Debt In The Time Of Wall Street

Tyler Durden's picture

By Raúl Ilargi Meijer of The Automatic Earth

Debt In The Time Of Wall Street

With all the media focus aimed at Greece, we might be inclined to overlook – deliberately or not – that it is merely one case study, and a very small one at that, of what ails the entire world. The whole globe, and just about all of its 200+ nations, is drowning in debt, and more so every as single day passes. Not only is this process not being halted, it gets progressively, if not exponentially, worse. There are differences between countries in depth, in percentages and other details, but at this point these seem to serve mostly to draw attention away from the ghastly reality. ‘Look at so and so, he’s doing even worse than we are!’

Still, though there are plenty accounting tricks available, you’d be hard put to find even one single nation of any importance that could conceivably ever pay back the debt it’s drowning in. That’s why we’re seeing the global currency war slash race to the bottom of interest rates.

Greece is a prominent example, though, simply because it’s been set up as a test case for how far the world’s leading politicians, central bankers, bankers as well as the wizards behind the various curtains are prepared to go. And that does not bode well for you either, wherever you live. Greece is a test case: ho far can we go?

And I’ve made the comparison before, this is what Naomi Klein describes happened in South America, as perpetrated by the Chicago School and the CIA, in her bestseller Shock Doctrine. We’re watching the experiment, we know the history, and we still sit our asses down on our couches? Doesn’t that simply mean that we get what we deserve?

Here’s McKinsey’s debt report today via Simon Kennedy at Bloomberg:

A World Overflowing With Debt


The world economy is still built on debt. That’s the warning today from McKinsey’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product.


While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain. McKinsey sees little reason to think the trajectory of rising leverage will change any time soon. Here are three areas of particular concern:



1. Debt is too high for either austerity or growth to cure. Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.



2. Households in some nations are still boosting debts. 80% of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.


3. China’s debt is rising rapidly. Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282% of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.


Note: Chinese total debt rose $20.8 trillion in 7 years, or 281%. And we’re talking about Greece as a problem?! You’d think – make that swear – that perhaps Merkel and her ilk have bigger fish to fry. But maybe they just don’t get it?!

Ambrose has this earlier today, just let the numbers sink in:

Devaluation By China Is The Next Great Risk For A Deflationary World


China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. A year of tight money from the People’s Bank and a $250bn crackdown on shadow banking have pushed the Chinese economy close to a debt-deflation crisis. Wednesday’s surprise cut in the Reserve Requirement Ratio (RRR) – the main policy tool – comes in the nick of time. Factory gate deflation has reached -3.3%.


The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. Haibin Zhu, from JP Morgan, says the 50-point cut in the RRR from 20% to 19.5% injects roughly $100bn into the system. This will not, in itself, change anything. The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the past three years as a result of falling inflation.


UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Yet the cut marks an inflection point. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100% to 250% of GDP in eight years. By comparison, Japan’s credit growth in the cycle preceding its Lost Decade was 50% of GDP.


Wednesday’s trigger was an amber warning sign in the jobs market. The employment component of the manufacturing survey contracted for the 15th month. Premier Li Keqiang targets jobs – not growth – and the labour market is looking faintly ominous for the first time. Unemployment is supposed to be 4.1%, a make-believe figure. A joint study by the IMF and the International Labour Federation said it is really 6.3% [..]


Whether or not you call it a hard-landing, China is struggling. Home prices fell 4.3% in December. New floor space started has slumped 30% on a three-month basis. This packs a macro-economic punch. A study by Jun Nie and Guangye Cao for the US Federal Reserve said that since 1998 property investment in China has risen from 4% to 15% of GDP, the same level as in Spain at the peak of the “burbuja”. The inventory overhang has risen to 18 months compared with 5.8 in the US.


The property slump is turning into a fiscal squeeze since land sales make up 25% of local government money. Zhiwei Zhang, from Deutsche Bank, says land revenues crashed 21% in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said.


