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The Global Credit Supercycle: Full Frontal
Over the past several years, one of the prevailing, if completely incorrect, conventional wisdom memes was that the US, and especially the private sector, had undergone a deleveraging and was ready to load up on debt again. This was wrong because as we showed over the years, the only deleveraging which US households underwent was due to defaults and nothing to do with voluntary debt reduction.
Furthermore, the compounding effect of soaring student loans - which at $1.1 trillion eclipse the total credit card debt of the US - is one of the reasons why the US labor participation rate is at 38 year lows: millennials are unwilling and unable to enter the labor force opting to rollover student loans instead (until said loans are forgiven), while aged workers, those 55 and over, thanks to ZIRP crushing the income-creating capacity of their savings, don't have the resources to exit the labor force.
As for US banks whose "fortress" balance sheets have supposedly never been more solid due to the collapse in net leverage, here is a chart showing total US commercial bank cash balances when adding the $2.5 trillion in "transitory" Fed excess reserves, and what happens if one were to "pro-forma" the Fed's monetary spigot out of bank balance sheets.
Bottom line: aside from a brief blip just after the financial crisis, the US never actually deleverd. In fact, aside from Europe where since 2010 the peripheral nations have been stuck in a state of constant depression with nearly 50% youth unemployment and ~20% total unemployment, nobody has delevered anywhere!
All of this is quite clearly shown on the chart below, courtesy of RBS, which shows not only the global credit supercycle and the various catalysts (and "crises" which were certainly did not go to waste) that allowed total global debt to hit $200 trillion recently according to McKinsey (excluding the hundreds of trillions in gross derivative notionals of course), but the catalytic events that allowed this unprecedented supercycle to take place.
The chart above warrants the question: if an even modest slowdown in Europe's pace of credit creation resulted in unprecedented economic and social upheavals for the "southern" part of the continent, what happens when deleveraging finally hits one of the other places around the globe, be it the BRICs in particular, the EMs in general, or - heaven forbid - the US itself.
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thank goodness there is no god of math
Clickbait, I thought this article would come with a Yellen dick pic. Admin please refrain from "Full Frontal" in subject lines unless your ready to commit fully.
Across my street 2007, a neighbours house forclosed. 4 kids, a financial planner, big heffers, with an infinity in the driveway.
Saw them a month later in a brand new Denali at the dry cleaners. I was on my bike.
Nothing Changes.
Everything is Awesome!
millennials are unwilling
Me too. After going to college for a few years it doesn't make good sense to work. It is not rational compared to getting a PhD, and then leaving the country to live and work in New Zealand
I don't think we need to worry about delevering in the U.S. unless the rest of the world forces it on us. If there is one thing the U.S CONsumer knows how to do, it's find a way to spend "money" that they don't have.
If the lever breaks it won't matter. Sub-prime car loan are going to be the last hurrah I think and defaults will be the new, cool thing.......
I'm working on my tan.
Then the plan is to try to get a loan, as Juan Benitez, undocumented citizen, and snatch up a new f150. Maybe slip on down to the MVA first, get a new licence for Juan.
I hear it's easy, just sign up as a Democrat first. We call it Voter/ Motor.
No habla engleesh.
The world will default on its debt. This collective wreckening will be swift and painful to anyone in debt, and that includes owners of debt notes like the dollar.
When the dollar goes under - becomes worthless - its shareholders - owners of the debt denominated currency - will be holding worthless debt notes of the Federal Reserve. The Fed wil litterally be bankrupt and default on their debt, hence no one will be paid in dollars. The dollar is worthless.
Buy silver....do you all get it now?
"The Wreckening". I love it.
@soul glow
I think you don't get it. Cash is king!!! Cash is representation of a physical asset while Credit is based on market perception. Credit can disappear in an instant while Cash in hand can buy you a lot of stuff.
Not just the dollar, ALL debt notes means ALL FIAT will die.
Let me say it again, this time it is global Weimar!
Gold is a shiny yellow metal backed by nothing except its use in jewelry, which is now out of fashion except among rappers and dot Indians. Platinum is in.
I'll take cash, because everyone takes cash. You'll get 50 cents on the dollar for gold coins in a crisis.
Europe has 50% yute unemployment and 20% overall?
Besides breed, and use valuable resources, what are the unwashed masses of ILLEAGAL invaders plan to do?
Will they do the jobs a European won't do?
Speaking of credit, I was out riding over the weekend and I noticed a farm for sale. Along side of the for sale sign there was another sign that read "100% financinag available". So, at least we have that going for us again.
Now this hot Russian babe does a pretty good supercycle.
https://www.youtube.com/watch?v=P3WnQ246f1g
Chunga's supercycling is clever. Worth a watch!
Why can't we have exponentially infinite debt? As long as the powers that be are OK with it, everything IS going to be "awesome". As long as the system remains the same the rich are going to keep getting richer, be it by the dollar, the yuan, big bags of salt, it doesn't matter. The market can crash, FX can crash, reserves and debt can go seemingly out of control, but those factors alone will not result in any major changes. Why can't people see that?
The short answer is- panic.
Because when the riot cops all get buried in hay they won't be able to shoot people randomly. And when all the mansions and government buildings are covered in shit they may have to step outside.
Why? simple, because eventually the producers of real products, especially those that are essential can no longer deliver/produce those products no matter how many bullshit paper promises you give them.
Isn't **default** a kind of deleveraging....
If it were a real fucking default. think about how many people/corporations have "defaulted" or "gone bankrupt" yet they remain in control of numerous assets and the CEOs/owners are still very wealthy?
riddle me that motherfuckers...
Finance is one thing.
Real economy commodities (Oil, Copper, etc.) are the other.
What have the tangible commodities done the last year ?
Panic ?!!!
or Don't Panic.
Reflation of Oil and Copper....will it work out in 2015 or 2016 ?
Try they will.
Yes. Oil is "cheap" not because of fundamentals but rather because true price discovery is DEAD.
This is extremely dangerous as nobody knows what the real price of anything is, including risk. When you destroy the pricing mechanism, producers go out of business, but hey, who needs oil, right?
Oil floats on the QE tide. QE ended in 10/15. I think this is why TPTB are hell bent on an Iran deal. Suppressing oil prices buys them a little more time before more QE. They are actually going against their Israeli masters! That's how serious it is.
The pimps and hookers at the National Association of Realtors say GET YOURSELF SOME MORTGAGES!