New Global Crisis Imminent Due To “Poisonous Combination Of Record Debt And Slowing Growth", CEPR Report Warns

Tyler Durden's picture

"Deleveraging? What Deleveraging?"

No, that's not the title of a Zero Hedge article from 2011, 2012, 2013 and so on (because we have written on the concept of global "deleveraging" simply because there has been none). It is, however, the title of the 16th Geneva Report on the world economy, released this morning by the Center for Economic Policy Research, which merely confirms, once again, everything we have said, namely that while the Fed's liquidity injections have boosted the stock market, everyone else has been levering up as much as possible, with corporations once again in debt to record levels using easy debt proceeds to buyback their own stock (and push their equity-linked exec comp into the stratosphere), while consumers have loaded up on term debt, mostly in the form of student loans, to pay for their increasingly unaffordable lifestyle (and certainly not for tuition or textbooks), while defaulting, not deleveraging, on mortgages.

That's what we call it. The Geneva Report has far harsher words. Here is an excerpt via the FT:

A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday.

The 16th annual Geneva Report, commissioned by the International Centre for Monetary and Banking Studies and written by a panel of senior economists including three former senior central bankers, predicts interest rates across the world will have to stay low for a “very, very long” time to enable households, companies and governments to service their debts and avoid another crash.

The warning, before the International Monetary Fund’s annual meeting in Washington next week, comes amid growing concern that a weakening global recovery is coinciding with the possibility that the US Federal Reserve will begin to raise interest rates within a year.

So here is lie #1, debunked: "One of the Geneva Report’s main contributions is to document the continued rise of debt at a time when most talk is about how the global economy is deleveraging, reducing the burden of debts."

It got so bad in recent years, we thought everyone is so stupid they no longer grasp the concept of debt fungibility in an intimately interconnected, globalized world. Thankfully, the Geneva guys get it: "Although the burden of financial sector debt has fallen, particularly in the US, and household debts have stopped rising as a share of income in advanced economies, the report documents the continued rapid rise of public sector debt in rich countries and private debt in emerging markets, especially China.

And this is where the report tells us what it really thinks:

It warns of a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”.


The total burden of world debt, private and public, has risen from 160 per cent of national income in 2001 to almost 200 per cent after the crisis struck in 2009 and 215 per cent in 2013.


“Contrary to widely held beliefs, the world has not yet begun to delever and the global debt to GDP ratio is still growing, breaking new highs,” the report said.

What widely held beliefs? We have been saying this since 2010! In fact, we have also been saying what one of the report's main authors says next, namely that the "solution" to every growth crash in the past has been... drumroll... more debt!

Luigi Buttiglione, one of the report’s authors and head of global strategy at hedge fund Brevan Howard, said: “Over my career I have seen many so-called miracle economies – Italy in the 1960s, Japan, the Asian tigers, Ireland, Spain and now perhaps China – and they all ended after a build-up of debt.”


Mr Buttiglione explained how, initially, solid reasoning for faster growth encourages borrowing, which helps maintain growth even after the underlying story sours.


The report’s authors expect interest rates to stay lower than market expectations because the rise in debt means that borrowers would be unable to withstand faster rate rises. To prevent an even more rapid build-up in debt if borrowing costs are low, the authors further expect authorities around the world to use more direct measures to curb borrowing.

Oh come on: even the IMF figured it out. Recall: "Global debt markets have grown to an estimated $100 trillion (in amounts outstanding) in mid-2013 (Graph C, left-hand panel), up from $70 trillion in mid-2007." Is everyone else really that dumb they can't do simple math?

Anyway, about debt rates: lower for longer. Got it. Can we now stop all that BS about the Fed hiking rates already?

Oh, and yes, there is a bubble:

Although the authors note that the value of assets has tended to rise alongside the growth of debt, so balance sheets do not look particularly stretched, they worry that asset prices might be subject to a vicious circle in “the next leg of the global leverage crisis” where a reversal of asset prices forces a credit squeeze, putting downward pressure on asset prices.

At this point we hope ZH regulars are yawning, because none of the above, which apparently goes according to conventional wisdom, is new, especially for those who recall: Deutsche Bank: "We've Created A Global Debt Monster", to wit:

We've created a global debt monster that's now so big and so crucial to the workings of the financial system and economy that defaults have been increasingly minimised by uber aggressive policy responses. It’s arguably too late to change course now without huge consequences. This cycle perhaps started with very easy policy after the 97/98 EM crises thus kick starting the exponential rise in leverage across the globe. Since then we saw big corporates saved in the early 00s, financials towards the end of the decade and most recently Sovereigns bailed out. It’s been many, many years since free markets decided the fate of debt markets and bail-outs have generally had to get bigger and bigger.


