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Are We Heading Into a "Debt Supernova"?

George Washington's picture




 

Financial luminaries such as Ray Dalio, Kenneth Rogoff, Bill Gross, Kyle Bass, BCA ResearchJohn Mauldin and Martin Armstrong think that we’re at the end of a debt supercycle.

Former director of the Office of Management and Budget said we’re facing a “debt supernova“.

Former Fed chief Alan Greenspan said recently

Debt, deficits and entitlement programs are all coming to a head in a few months, all over the world.

The European chief executive of Goldman Sachs Asset Management warns:

There is too much debt and this represents a risk to economies.

***

The demographics in most major economies – including the US, in Europe and Japan – are a major issue – and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we’ve managed to do in the past.

The world’s most prestigious financial institution, the Bank of International Settlements (BIS) – known as the “Central Banks’ Central Bank” –  writes:

We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines …

 

The sum of non-financial private and government debt has not fallen
since the crisis ….  Total debt in advanced
economies has continued to expand (by 36 percentage points of GDP since 2007),
with some exceptions mainly reflecting the recent decline in private sector debt in a
limited number of countries. Meanwhile, total debt in emerging market economies
has risen even more (by 50 percentage points).

 

***

 

Aggregate private debt has barely stabilised, let alone started to correct downwards, even in the corporate sector. And government debt continues to rise steadily, in a manner reminiscent of Japan’s trend deterioration in the 1990s.

BIS notes that this is a recipe for disaster:

Early warning indicators of banking stress pointed to risks arising from strong credit
growth …. Credit-to-GDP gaps – the deviation of private sector credit from
its long-term trend – were well above 10% in Brazil and China. This ratio was also
above 10% for a number of [other] countries … including Indonesia, Singapore and Thailand …. In the past, two thirds of all readings above this threshold were followed by serious banking strains in the subsequent three years.

It’s not just conservatives who think that debt is too high.  Liberals think so as well.

And see this.

 

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Wed, 09/16/2015 - 15:40 | 6556961 Not My Real Name
Not My Real Name's picture

You're being generous when you call the BIS "prestigious."

Tue, 09/15/2015 - 16:48 | 6552468 tedstr
tedstr's picture

None of yu have obviously been to Los Angeles lately.  Complete

Tue, 09/15/2015 - 16:05 | 6552253 buttmint
buttmint's picture

...time for all of us to re-watch "Blade Runner"--Ridley Scott movie, 1982

 

He got the future correctomundo---all is a fetid swamp. Today is as good as it gets. Tomorrow is unknown, but most likely a few notches down from today. 

Tue, 09/15/2015 - 17:27 | 6552689 Bastiat
Bastiat's picture

"All this will be lost, like tears in rain."

Tue, 09/15/2015 - 16:13 | 6552292 J Jason Djfmam
J Jason Djfmam's picture

Watch out for the blonde.

She was part of an off-world kick-murder squad.

Tue, 09/15/2015 - 13:35 | 6551434 VWAndy
VWAndy's picture

Those debts are stacking up at an ever increasing rate. Without a bagholder. jmo.

Tue, 09/15/2015 - 13:13 | 6551305 VWAndy
VWAndy's picture

Why do I get the feeling that derivitive pool thingy is much much bigger than they claim. The credit was issued without a counter party to be found is my guess. All this chatter about going cashless and taxing savings is a good clue to the true amounts of credit/debt out there with no bagholder. 

 I suspect they gave up on the idea of swipping all savings because its already gone/rehypothocated to shit. These scumbags know the real numbers and they must suck pretty bad. So they are searching for some place or people to hang it on.

 Really we need to make the banksters eat all that debt. Its their debt not ours.

 Think about that stall thing boys and girls. Cuz them governments will do anything they can to keep riding the gravy train.

 

Tue, 09/15/2015 - 13:03 | 6551267 josh08
josh08's picture

The taxes imposed by governments on their captive populations are onerous but FAR below the levels that can and will be imposed to sustain ever larger amounts of debt. The governments have "legal" right to confiscate as much of the earnings, and http://www.pulsionerotica.com/video/1843_Rilynn-Rae-All-sex even assets, of their subservients as they want, and the highly militarized police forces will enforce the collections.

Tue, 09/15/2015 - 12:25 | 6551052 cornflakesdisease
cornflakesdisease's picture

This article is krap.  There is about $75 Trillion in currency and equivalents in the world and $175 Trillion in debt service.  We need more currency in the system to service the debt.