Asia is already in a currency cauldron, eerily like the onset of the 1998 crisis. The Japanese yen has fallen by half against the Chinese yuan since Abenomics burst upon the Pacific Rim. Japanese exporters pocketed the windfall gains of devaluation at first to boost margins. Now they are cutting prices to gain export share, exporting deflation.


This is eroding the wafer-thin profit margins of Chinese companies and tightening monetary conditions into the downturn. David Woo, from Bank of America, says Beijing may be forced to join the currency wars to defend itself, even though this variant of the “Prisoner’s Dilemma” leaves everybody worse off. “We view a meaningful yuan devaluation as a major tail-risk for the global economy,” he said.


If this were to happen, it would send a deflationary impulse worldwide. China spent $5 trillion on fixed investment last year, more than Europe and America combined, increasing its overcapacity in everything from shipping to steels, chemicals and solar panels , to even more unmanageable levels. A yuan devaluation would dump this on everybody else. Such a shock would be extremely hard to combat. Interest rates are already zero across the developed world. Five-year bond yields are negative in six European countries. The 10-year Bund has dropped to 0.31. These are no longer just 14th century lows. They are unprecedented.


[..] .. helicopter money, or “fiscal dominance”, may be dangerous, but not nearly as dangerous as the alternative. China faces a Morton’s Fork. Li Keqiang has been trying for two years to tame the state’s industrial behemoths, and trying to wean the economy off credit. Yet virtuous intent has run into cold reality. It cannot be done. China passed the point of no return five years ago.

That ain’t nothing to laugh at. But still, Malcolm Scott has more for Bloomberg:

Pushing on a String? Two Charts Showing China’s Dilemma


Is China’s latest monetary easing really going to help? While economists see it freeing up about 600 billion yuan ($96 billion), that assumes businesses and consumers want to borrow. This chart may put some champagne corks back in. It shows demand for credit is waning even as money supply continues its steady climb.



The reserve ratio requirement cut “helps to raise loan supply, but loan demand may remain weak,” said Zhang Zhiwei, chief China economist at Deutsche Bank. “We think the impact on the real economy is positive, but it is not enough to stabilize the economy.” This chart may also give pause. It shows the surge in debt since 2008, which has corresponded with a slowdown in economic growth.


Note: Social finance is, to an extent, just another word for shadow banking.

“Monetary stimulus of the real economy has not worked for several years,” said Derek Scissors, a scholar at the American Enterprises Institute in Washington who focuses on Asia economics. “The obsession with monetary policy is a problem around the world, but only China has a money supply of $20 trillion.”

China now carries $28 trillion in debt, or 282% of its GDP, $20 trillion of which was added in just the past 7 years. It’s also useful to note that it boosted its money supply to $20 trillion. What part of these numbers includes shadow banking, we don’t know – even if social finance can be assumed to include an X amount of shadow funding-. However, there can be no doubt that China’s real debt burden would be significantly higher if and when ‘shadow debt’ would be added.

Ergo: whether it’s tiny Greece, or behemoth China, or any given nation in between, they’re all in debt way over their heads. One might be tempted to ponder that debt restructuring would be worth considering. A first step towards that would be to look at who owes what to whom. And, of course, who profits. When it comes to Greece, that’s awfully clear, something you may want to consider next time you think about who’s squeezing who. From the Jubilee Debt Campaign through Telesur:

That doesn’t leave too many questions, does it? As in, who rules this blue planet?! That also tells you why there won’t be any debt restructuring, even though that is exactly what this conundrum calls for. Debt is a power tool. Debt is how the Roman Empire managed to stretch its existence for many years, as it increasingly squeezed the periphery. And then it died anyway. Joe Stiglitz gives it another try, and in the process takes us back to Greece:

A Greek Morality Tale: We Need A Global Debt Restructuring Framework


At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the UN, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US is adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay).


