The Bubble Is Back

Tyler Durden's picture

Submitted by John Rubino via,

For all those analysts (including this one) who thought the debt binge of the previous decade marked end of the Age of Leverage, well, not so fast. It turns out that memories are short and government printing presses are powerful, and this combination has turned the “Great Deleveraging” into a minor speed bump on the road to something even more extreme. As the following chart illustrates, the growth in total US debt flattened in 2009 and 2010, with government borrowing more-or-less offsetting a decrease in consumer and business loans. But now the trend is once again onward and upward across the board.

US total debt 2014

Prudent Bear’s Doug Noland publishes a quarterly analysis of the Fed’s Z.1 report of US credit market activity. This is always a must-read, but last Friday’s was truly extraordinary. Among other big, ominous trends, Noland notes the following:

• Total (financial and non-financial) Credit jumped $484bn during Q1 to a record $59.399 TN, or 347% of GDP.

• Total Non-Financial Debt (NFD) expanded at a 5.0% rate.

• Corporate borrowings grew at a robust 9.3% pace

• Federal government debt mounted at a 7.1% rate

• Consumer credit rose at a 6.6% rate

• Household net worth surged $7.98 TN, or 10.8%, over the past year.

• Over the past four years, household holdings of financial assets have surged $22.0 TN, or 49%, to a record $67.2 TN.

What’s happening? The short answer is that zero interest rates have finally begun to work their magic. Corporations, for instance, are using the proceeds from low-rate bonds to buy back stock on a vast scale. See Zero Hedge’s Here’s the mystery and completely indiscriminate buyer of stocks in the First Quarter.

And now cheap credit is leading consumers to start buying cars and using plastic. Here’s an excerpt from a Financial Sense article asking how US consumer spending could be rising while incomes are not:

One of the questions discussed was “how is this increased spending financed?”. It’s a fair question, given the painfully slow wage growth in the US.


On Friday we got our answer. US consumer credit outstanding spiked way above expectations. While the media focused on the jobs report, this was the key news item:


Consumer credit 2014



Unlike in previous Fed reports that showed consumer credit growth driven by student loans and to a lesser extent auto finance, we saw something new this time around. The increase was caused by a jump in revolving credit. Americans are warming up to using plastic again.


Revolving credit



This is certainly a positive signal because it shows that household confidence is improving sufficiently to send consumers shopping. Unfortunately a great deal of what Americans bought came from abroad, causing the US trade deficit to jump unexpectedly. The effect on GDP growth from this jump in consumer spending will therefore be relatively muted.

Some thoughts
It was just six years ago that soaring consumer spending, massive trade deficits and generally excessive debt caused the biggest crisis since the Great Depression, and here we are back at it. The details are slightly different but the net effect is the same: inflated asset prices, growing instability and rising risk of a systemic failure capable of pulling down pretty much the whole show.

All of which creates a fascinating economic landscape in which families are making no more money than they did last year but are borrowing to buy things they don’t need, while corporations sell bonds to pump up their stock prices and by implication their executives’ year-end bonuses. It is, in short, another debt-fueled orgy in which the most vulnerable individuals are being suckered by governments and corporations into mortgaging their futures in order to transfer wealth to the “smart money.” Recall the Z.1 Report finding that household holdings of financial assets have surged by $22 trillion in just four years.. But it’s also exasperating because the same thing happened JUST SIX YEARS AGO and should still be fresh in the memories of the adults doing the borrowing and spending. Unless all those food additives and pesticides are impairing the average person’s cognitive functioning (which is a subject for another day) the people using credit cards to buy Chinese-made junk really have no excuse.

For now, the bubble is the story, and the fact that it’s hitting its stride with stocks and bonds already at record levels is a new twist. Just about the only thing that can be said with near-certainty is that the next few years will be more volatile than the last few.

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Zest's picture

Bring it on.

SamAdams's picture

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SamAdams's picture

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yrad's picture

Bubble your pleasure, bubble your fun.

Four chan's picture

so the feds plan was to drive down the housing market on the two coasts by wrecking the entire

economy and since that achievement the plan is to save the economy by inflating the housing

bubble on both coasts to previous levels and beyond. got it, meanwhile in detroit there are no jobs, and tens of

thousands of houses going for 10k and less. nice job federal lol reserve choke. end the fed.

max2205's picture

Do a double on my house and I'll see you fuckers in Costa Rica

LawsofPhysics's picture

I see things differently, "debt is money" after all.  However it would appear that the shortage of quality collateral is grossly underestimated...