Tue, 09/15/2015 - 15:42 | 6552153 Macon Richardson
Macon Richardson's picture

Currency, properly understood, is debt. You speak the same double-talk as the Federal Reserve Bank, "We're in debt too deep so let's borrow some more money to get us out of debt."

Tue, 09/15/2015 - 14:37 | 6551769 CHX
CHX's picture

And HOW do you create "more currency" WITHOUT more debt ? 

 

 

 

 

Hint: It's yellow.

Tue, 09/15/2015 - 18:39 | 6552993 Captive_Okie
Captive_Okie's picture

Golden Arches; flipping burgers for $15/hr. That's why they are upping the min wage, to retire the debt faster...

Tue, 09/15/2015 - 16:11 | 6552283 J Jason Djfmam
J Jason Djfmam's picture

Pee?

Tue, 09/15/2015 - 12:25 | 6551051 cornflakesdisease
cornflakesdisease's picture

This article is krap.  There is about $75 Trillion in currency and equivalents in the world and $175 Trillion in debt service.  We need more currency in the system to service the debt.

Tue, 09/15/2015 - 10:44 | 6550526 xavi1951
xavi1951's picture

I've been hearing this for over 10 years.  Next year, next Quarter, next month, soon.  So do it already!

Tue, 09/15/2015 - 10:09 | 6550370 GMadScientist
GMadScientist's picture

Whaddaya mean I'm using the powder keg as an ashtray?!

Tue, 09/15/2015 - 10:06 | 6550345 Reaper
Reaper's picture

You can divide up only what is produced. Printing money to give to the takers does not make more producers. Central Banking is the modern alchemy, which promises to turn printings into gold.

Tue, 09/15/2015 - 10:48 | 6550541 xavi1951
xavi1951's picture

According to democrats, (Pelosi for one), more welfare and unemployment payouts will stimulate the economy, so taking more from producers will stimulate more.  Try to wrap a rational brain around that one.

Tue, 09/15/2015 - 18:40 | 6552994 cougar_w
cougar_w's picture

"more welfare and unemployment payouts will stimulate the economy"

How is that not transparently accurate to you?

Dropping money from helicopters would stimulate the economy as well. Fact.

And you would take the money. Don't argue, you would take it. Fact.

Say whatever you like about it, wonder at the implications, threaten to vote for Ron Paul, it would work exactly as given and they are going to do it for that reason and with actual helicopters probably. And everyone who can lay hands on any of the money will take the money and if nothing else buy land, guns and ammo stimulating the economy in the process. Fact.

Wed, 09/16/2015 - 15:50 | 6557035 Not My Real Name
Not My Real Name's picture

It debases the currency and, in the long run, only serves to shorten the life of the currency in question. Fact.

Tue, 09/15/2015 - 10:51 | 6550553 centerline
centerline's picture

She has visions of a Hunger Games world.  With herself in the ruling class of course.

Tue, 09/15/2015 - 08:42 | 6549978 Grandad Grumps
Grandad Grumps's picture

The bankers believe that zeros can always be added and there is no limit. That is their base case.

People on the other hand have a natural aversion to debt, even if it is low cost debt.

The question is: "At what point will the bankers and their masters exchange fiat-debt shackles for ones made of iron?".

I still find it absurd that bankers create money out of nothing with no effort and expect to be paid in something tangible: labor, goods, real property etc. It is the biggest parasitic scam the world has ever seen.

Tue, 09/15/2015 - 14:46 | 6551820 CHX
CHX's picture

They CAN print ever more and create ever more debt. Only thing is, they will have to revalue the PMs (and likely some commodities) at some point. But all paper and debt problems can be papered over, and likely will be.

Tue, 09/15/2015 - 10:13 | 6550392 GMadScientist
GMadScientist's picture

No, people, in the aggregate, have almost zero compunctions about using debt; modern capitalism is based on this important fact.

As far as parasitism, you didn't need to ask them for the money, you chose to do so; they can't do anything to you that you didn't ask them to, but many people continue to request further punishment.

 

Tue, 09/15/2015 - 09:21 | 6550148 messymerry
messymerry's picture

If zeros can be added, zeros can be taken away.  Debt is digital too.  Nothing is real anymore...

;-D

Tue, 09/15/2015 - 08:33 | 6549939 Usurious
Usurious's picture

 

 

''Since the medium of exchange in a debt backed by debt system is debt, the only way to service a debt is with debt and the only way that can be sustained is if debt inflates by the required amount''

hypertiger

http://hypertiger.blogspot.com/2008_02_01_archive.html

Tue, 09/15/2015 - 09:51 | 6550279 SillySalesmanQu...
SillySalesmanQuestion's picture

+1000 Usurious. Thanks. Best read I have had in a long time.