The idea of bringing back debtors’ prisons may seem far-fetched, but it resonates with current talk of moral hazard and accountability. There is a fear that if Greece is allowed to restructure its debt, it will simply get itself into trouble again, as will others. This is sheer nonsense. Does anyone in their right mind think that any country would willingly put itself through what Greece has gone through, just to get a free ride from its creditors?


If there is a moral hazard, it is on the part of the lenders – especially in the private sector – who have been bailed out repeatedly. If Europe has allowed these debts to move from the private sector to the public sector – a well-established pattern over the past half-century – it is Europe, not Greece, that should bear the consequences. Indeed, Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it. So it is not debt restructuring, but its absence, that is “immoral”.


There is nothing particularly special about the dilemmas that Greece faces today; many countries have been in the same position. What makes Greece’s problems more difficult to address is the structure of the eurozone: monetary union implies that member states cannot devalue their way out of trouble, yet the modicum of European solidarity that must accompany this loss of policy flexibility simply is not there.

You can put it down to technical or structural issues, but down the line none of that will convince me. Who cares about talking about technical shit when people are suffering, without access to doctors, and/or dying, in a first world nation like Greece, just so Angela Merkel and Mario Draghi and Jeroen Dijsselbloem can get their way?

Oh, no, wait, that graph there says it’s not them, it’s Wall Street that gets their way. It’s the world’s TBTF banks (they gave themselves that label) that get to call the shots on who lives in Greece and who does not. And they will never ever allow for any meaningful debt restructuring to take place. Which means they also call the shots on who lives in Berlin and New York and Tokyo and who does not. Did I mention Beijing, Shanghai, LA, Paris and your town?

Greece’s problem can only be truly solved if large scale debt restructuring is accepted and executed. But that would initiate a chain of events that would bring down the bloated zombie that is Wall Street. And it just so happens that this zombie rules the planet.

We are all addicted to the zombie. It allows us to fool ourselves into thinking we are doing well – well, sort of -, but the longer term implications of that behavior will be devastating. We’re all going to be Greece, that’s inevitable. It’s not some maybe thing. The only thing that keeps us from realizing that is that the big media outlets have become part of the same industry that Wall Street, and the governments it controls, have full control over.

And that in turn says something about the importance of what Yanis Varoufakis and Syriza are trying to accomplish. They’re taking the battle to the finance empire. And it should not be a lonely fight. Because if the international Wall Street banks succeed in Greece, some theater eerily uncomfortably near you will be next. That is cast in stone.

As for the title, it’s obviously Marquez, and what better link is there than Wall Street and cholera?

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ZH Snob's picture

this is it, the crux of the matter.  WE ARE ALL GREECE.  we must support them if we are to save ourselves, or else wait for the next sacrifice and hope we're not it.  in this regard, all the banker-controlled nations of the world are waiting on death row. 

Soul Glow's picture

Yeah but this is bullish, remember?  So BTFD.

Soul Glow's picture

When the economy crashes into oblivion I will almost feel sorry for the financial advisors that are just sorry piece of shits who don't know their ass from a hole in the ground.  Not everyone who runs money should be hung up from street lights - just the CEOs and Fed Board.  SOme will need to go to prison, well a lot of bankers should go to prison, but some are just trying to have careers and think a diversified portfolio is real.  Of course it isn't when all assets are tied together (besides gold).

It is hard losing peoples money, and everyone's about to lose all their god damn money.

Crazy Canuck's picture

Yep - and it just might start with returning vets who've been shafted by the wall street gangsters.

when this gets out to the returning rank and file - they just might go looking for a new source for their pensions

MasterOfTheMultiverse's picture

One person's debt is another person's gain; it's (supposed to be) a zero-sum game. And just abandon the idea that any nation will be able to "pay back" its debts. Government debt cannot be compared to household debt, for one because governments can print money while households cannot. Here is an enlightning piece of infotainment:

moneybots's picture

"Government debt cannot be compared to household debt, for one because governments can print money while households cannot."