Welcome to the global depression.

Tick tock...

wagthetails's picture

Collateral indeed. 

Total US - (according to the debt clock)

Assets - $115T

Debt - $62T

Unfunded Liabilities - $129T

Net Worth ($76T)

Raise taxes to a bizzillion%...even if you confiscated every assets we'd still be $76T short. 

LawsofPhysics's picture

Precisely why you need to let the bad, dare I say, fraudulent debt clear and the perps go fucking bankrupt.  Captial mis-allocation and mal-investment on a massive scale.  It's either that or a deliberate theft.  take your pick, but it's not sustainable.

dontgoforit's picture

Jubilee?  Might as well, as long as it ain't my 401k!  And there ya' go.

LawsofPhysics's picture

When what's in your 401k doesn't purchase shit will it matter?

dontgoforit's picture

Maybe you miss my point.  Don't you care if your 401K has any value when you need it?  Of course you do.  Point being it's just like 'not in my back yard' - people only get pissed when they are directly affected.  If our savings went 'poof' - yeah, we'd surely be pissed.

LawsofPhysics's picture

We are saying the same thing.  If the currency that you 401 is priced in has no purchasing power, then it already went "poof", that's the point.

yogibear's picture

The Federal Reserve keeps streching the market and assets further. Their taking it from painless to painful once it reverses. 

Inflating rents and assets will cause further retail contraction. They already pushed debt further.

dontgoforit's picture

It appears they're trying to smash the broken pieces.

Angelo Misterioso's picture

wag - any idea on what the "Unfunded Assets" are - i.e., the future net earnings that will also be available to fund those Unfunded Liabilities? It does not seem correct pull forward all the future liabilities without pulling forward all the future potential earnings.....

bagehot99's picture

US Treasuries are the highest quality collateral, which is what makes me piss myself laughing whenever I am reminded.

JRobby's picture


"quality collateral"   (deafening laugh track)

They haven't written off the last round of crap yet.

Lets collateralize some more shit marked up to Uranus! As real income falllllllllllsssssss

hugovanderbubble's picture

You must analyze the Total Debt Charge

that means: principal Amortization + interest Charge,


No matter that the principal goes parabolic meanwhile people can " reprofile " till infinitum any default....." ISDA " knows it ...

LawsofPhysics's picture

In layman's terms, the "best and brightest" really believe the debt never has to be paid off.


All I can say is, good luck with that.

hugovanderbubble's picture

Right, LoPhyshics


Thats the biggest problem, "supposely debt has never to be paid off". (Specially in government bonds), very few country defaults cases across history....


But look on the other hand ...


Imagine you have been paying Religiously your CDS (to hedge vs  Greek Default since 2006....; each year you pay ur premium 3,5% if deal done in 2012...."CONDITIONS have changed drastically with Debt Haircuts and debt reproflilng and those CDS hasnt triggered, so we have wiped out all the money - Its the biggest scam ever, ISDA.

LawsofPhysics's picture

Yep.  Just like playing monopoly as kids, eventually the one asshat in the neighborhood owns everything and the rest of us go find something better to do.

Full faith and credit...

i.e., no more faith means no more credit for you...


dontgoforit's picture

Flip the board over.  It's all red and blank.

hobopants's picture

I love it when I hear that bullshit "The US can never go bankrupt as long as it can print it's own currency!" like they have stumbled upon some profound secret to eternal riches or something.

Relentless101's picture

I thought deleveraging meant those tall red bars should be going down?

socalbeach's picture

Leverage is usually defined as Assets / (Assets - Liabilities).  So if Liabilities increase and Assets stay the same, leverage increases.  But you can't assume Assets are constant, so the first chart he uses can't be used by itself to conclude if we're leveraging or deleveraging.

Leverage decreases as Assets increase if Liabilities > 0 and constant.

williambanzai7's picture

Vola-Tile, isn't that what people use as McMansion floor finishing?

hugovanderbubble's picture

Mr. Banzai. SP 1950 (1947 currently)...Sky´s the limit. Aberrant Unicorn´s Valuation? 


NYSE worst volume in decades....(if that matters)


Have a great week, sir.

