, the US has outperformed all but Canada across its G7 peers but has averaged only 1.9% real growth. As for the rest of the G7, the average growth rate over the same period has been 2.2%, 1.7%, 1.3%, 1.2%, 1.0% and 0.3% for Canada, UK, Germany, France, Japan and Italy respectively.

Even though the US is the relative star performer in this cohort (ex Canada) this remains one of the weakest US recoveries on record and one that continues to disappoint to the downside. As regular readers know we like to monitor nominal GDP in this cycle due to the requirement to erode the still substantial debt burden. On this measure this is the second-weakest US recovery since our data begins in the early 1920s (Figure 8). The weakest was the rebound after the 1929 crash that turned into the Great Depression. Figure 9 then shows that this slowdown is a global problem. The 5-year rolling nominal GDP growth number is now at its lowest level for 80 years.

Are we now finally going to revert back to pre-crisis levels of growth or are we going to appreciate that a) the trend rate of growth for DM economies has slowed markedly (perhaps due to demographics and other structural issues), b) that current inflation is becoming dangerously low but financial market liquidity dangerously high and that c) current policies are not having as big an impact on growth as hoped or expected (i.e. we’re possibly in a liquidity trap).

We think that something structurally has changed since the GFC, a change that seems destined to continue to hold back growth in the near-term and more worryingly has lowered the longer-term trend rate of growth. In the absence of structural reforms, a lack of appetite for debt restructuring and no ability to pursue more aggressive fiscal policy, the temptation will be strong globally to continue to throw liquidity at the problem which is likely to continue to have more impact on asset prices than the actual economy. Bubbles could easily form which could ultimately be the catalyst for the imbalances that will likely lead to the next recession or crisis. So to avoid bubbles we possibly need the US and global economy to have a stronger year and for activity to withstand the impact of tapering and the inevitable higher yields that this combination would bring. The jury is still out as to whether this can happen though and it might be that the US needs very low yields by historic standards to maintain a recovery. It might also be the case that the rest of the world needs low US yields too. 2014 will be a test of this.

Our base case is that the world needs low yields and high liquidity given the huge amount of outstanding debt that we’re still left with post the leverage bubble and the GFC. There’s still too much leverage for us to believe that accidents won’t happen with the removal of too much stimulus. If we’re correct, we may see a reaction somewhere to tapering and this in turn may force the Fed into a much slower tapering path than it wants.

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jomama's picture

just gonna leave this here.

hedgeless_horseman's picture



You lost me at: Deutsche Bank: "We Think...

Ham-bone's picture

Probably has something to do w/ the death of Democracy...Congress spending money they don’t have the tax revenue to cover…thus Treasury issues debt for which it has no intention of ever paying back the principal, an ARM i/o payment scheme…we are now to the point where the “typical” 5% to 7% interest payments on this debt would eat nearly 50% of tax revenue…so the Fed pushes rates ever lower to reduce the interest payments…but the low payments even became too much so the Fed now buys all new and rollover debt and remits the interest payments to the Treasury…via this path the Fed can increase from its present 20% holding of 1yr and longer Treasury debt to X?.  By this means, the Congress will never be forced to do the hard work of prioritizing spending versus taxation.  This was de Toqueville’s observation and warning; “The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money”…&…”A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.” 

 Now it all comes down to whether there are global consequences to bad governance or collusion to maintain global bad governance?  Will anyone be served by scaling back or replacing the “petro-dollar”…or will the Fed turn us into Japan by domesticating our debt...or both? 

All this in a world with ever less exportable energy, ever less cheap energy, ever less resources, and ever more demands for those resources.  In this environment, extrapolating previous periods of inflation or growth is likely great folly…people are capable of being so smart but groups are incredibly stupid.  Group think rules.

LawsofPhysics's picture

"ever less cheap energy" - please, things like "price" are really irrelevant in a "market" that no longer has a mechanism for true price discovery.

It really comes down to the calories returned relative to the calories you invested.  If humanity is burning 100 calories for every 10 calories worth of energy we recover (regardless of the energy "store"), then shit will change regardless of what a bunch of sheep think.

DoChenRollingBearing's picture

So, what do we as individuals do for our families?  Diversify.  

And for most, that means get some physical gold.  Those with the right skill set, energy (i'm getting old for example) can go with a producing farm, etc.  Stocking up on assets like gold & silver, food & water, guns & ammo is better than doing NOTHING.

Diversification, sure, includes holding some stocks and bonds.  But, times seem to have changed, things are more corrupt, I would guess at the corporate level much more so than deacdes ago.

If only 1% really own (non-jewelry) gold, then there is ONE SIMPLE ANSWER...



My own non-expert opinion is that cheap energy and all the other depressing things are all more likely to be true than not.  Prepare.