But what government is printing money?  The U.S. is 18 trillion in debt.  The government is borrowing money, same as the household.



scrappy's picture

I have to disagree moneybots. Gov bonds if they go to 0, there is no collatoral. Corp bonds, there is at least a carcass, same with households, REPO MAN!

James-Morrison's picture

What about Iowa?
Good farmland.
I'm sure the holders of Treasury Bonds have some collateral that is valuable.

Johnny Fiat and The Contangos's picture

< lol $18 Trillion

< I'm missing something

noben's picture
noben (not verified) Feb 7, 2015 11:53 AM

Fiat money is to the economy what sweets are to kids:

Simply Irresistible (

Kayman's picture

Fiat Money is like Arsenic. It makes your skin glow.  So help yourself to more-everyone's doing it.

Debt is a charge against the future.  At some point the debt is greater than anything the future can support- against real, private income. Government checks and FIRE don't count because they are really taxes or fees against someones' private sector income.

And we are there now.

fauxhammer's picture

"I believe it is [debt] for our time. We thank you from the bottom of our hearts. Go home and get a nice quiet sleep."

Dick Buttkiss's picture

A comment below on this article by a twentysomething techie:

"There is so much positive movement and input in [the cryptocurrency] sector that it is purely a matter of time before one single step transforms the digital currency ecosystem and then starts to absorb the $75 trillion of global assets (and further $125 trillion of credit debt) to see just how much money there really is in the world."

Not only will we find out how much money there is; we’ll wrest it from the powers that be in the process and create vastly more of it — real money, real wealth — bringing about the end of money and banking as we know it, as well as the nation-state, and liberating humanity at long last. 

HelicopterCoPilot's picture

Wishful thinking...

You really believe the NSA & the other tech power houses, that are controlled by the status quo, will ever allow their control to be undone by crypto-currency?..

I wish it would or could be that easy, but it NEVER will be..

Dick Buttkiss's picture

The more that governments try to stop them, the deeper down the rabbit hole cryptocurrencies will go, the key being not just the decentralized blockchain (the foundation) but the decentralized automomous companies (DACs) build on top of it (e.g.,, creating an edifice of unimaginable complexity yet so ethereal that no one will be able to get their hands on it. 



James-Morrison's picture

What are they going to use for connectivity?

Who owns the wires? (virtual and real)


The _ignorant_ uneducated _boobs_ in the National Security Agency

and the full blown _retards_ in the status quo have already painted themselves into a corner with _fiat_ and if their largesse could be facilitated by crypto, they would pile on en masse in a nano second, but they know they are _fucked_ and they also know it is zero sum with no way out. In effect, the NSA and the status quo have imprisoned themselves en masse and they are in bondage to the quantum effects of what they created by deinstitutionalizing Glass-Steagall. These mindless _fucktards_ have simply eaten too many retard sandwiches whilst growing up. And Greenspan consumed the most retard sandwiches out of anybody included in the matrix.

Thing1Thing2's picture

This is one gigantic world Ponzi scheme with no checks and balances that will end in doom.

new game's picture

3x, baby, 3x. the limit of gdp to debt, before fraud must ensue. tic toc tic toc

resetting here and there, and soon the cascade of debt derivitives brings it all down.

we are at the crumble stage(credit to cog dis). we all know what happens when the foundation crumbles away. good luck and have a wonderfull day. off to see the wizard, ha...


Kayman's picture

"before fraud must ensue" ??

Good comment. But you must mean before MORE fraud must ensue.