Sudden Debt's picture

What good is it to have a credit line and not maxing it out?

Relentless101's picture

I think I've seen that tag line before on a Ray-Ban commercial.

TheReplacement's picture

Red for linking to anything Google.  We do NOT like marxists in these here parts.  Stop supporting them.

firstdivision's picture

Why are you on the internet then, didn't you know that Al Gore invented this shit

kevinearick's picture

Resilient Villages

Banal – Compulsory Feudal Service

The stock market is steadily going up on steadily decreasing human participation. Wall Street can essentially write a blank bond to service a bankrupt education system at will. And poverty among a declining population of children is increasing, all driving purchasing power to zero. What does that tell you?

The majority breeds love out with arbitrary rules, stranding itself in time and losing the ability to rear its own children, which is why healthcare has a stranglehold on its economy today, why the concentration camps were set up for medical research on humans yesterday, and why the majority must have your children tomorrow, for extortion, to maintain the something for nothing debt ponzi, in vain.

From the perspective of the majority, all children belong to the State, which is why marriage licenses and Family Law exist. The Fed is just the latest derivative hedge fund printing debt to enslave them.

A shrinking minority carries the weight of the economy over time, and it’s not the jet set, the Clintons, or Warren Buffet. It takes parents, a husband and a wife, to raise productive children, and build a sustainable community. Democracy is about implicit, not explicit, discovery.

You were not entrusted with a brain and a conscience simply to hand them over to others, certified to program them according to script. 99% of DNA gets flushed on a regular basis, including legacy, for a reason. The human conscience is not the product of playing last to lose, in peer pressure groups.

All the Ivory Tower theories on labor markets have been shredded. As many have observed, humanity, with all its brains, has devolved to the level of monkeys again, building social pyramids fueled by duration mismatches between short term peer pressure automation and long term planetary energy cycles, squandering energy on toys, of, by and for morons.

Rebooting the human economy is the easy part, happens all the time. That’s the joke. What are you going to reboot it to do, keep the Clippers and professional sports alive another day, to suck every last joule out of the system? Are there more couch potatoes to be made? Any TV evangelists without a gold toilet?

Not everyone was quite so stupid as to walk down the well-trodden path of History, which has led to another die-off, catching all the participants in their own catch-22s, with leverage reversal. Insurance against uncertainty eliminates return on investment, and replacing it with debt inflation only hides the resulting lost purchasing power from those who do not want to see it.

The old-timers discounting the debt could see all this coming, and they have the entire global population to choose from, to grant productive capital. Why should they choose you, to install the next transformer?

First, recognize the problem solution, global demographic collapse. If you are single or in a civil marriage, your best bet is to compete for a hole in the wall in San Jose or Seattle, copying the latest and greatest code, so you can drive a GM with a 10-yr lease in and out of a cave, hoping to be chosen by Facebook and move to San Francisco, to drive a Tesla.

Let’s say a landlord quotes you rent beyond your wage/rent requirement, and is having the unit painted. Paint it yourself and deduct it from the rent. Or better yet, have your friend, a professional painter, paint it on the side and deduct the net. Unfix the system of price and wage control. That’s what the old-timers did.

If you have a choice between learning to weld, really learning, and learning to swing a hammer, learn to weld, because an average welder is a better carpenter than a good carpenter. You want to be the best at whatever you do, because better on a Bell Curve isn’t good enough.

That diploma/certificate isn’t worth the paper it is printed on. Develop skills to build your life. The paper pushers are a dime a dozen, and it’s their job to steal your work, to get their next promotion in the ponzi. Empires are always blowing themselves up, while the majority ignores the obvious, expecting History, but hoping it changes course.

Just because someone is playing a role, as a banker, a governor, a cop or a plumber, as an idiot, doesn’t necessarily mean that person is an idiot. “[W]e are all equal in God’s eyes, but that’s not the way our employers see things.” Equality is not something you fight for; it’s something you recognize. Money, as the means to the end, is the illusion.

There is still a functioning labor circuit in nearly every community. It is just being swamped by debt at every level, across the empire.

Corporate policy is to starve you out, circling up to starve itself, always rebooting itself with a bail out/in crisis. Let it do so, until it can’t, but you might want to build your food bank before you need it. If the State were capable of raising productive children, would it be in the boat it’s in now, increasing pressure on decreasing volume?