Ham-bone's picture

general consensus what is being done won't "work" to make things better for average people (at least among realists of ZH...I know, lots of folks now call realists pessimists for addressing questions which have no easy, painless answers that don't require change). 

I can easily make the case why every asset is destroyed or elevated to infinity.  In a game without rules trying to determine how to win (or just not lose) is a tough task that can drive those willing to try to the edge...

PrecipiceWatching's picture

So Fiat for Land sounds like a good play......

redd_green's picture

Wow, hard to get happy after reading that one!

Pig Circus's picture

I read the first paragraph and said to myself:

Yeah it's called a debt supercycle ya overpaid, ballwashing cocksuckers.

Dr. Engali's picture

It's the damn debt stupid. We will continue with this shitty economy until there are some defaults and the fractional reserve banking system collapses taking the central banking parasites with them.

RSloane's picture

Does this not want to make you grab them by their pencil necks and choke the ever fucking life out of them? I cannot believe people this fucking stupid are in charge of anything more than a piggy bank.

Dr. Engali's picture

It makes me want to grab their necks because they know where the problem lies, but they try to obfuscate it to cover their asses.

RSloane's picture

Its like thousands of people [DB employees] across the globe just figured out that hitting people with hammers might hurt them. They, and people like them, really do live on another planet.


PS DB is right there in line, bellying up to the Fed's discount window whenever they please.

Colonel Klink's picture

I say it doesn't matter how the life goes out of them.  As long as the Central Bankers die.  Happy ending for the masses.

The Limerick King's picture



The world is addicted to debt

The most dangerous drug you can get

The patient may die

From removing the high

Is that any reason to fret?

walküre's picture

Economic activity will only pick up when we have the debt jubilee and the citizens own assets vs debt. Currently the citizens by and large are debt slaves and they've got nowhere to go. Subsequently they don't participate for the most part other than doing what is necessary to keep their heads over water. Not everyone can serve the 1% and the consumption of the 1% is not enough to keep the economy going.

Debt jubilee which is a wealth reduction on a tremendous scale to bring back some form of balance and a chance for growth in the middle class.

In a few months, maybe couple years max the governments will agree to cut off some zeros from the debt accounting. Standard practice in a currency reform. Debts and liabilities will be reduced and assets will be revalued. They will give a window of a few weeks to exchange old money 1:1 (up to $10,000) to the new money and going to a lesser exchange after that. Every citizen will be given a few token dollars to restart the system. The winners will be all gold and silver bugs if they can hold on long enough and avoid confiscation. Exchange of gold and silver for new money will be limited and proof of ownership may be required. It will be tricky to go around that in a global reset.

FredFlintstone's picture

Explain how this will work from a political standpoint. Someone with zero debt and a bunch of FRNs, such as myself, would not be very enthusiastic about such a scheme. Can't think of any scenario where the political class would put forth such an idea.

RSloane's picture

Are they serious? They just now figured out that the Fed's policies are keeping asset prices rising rather than any actual demand in the economy? And there it is again - the veiled threat that any reduction in loose policies will result in further financial setbacks.

 [Extremely non-complimentary swearing at them removed]

LawsofPhysics's picture

Careful, you will fall victim to the manipulator's language, there are 7+ billion people on the planet all competing for a better standard of living (something that requires energy and commodities), so there is plenty of demand.

manipulating the language is an important part of the propaganda.  Demand for plastic crap you don't really need, yeah, that might be going down...


That and demand for financial "products" of mass destruction...

RSloane's picture

Of course. There is always going to be demand for food, shelter, and clothing. I'm referring to intangible assets whose value is set out of thin air, fantasized rather than realized. And now the deutschebags are a bit worried about it?

I have no pity for those people. As one great ZHer said "Jump, fuckers, jump".

chunga's picture

Cleaning up my filthy language is on my New Years Resolution list.

Ahhh...fuck that. Fuck Douche Bank too. Fuck them.

RockRiver's picture

They just now figured out that the Fed's policies are keeping asset prices rising


Question: Are they rising due to old fashion demand or the upward press of inflation? All those dollars the fed is pumping will have to show up somewhere eventually, no?

LawsofPhysics's picture

Well duh.  Create all the credits out of thin air that you want to, the calories (i.e. energy) that is required to actually create or do anything of real value is what it is.


Roll the guillotines already.

nothing changes otherwise.

Nothing but the truth.'s picture

How perceptive of Deutsche Bank - they really are way ahead of everyone with their forward thinking. Where have these dumbo's been for the last 3 years ?

youngman's picture

The Fed will try a little taper...see intrest rates go up...then come back in to try and save the day...but I think the dominos will be falling by then and they will not be able to save it fast enough...maybe a trillion overnight might do it...but they will have to play catch up quick...