We've been living in a world of political and financial fraud for decades.

noben's picture
noben (not verified) Feb 7, 2015 12:02 PM

Your lights are on, but you're not home
Your mind is not your own
Your heart sweats, your body shakes
Another loan is what it takes

You can't sleep, you can't eat
There's no doubt, you're in deep
Your budget is tight, you can't breathe
Another loan is all you need
Ohh oohh

You like to think that you're immune to the stuff...oh yeah
It's closer to the truth to say you can't get enough
You know you're gonna have to face it
You're addicted to debt

Might as well face it
You're addicted to spend
Might as well face it
You're addicted to debt

new game's picture

da spending Disease. cold sweats til the urge overwelms I GOTTA HAVE NOW. then the buyer remorse. then the payments. then the sale at a losS. CYCLE REPEATS: moar credit(another card or higher risk loan) and off to buy moar, MOAR, MOAR...

hooligan2009's picture

credit where it's due:

or to put it another way

(with apologies for the effing commerical in front, bleh)

wmbz's picture

Wall street, central banks, banksters etc... Are the greatest crime syndicate ever known to mankind.

They own the money printing and the "lawmakers" so who in their right mind would imagine that they would ever give that up? Never by their own accord. Greed is all consuming and a banksters greed knows no bounds. They would pop their mother and first born in the head with a nail from a nail gun if that would insure them gain.  

So the printing(debt) will continue on and on until it can not, killed off by it own hand. No fiat paper money system has never not failed in history and no fancy computer will change that this time either!


moneybots's picture

"No fiat paper money system has never not failed in history..."


Every system fails.  Every cycle has a down phase.  If gold backed systems succeeded, everyone would have one.  The down phase of a cycle tears things down. Roosevelt abandoned the 20 dollar peg to gold.  The 20 dollar peg to gold didn't prevent a credit bubble in the 1920's.  As has been noted recently, by some pundit, Britain abandoned the gold standard and recovered quicker from the depression.  Roosevelt supposedly noted that and thus devalued the dollar.

29.5 hours's picture



"Debt is too high for either austerity or growth to cure."

This is the central fact that is impossible to explain away. The only *known* solution to this problem that allows organic capital regeneration is world war. No, not proxy wars. The real thing--the kind that wipes out accumulated capital on a massive scale and extinguishes the polite agreements that keep debt in place.



WhoMe's picture

Allow me to put my tinfoil hat on. The Central Bankers WANT this massive world wide debt as this will be the excuse to take the present system down and bring in their own "New World Order". This couldn't happen unless you first wiped out the "Old World Order". Canada is a good case in point. Personal debt has soared over the last several years yet the only thing the Bank Of Canada has done is give a queit little whisper about how they are "concerned" about Canadian debt levels. BS!!!! They could have easily reigned in the personal spending gorging that took place. Look at Canada's ridiculous housing bubble. It was fully fueled and encouraged by a Canadian government controlled group called the CMHC. Again, the house price madness and debt levels taken on could have very easily been reigned in but it wasn't. Why? Again, you cannot bring in the new world financial system until you take down the old system........on purpose!

WhoMe's picture

Allow me to put my tinfoil hat on. The Central Bankers WANT this massive world wide debt as this will be the excuse to take the present system down and bring in their own "New World Order". This couldn't happen unless you first wiped out the "Old World Order". Canada is a good case in point. Personal debt has soared over the last several years yet the only thing the Bank Of Canada has done is give a queit little whisper about how they are "concerned" about Canadian debt levels. BS!!!! They could have easily reigned in the personal spending gorging that took place. Look at Canada's ridiculous housing bubble. It was fully fueled and encouraged by a Canadian government controlled group called the CMHC. Again, the house price madness and debt levels taken on could have very easily been reigned in but it wasn't. Why? Again, you cannot bring in the new world financial system until you take down the old system........on purpose!

Rock On Roger's picture

No one forced the sheeple to borrow.


Don't follow the mob going over the cliff.

RaceToTheBottom's picture

Privatized profits, socialised losses.