Tue, 09/15/2015 - 16:15 | 6552307 J Jason Djfmam
J Jason Djfmam's picture

How does "The Bank of Silly Walks" rate anyway?

Aren't they a remnant of the WWII nazi funding apparatus?

Tue, 09/15/2015 - 10:38 | 6550496 centerline
centerline's picture

Too bad HT is now sitting somewhere with a sharpie marker writing numbers all over himself.

Tue, 09/15/2015 - 08:25 | 6549911 InnVestuhrr
InnVestuhrr's picture

"Are We Heading Into a "Debt Supernova"?"

A supernova is an especially large explosion, ie an abrupt totally destructive ending.

There will NOT be any kind of debt "supernova" in any of the G20 countries. The reasons are very simple:

1. There is no alternative isolated economic and financial system for capital and productive, successful to escape to, resulting in the collapse of the economy that they depart, because the debt disease is global, ie no better place to go to.

2. The taxes imposed by governments on their captive populations are onerous but FAR below the levels that can and will be imposed to sustain ever larger amounts of debt. The governments have "legal" right to confiscate as much of the earnings, and even assets, of their subservients as they want, and the highly militarized police forces will enforce the collections.

No, there will not be any kind of debt explosion.

Instead, the trajectory will be:
1 increasing debt
2 increasing taxes on the successful, especially the most successful, eg entrepreneurs
3 larger and broader entitlement programs to buy the votes of the unwashed masses to keep the ruling elites in office, so the lower classes will prosper
4 impoverishment of the middle class who have only employment income and will have no ways to escape strangling payroll taxes

To complete the author's analogy to stellar evolution, the developed countries will end as black dwarfs, ie decayed, declined, rotted-out miserable mediocrities, NOT supernovas, and the process will take generations, eg about 40 to 60 years.

Tue, 09/15/2015 - 10:48 | 6550535 centerline
centerline's picture

Thanks.  What you said IS the path we are currently on and continues to be our trajectory.  None of us want to accept it because it is outright depressing.  But, until something bigger breaks, it is what it is.  Governments are not going to change, get smaller, etc.  The patterns are self-reinforcing.  More like black holes sucking everything into them.

The remaining middle class is going to clobbered further.  Got a house? Pay up.  Got a car?  Pay up.  Got kids?  Pay up.  Etc. and so on.  Especially as pensions begin to fail.

But, there will likely be a breaking point.  Events will move quickly from there.  The whole process will likely take decades to resolve.  But, the trip to hell is probably going to occur over the course of only one decade.

 

 

Tue, 09/15/2015 - 10:44 | 6550522 SUNKNIGHT2010
SUNKNIGHT2010's picture

Many people believe that this coming financial apocalypse will take between 40 - 100 years to accomplish . In my opinion, they're wrong as the collapses in the past did not happen like that . It takes a lot of time for events to reach a critical level . But once that has occurred , disaster soon on a RAPID / MASSIVE scale soon unfolds . It took ALONG time for events leading to the Roman Empire's collapse . Once it started ,things fell apart fast & there was no superior economy or nation/ empire to the Romans then and yet their economy did fall apart ! Likewise with the USA , many assume since there is no nation superior to the USA l this means our economy will endure forever ! Sorry but all that think this are greatly wrong !

Tue, 09/15/2015 - 11:34 | 6550745 InnVestuhrr
InnVestuhrr's picture

"many assume since there is no nation superior to the USA l this means our economy will endure forever ! Sorry but all that think this are greatly wrong !"

You did not read what I wrote, instead you heard what you want to oppose because you are overflowing with anger towards the government - well deserved - with the result that you are compelled to believe that the regime MUST collapse because that is the outcome that you want - but it won't happen.

What I wrote is that the USA will decline into what we used to refer to as a miserable "third-world shit-hole", in which

1. it is nearly impossible to prosper from being an entrepreneur, ie starting and running businesses
2. Wage earners will be driven into pay-check-to-paycheck subsistence
3. Taxes will strangle all growth and individual prosperity
4. Quality of life will be VERY much lower

This means that the economy will wither, but not crash, ie USA will look a lot more like Latin America and Africa.

Regarding the Roman Empire, obviously you did not read Gibbons "The History of the Decline and Fall of the Roman Empire", which is the authoritative source on the subject.