This sounds negative but the reality is that for us it means that central banks have little option but to keep high levels of support for markets for as far as the eye can see and defaults will stay artificially low. As such we remain bullish for 2014. However it’s largely because we think the authorities are trapped for now rather than because the global financial system is healing rapidly. So as well as EM being very important for 2014, we continue to think the Fed taper pace is also very important. If the US economy was the only one in the world then maybe they could slowly taper without major consequences. However the world is fixated with US monetary policy and huge flows have traded off the back of QE and ZIRP so it does matter. We have suspicions that the Fed may have to be appreciative of the global beast they've helped create as the year progresses.

In other words: all of this is super bullish because the system will continue to collapse and need more bailouts. The Bizarro world Bernanke created truly is a fascinating place.

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Troy Ounce's picture




Many, many people are looking forward to building a new society on the ashes of the current one.

Bring it on, baby!

SilverIsKing's picture

This is shocking news. I'm going to go back under my rock now.

Landotfree's picture

There is nothing "shocking" about it, debt has been going up since the beginning of this cycle in 1944.   Debt has to always make a new record or what happens?  Collapse and then liquidation of the walking unfunded liabilities.   The article is again a contrary on itself just like most ZH article, which mean they make very little sense.   

I predict the debt/credit system will continue to expand, if it fails to expand, I predict collapse and liquidation.   See.... anyone can do it.... ZH articles are basically worthless, written by the same people which so many out here think they are escapiing... nothing could be further from the Truth. 

- Start of credit/debt system (based on interest attached to medium of exchange)

- Expansion of system

- Failure to expand the system at an exponential rate needed

- Collapse

- Liquidation of the walking unfunded liabilities (my guess 1-2 Billion this cycle, if nukes are used 7+ billion in not out of the question)

- Rinse and repeat (as average hairless monkey can't fiqure out what is a basic Math problem)


The Matrix Reloaded.

The Architect - Denial is the most predictable of all human responses. But, rest assured, this will be the sixth time we have

destroyed it, and we have become exceedingly efficient at it.

Squid-puppets a-go-go's picture

Ur being a little pedantic. May Stephen Hawking mow you down like on monty pythons farewell show last nite:


Arius's picture

CALM DOWN ... will you?


they will do it on their own time .... nothin else applies or is worth worrying about .... and NONE will know thats for sure when that will happen ...

Landotfree's picture

There is nothing for me to calm down about...  I am not worrying.... I am only pointing out the obvious to the rest of the hairless monkeys.   The outcome has always been known, as the result is always the same from using the equation.  

This liquidation phase is going to be magnitudes more interesting than the last liquidation cycle.  

BobPaulson's picture

Agreed. When the haircuts come, many will trim the heads with it.

Spine01's picture

The article and the comments should focus on the cash flow in the system. With a zirp policy in place interest load has been already minimized. Therefore, as the economy slows down, the ability to generate the cash flows to maintain the current level of interest payments becomes ever more burdensome, until people and /or Countries and corporations just can't pay even at zirp rates, the interest they owe. At that point the system breaks and the linkage of payments in the system breaks down. Then and only then will we have the crisis we envision as inevitable. That is why the authors predict that the CB's are trapped in a trap of their own making and are thinking of negative rate policies. Which would force you to buy a safe, guns, etc. Not a bad idea though...

GetZeeGold's picture



I just need someone to leverage after me.....pretty please?

Mike in GA's picture

Call 1-800-Krugman

He's never seen a debt he didn't want more of.

Spine01's picture

If you are selfish, and trapped in debt, why wouldnt you want more debt until hell freezes over?

And most humans are incredibly selfish...

SafelyGraze's picture

as we prepare for this systemic debt rebalancing, let us resolve to equip our usda, our social security offices, our lle personnel, our public school administrators, and -- yes -- our health care providers with the best armor, the best assault weapons, the best surveillance equipment, and the best infectious agents that we can provide.

Arius's picture

from the list of preparation items .... this new system doesnt look so good .... but hey, what do i know?

Squid-puppets a-go-go's picture

there will be no crash in the stock market. it is verboten. Mind you, every other function and aspect of the economy will grind to a halt.

As businesses fail, they will be reaped by the credit issuing banks, who will keep the doors open ensuring the malinvestment festers unabated, until everything and everyone is owned by the banks. Then the big banks lose faith in each other, and we have the Ice 9 in the swift/eftpos systems that we so narrowly avoided in 2008

eddiebe's picture

Troy, that's just the problem though. A few ( not that many) are looking, but nobody is doing.

luckylongshot's picture

What still astonsishes me is how anyone believed the problem of too much debt was ever going to be fixed with more debt. That systemic collapse is on the way has been obvious for years. The question now is what comes next and for most people the best future will come by getting rid of the parasitic private banking monster that is responsible for this mess.

buzzsaw99's picture

don't worry, the maggots will be fine

GetZeeGold's picture



CEPR Report Warns


New CNN report on how the CEPR are a bunch of conspiracy theorists......imminent.

Bendromeda Strain's picture

I would suggest you actually do a little research on CEPR. They aren't conspiracy theorists, but this might be the one time they actually brushed up against the truth, if their previous Chavez cheerleading was any example. 