Omen IV's picture

There are multiple NGOs promoting the consolidation of Canada into the USA - this debt is one solution whereby public land which is vast in canada is privatized


The usa would get 26 million new taxpayers -  white and yellow no black or brown - which will balance out the new program

mummster's picture

Omen IV - not so sure you would get the majority of Canadians going along with that idea but then again 'he who has the gold makes the rules" and Canada sold most if not all of its gold a long time ago. Will they nationalize the corporate (ie shareholder) reserves in the ground when the shit hits the fan? Time will tell.

Professorlocknload's picture

From "what can't be repaid won't be" to "restructure it? "

Only way it can be "restructured" at this point is to print it away. There isn't any other politically viable means. Well, other than just blow it all up in war.

Soul Glow's picture

Back debt to gold, revalue gold to the $10k - $20k range.

Son of Captain Nemo's picture

Speking of "Debt"...

Anybody get a peek under the covers at the board of directors that just bought the NYSE that is only 15 years old?...

Not that bizarre doesn't begin to cover it or what we've witnessed on this exchange in thelast 6 years, but it just goes to show us that BTFD doesn't even give a shit about what should be an historic moment that would 15 years ago have raised more than a few eyebrows doesn't even get a "yawn"!

Bell&#039;s 2 hearted's picture

US total debt $58 trillion ... time to lever up??.........

Batman11's picture

It is what bankers do. 

Issue loans and collect interest. 

When no one can take on anymore debt their products have reached market saturation. 

Unlike Apple they can't bring out iPhone 7, they only have one product. 


Niall Of The Nine Hostages's picture

Greece is a minor setback. Syriza will submit or be liquidated.

The damage is done. We have yielded the right to issue money to people who answer to nobody but themselves and their bank accounts, and control the world's armies and nuclear arsenals to boot. They go down, so do we. They've seen to that, never fear.

Only two things will ultimately see off the debt-slavery system for good:

1. Our masters finally develop robots and computers able to do any job a debt-peon can and do it with much less complaint (they have no "wants," just fuel and maintenance needs), leaving them with no further use for the rest of humanity even as debt-slaves and free to exterminate us once and for all. (Their plan for themselves is to upload their personalities to computers and live forever.)

2. A nuclear war that undoes not just the Industrial but the Agricultural Revolution, assuming it doesn't see off all life on earth. There were no money lenders in the Stone Age. The meek will only inherit the earth when there;s nothing left on it wirth inheriting.

Either way? This is probably the final century of human civilization as we know it.

Enjoy the show and playing with your gold coins, for all the good they'll do you in a nuclear winter. Just pray you don't live to see which option will be applied.

(You won't be able to bribe the robot pushing you into an extermination chamber either, not with all the gold on the planet. The galaxy has plenty more element 79 where that came from.)

Bell&#039;s 2 hearted's picture

"Syriza will submit or be liquidated."


<Confessions of an Economics Hit Man>


to the dudes running greece


"listen folks, it is real simple.  You bend to our demands and each of you get $20 million in a swiss bank account ... or don't fly in small airplanes, or cross the street ... "

Rock On Roger's picture

I'm sure robots and computers can grow food.




Niall Of The Nine Hostages's picture

They can, but what would be the point once they've overtaken us and all but a few of us are (as far as the makers, owners and operators of robots are concerned) so many useless mouths? I seriously doubt they'll have much use for pets.

The oil and gas out of which most fertilizer for industrial agriculture is made will have far better uses post-Singularity---fuel and lubricants for robot settlers of Mars, for instance.


moneybots's picture

"China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely."


Bubbles burst.  Bubbles rise parabolically and thus deflate the same.  The age of discovery was a long time ago.  The math on bubbles is ancient news. 

Captain Willard's picture

China is just Greece writ large.

The Chinese oligarchs have looted the system and absconded to Manhattan, Vancouver, London, Singapore. In a command economy wherein evil shadow bankers can be shot, why does debt keep growing?

Is this a feature or a bug, as the software guys ask? Raul continues to get confused. The robbery is the robbery. The debt is just the "getaway car".