Debt, as income, cash or anything else is not wealth, and if you can buy gold with a credit card, it’s not much of a hedge. The percentage of young people capable of discounting debt out of their lives is quite small. Talent with skill is in every circumstance the best currency. Adjust the resistor, the empire, to power your development.

Love is not an emotion; it’s an action that improves with practice. Resilient monkeys educated in the city produce Ritalin. And making the cut is harder than getting into the Ivy League, because intelligent work is required. The blind always twist the truth, to remain blind. Why would you expect anything different from a drive-by ‘Christian’ empire?

Most crimes go unsolved, and the majority proposes you as the ultimate scapegoat when all of its experts fail, surprise, surprise. That’s what happens when individuals are blamed for system stupidity. The empire is just background noise, from which and to you recycle the parts.

Freedom to be stupid, buying and selling ignorance, is not freedom. Choose C. Don’t be alarmed by the snake. That’s what shovels are for.

yogibear's picture

When the Federal Reserve pumped/super distorted market normalizes it will be epic.

The higher they pump this pig the larger the fall. Expect much more Fed pumping.

Lewshine's picture

I was telling anyone who would listen starting in 2005 that the Fed was in the market. They called it the PPT back then. Trust me, the manipulation in US equities has become a "no - risk" event. They (The Fed) has it completely rigged. In many cases there is just a number of computers pinging stocks back and forth, creating fake price action (higher of course). Couple that with automatic shut downs or index freeze collars, and the market CANNOT go down - Under any circumstance.

Stocks are the only bastion of investment that ALLOWS the lies be told, in spite of all other evidence - Think the Fed would give up ALL that carries the day...Everyday??

moneybots's picture

"They (The Fed) has it completely rigged." "Couple that with automatic shut downs or index freeze collars, and the market CANNOT go down - Under any circumstance."


The law of cycles is bigger than the FED.  The FED cannot prevent the down phase of a cycle.

I Write Code's picture

2005 yes, I think the modern Fed intervention in equities markets dates at least to 2001, but it grew infinitely larger after 2008.  Just *how* they do it, is still unknown to me.

NOTaREALmerican's picture

The economic "system" is a just game designed to separate the amoral adults from the children with morality OCD.   Nothing else.   


Survival of the fittest, bitchez!

youngman's picture

One good thing is the people that have no jobs now...when the next collapse happens..they will not lose their job agan.....they can just watch the game play out...

dontgoforit's picture

You'll need a wheelbarrow just to haul the 'zeroes' in that number.

yogibear's picture

The Federal Reserve must blow larger and larger bubbles each time to pull out of the nosedive.

How many trillions did it take this time and their getting little bang for their buck.


NOTaREALmerican's picture

The good thing is there's no limit to the amounts involved.  All it does is push up the price of private jets and Maserati's.  The new smart-n-savvy must continuously prove themselves superior to the old smart-n-savvy and this can only be accomplished if the Fed continuously cause inflation in the bling of the smart-n-savvy.

Survival of the fittest, bitchez!!!

moneybots's picture

"It was just six years ago that soaring consumer spending, massive trade deficits and generally excessive debt caused the biggest crisis since the Great Depression"


The second Great Depression is on its way.  The clock is ticking.

NOTaREALmerican's picture

Sure, but how long will it take AND not everybody suffers in a Depression.   Depressions are just how the smart-n-savvy prove they've got what it takes to control the post depression economic system.  

Bunga Bunga's picture

Calm down, ES goes 4000.

I Write Code's picture

Yes, the Fed has been indirectly responsible for blowing bubbles in 1991 and 2003, in each case to help finance a middle-east war.  But the whole mechanism used to do this collapsed in 2008.  So the question was, how do we survive at the lower level without a bubble?  But the Fed, in spite of stated intentions, slowly moved to reinflate the economy to bubble proportions.

Maybe they had to.  In classic economics, with all production moved to China, there would be no recovery at all without Fed shenanigans.  And apparently even China wants us to reinflate that bubble, or else our business with them would fall off, too!

But it can't end well.

Can it?

JRobby's picture

"there would be no recovery at all without Fed shenanigans".


There is nor has been a recovery. Look around, talk to people everywhere you go. Just the folks out grocery shopping and buying gas. Fucked everwhere you look.