IridiumRebel's picture

No, they really did that story. They had generals on and they spoke of how they need to move in and knock out the CEPR strongholds with air strikes....for the children.

Doña K's picture

CERP predicted the RE downtrend to the penny in each region. When I showed to friends, they dismissed the article.

AdvancingTime's picture

 If the economy was healthy and balanced we would not be experiencing slow growth while massive amounts of money are being printed and poured into the system. The crux of our problem remains in the fact that both people and governments have lived beyond their means by taking on debt they cannot repay. Over the last several decades we have created entitlement societies built on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances.

Promises have been made on the assumption that the advantages we enjoyed would continue in both Europe and the US. Ever greater prosperity and entitlements were to be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about evermore growth. Debt does matter and the following article delves deeper into why kicking the can down the road will ultimately fail.

Herodotus's picture

For real growth to occur, excessive debt must be repudiated.

Squid-puppets a-go-go's picture

global jubilee? Nah, WW3 is far preferable to the clowns running this planet

NoPension's picture

And don't forget the role cheap oil played.

A one time in human/world history card that will never be repeated.

(Never is a long time. Science may bail our asses out, but I think we haven't evolved enough to get to that point. Show me a world where you have to be approved to breed, and I'll give it a better chance. And the ire that statement will raise exemplifies what I'm saying. Ha!)

Bastiat's picture

But who will do the approving?

Oracle of Kypseli's picture

Goldman Sachs?

"God's Work"


Doña K's picture

<<<< Science may bail our asses out >>>>

Science will bail us out. But the bastards are waiting for total depletion before activation.

["God Particle" the "6th Quark" and Quantum Physics] 

Dre4dwolf's picture

Lets see, 60% of the population is job-less or working off the books because paying taxes would push them under the "real" poverty line, not that bullshit poverty line that everyone talks about... I mean the one where you are borrowing 10 ~ 50$ bucks at a time to get through your weeks and 

Banking and Corporate Fraud/Corruption has never been more prevalent.

The judicial system has never been more complacent / corrupt.

The executive branch of govt has been co-opted completely by a group of schizophrenics.

Social Media allows people to vent their frustrations (for now).

The media instead of reporting on these issues to get the masses mobilized, report on stupid mindless things like (hold up while I pull up today's headlines)...."

George Clooney and Amal Alamuddin Are Legally Married After Civil Ceremony"


Jodi Arias retrial begins: What to expect and love-affairs of private nobodies that nobody should care about.


The people have a right to be mad.


They dont have a right to do anything about it anymore.


IridiumRebel's picture

Until the "Bread and Circuses" are put on hold and we see demonstrations like Hong Kong, this will continue....

Son of Captain Nemo's picture

"The people have a right to be mad.


They dont have a right to do anything about it anymore."...

Understand your thoughtful reflection on the situation D

But there is always time to turn it around.

The bad news about that fact and the state we are now in?... The more that you procrastinate like anything else in life the worse and more complex the crisis becomes.

Revolutions are always messy and full of "red stuff"!

Bro of the Sorrowful Figure's picture

when interest rates rise it won't be because the fed decided to do so.

NoDebt's picture

Until printing more money stops working, they will continue to print money at every problem.


Amish Hacker's picture

Yup. Just press the cardiac paddles firmly to the patient's chest and keep zapping no matter what. The resulting spasms will help create the illusion that the patient is still alive. Or, stated another way:

central banks have little option but to keep high levels of support for markets as far as the eye can see. 

I seem to remember a time when markets did just fine without any CB support (or opposition) at all.

youngman's picture

But in the end..the CBs will keep printing to save their souls......until the paper fiat is just trash as some point....what triggers that I do not know...but something will...that I do know..

eddiebe's picture

Right, so let's just steal the last savings from all those evil savers so we can keep living on free cash.

GetZeeGold's picture're pretty damn good at this crap.

ekm1's picture

There is only one issue left to be worked out:


Whose reserves will be extinguished?

At least $10 trillion will be extinguished causing a margin call


No wonder, QE is happening parallel with deterioration of the relationship with Saudis.

Saudis, advised by Pentagon, must have warned the White House that oil shipment are about to stop


My pontification is being proven correct day after day

skbull44's picture

But it's contained!! As Bloomberg reports the global bankers are instituting regulations to contain things: "The International Swaps and Derivatives Association Inc., an industry group, is preparing amendments to its standard framework of documents that would allow regulators from any jurisdiction to temporarily halt claims on defaulting banks, the FSB said in a statement on its website."

GetZeeGold's picture



But it's contained!!


Fly Ebola airlines back to the's contained!!!


If you can't afford the ticket.....just cross the southern border.....that's always free.

Madcow's picture

Welcome to the Jim Jones economy.

Hundreds of millions of people blindly following misguided charisma  ... to a dead-end. 

Bring on the Kool-Aide  


Debugas's picture

i must be an engine of growth i think because i am still not in debt