LawsofPhysics's picture

The only thing that might buy more time would be a completely "unforeseen" agreement by all CBs to wipe out all derivatives, bad debt, and other bullshit "assets".  Even that will not stop the world's more back to sound money and away from fiat (by choice or otherwise).


I remain long sharecropping and black markets.

Tinky's picture

I agree with this basic sentiment, and consider the odds of an "orderly" unwind to be roughly equivalent to those of Rafael Nadal's girlfriend choosing me, should I throw my hat in the ring.


LawsofPhysics's picture

In many ways, I think it has already happened.  Think of Japan's debt, then ask yourself, "why in the fuck is anyone still doing business with this island?"


My worst fear is that the "default" is hiding in plain site and will continue to do so until people (on a horrifically large scale) simply cannot be fed.  Not because the they don't have cash (as was the case with the last great depression), but because the supply and supply lines simply don't exist.  I mean, after all, the age of the dinosaurs was pretty damn awesome for certain groups, like the T-rex.  look how that turned out...

same as it ever was.

michael_engineer's picture

There's probably more than a few TBTF entities would crash with the suggested wipe out agreement, even though others might survive with more sound and fundamental bottom lines.  So thererfore we will likely keep playing the extend and pretend musical chairs game where only a single player kind of maybe loses a seat or loses privilige at any one time.  And even then with bail in and printing, the pain is being spread out to those not so directly involved in any one underlying crisis.   

MollyHacker's picture

Talk about the pain being spread out, Detroit pensioners left with .16c per Dollar. They are fronted the burdon of a motor city madness drag race to hell! The automobile manufacturing exitious was just like the steel industry closings of the 70s exept there was Brentonwoods ll that prolonged trades imbalances and excesses (To some degree)

Pairadimes's picture

In other news, water is wet and the sun is fucking hot.

frankTHE COIN's picture

..and he does'nt mean Stove Top Hot.

PrecipiceWatching's picture

"We think something changed structurally"


Good Lord, the once proud Germans have been turned into such word-mincing pussies; hell Pussies, across the board.

Bluntly: The Communist US Government and the shyster led Fed are fiscal criminals of the worst sort.

In the mode of Sam Kinnison:

Say it! Just say it!


Shizzmoney's picture

A) It took them *this* long to figure out?

B) Someone actually gets paid for this analysis?

Sonny from "A Bronx Tale" was right.  The working man is a fuckin' sucker.

michael_engineer's picture

Interesting structural considerations are made here :

Why not look in one of the most obvious places first for causality in structural issues?

LawsofPhysics's picture

I enjoyed that piece.  I did notice however that you referred to humans as a "race" when in fact we are a "species" and the fossil record is very clear that species come and go and the laws of Nature and Physics are a harsh mistress.

Tinky's picture

"...the laws of Nature and Physics are a harsh mistress."

Presumably, then, we are rapidly approaching the cock and ball torture point of the session.

michael_engineer's picture

You might note how I have to go to an archive to get at it now.  And somebody broke several of the fun links that were touching in ways.

Number 156's picture

They really do make this game up as they go along, dont they.

Son of Captain Nemo's picture

"We think that something structurally has changed since the GFC, a change that seems destined to continue to hold back growth in the near-term and more worryingly has lowered the longer-term trend rate of growth"..

Code Speak for...

Give us back our Frickn gold if you want us to keep the reality message "opaque" for you.

SheepDog-One's picture

All just speculating about how the Hells Angels biker attitude will be to decreased free crystal meth and heroin injections. The only way it ends is a murderous rampage.

yogibear's picture

Bond market says no US Fed taper, end of story.

It's keep printing over and over again. 

The US Federal Reserve keeps increasing purchases of US debt. From over 30% to 50%.

tony wilson's picture

george clooney matt damon bono and obarma said this was a sad day in world history.

mandinka mandela is being buried.


heres an old bit of history 3 icons meet




PrecipiceWatching's picture

The dickless, obviously white-guilt plagued, self-hating U2 frontman yet again?

Well then, I'll just pop-in to tell the hugely overrated and consistently big-mouthed Bono, to get his fucking Irish hands out of the American taxpayer's pockets.

If you want to save hopeless Africa, dig into your own hideous overcompensated pile o'Rock cash. 

Ms. Erable's picture

Four clueless wonders reading from scripts. I find it amazing that any of them have the brain capacity to keep their bodies' autonomous systems functioning, let alone the ability to walk and speak.

Pairadimes's picture

Like we used to say in grade school, he who smelt it dealt it.

evernewecon's picture




Liquidity trap and hanging Ponzi scheme

come to mind.


This is interesting.


LL on a 2d leg down.|C




Ms. Erable's picture

Douche Bank:

You know you're the problem, right? There can be no growth, let alone stability or price discovery, with you and other fucktards like you calling the shots. Just fucking die already, and fuck you, you fucking fucks.