The Roman Empire did NOT collapse, as you claim, it declined and rotted, as I described, including huge devaluation and debasement of the currency, defaults by emperors on their loans, huge decline in economic activity and government services and military, etc. so that life in the previously prosperous Roman Empire became increasingly impoverished and it became more like life in the remote provinces. ONLY AFTER Rome had declined to the point that it was incapable of defending itself, was it invaded and destroyed by successive waves of outsiders. The same process happened to the Byzantine Empire - internal decay and decline until it was so weakened enough that it could be successfully invaded.

Sorry, to all of you who want immediate results, but the USA is not going to collapse - it will be a long, slow decline into mediocrity.

Tue, 09/15/2015 - 19:52 | 6553264 El Vaquero
El Vaquero's picture

There are similarities between the US and Rome, yes, but there are also differences.  For example, due to modern technology, things that used to take weeks can happen in an instant.  We have also built up much, much more complexity in our society than Rome ever did, and much of our economy depends on that complexity.  We also have decided to build our society up around one single keystone commodity, that if shut off, would wreck the US within one to two weeks.  We are living in a ponzi economy where real growth ended at least 15 years ago.  We have been living in a collapsing society and have been for over a decade, and when this comes to a head, will play out much, much faster than in the days of the Western Roman Empire due to the speed of modern transport, the speed of communication, the complexity that we have built up becoming more and more fragile and our entire lives revolving around a single keystone commodity (oil.)  We are headed towards a classic Seneca Cliff. 

Tue, 09/15/2015 - 20:19 | 6553337 New_Meat
New_Meat's picture

The Reverend Thomas Malthus approves this message!

Tue, 09/15/2015 - 11:38 | 6550765 Bindar Dundat
Bindar Dundat's picture

Inn:

 

I agree completely -- although there will be occasional events that will distract us from the long term trend.

 

It will be like watching a glacier calf off large chunks of its mass.

Tue, 09/15/2015 - 08:17 | 6549894 Kina
Kina's picture

no place to hide.

Tue, 09/15/2015 - 07:50 | 6549812 Element
Element's picture

"Are We Heading Into a "Debt Supernova"?"

NO.

We are headed into an internet sewer main line full of fetid hyperbole though.  :D

 

btw: "...and Martin Armstrong", really? Citing people with a track record of pure bullcrap does not help the case much there GW, calling that guy a "Financial luminary" ... spare us the delusional bullshit.

Tue, 09/15/2015 - 17:52 | 6552804 J Jason Djfmam
J Jason Djfmam's picture

More of a capital black hole than anything. Bottomless pit.

Tue, 09/15/2015 - 07:35 | 6549800 Able Ape
Able Ape's picture

Living by EXTEND and PRETEND is certainly less than desirable and can lead to an ocean's worth of unintended consequences - this is SO simple, a caveman could understand it..........

Tue, 09/15/2015 - 07:30 | 6549792 numapepi
numapepi's picture

Isn't that Cloward and Piven come to fruition? The extreme economic dislocation will cause the bottom to rise up so the top can come down. They have the "right" people in charge so the economies of the world can finally be changed to the historically inevitable one, the new class has longed for, for so long.

...Or maybe after the reset the people wake up as to why it happened in the first place and force the elite out and go back to an actual market system?

Stay tuned...

Tue, 09/15/2015 - 07:27 | 6549783 cpnscarlet
cpnscarlet's picture

All debt is sustainable in the current scenario. Talks about the "end of cycles" or "supernovas" are the rantings of mad dead white men. The central banks are in control and they are in the hands of the smartest people on the planet.

Just look at me. I get up every morning, stretch, do some exercises and drop another $3 of unwanted value. All is well. Nothing to see here. I am a pet rock.

I AM COMEX gold.

Tue, 09/15/2015 - 07:14 | 6549765 ToSoft4Truth
ToSoft4Truth's picture

Let’s say this is true.

You better prepare for the social security and pension cancellations.  You’re going to have ‘Aunt Edna’ relatives you never knew living in the basement,

 
And if you don't have the paid-off pad, you'll be the basement dweller.  Or in a Tent-City like “Grapes”. 

Tue, 09/15/2015 - 06:37 | 6549723 SunRise
SunRise's picture

It's Future to the Back!

Tue, 09/15/2015 - 11:24 | 6550681 Oscar Mayer
Oscar Mayer's picture

You know what's really funny about all of this?

The money is 100% FIAT, has been since 1934, and it is owned by the USG.  This means that the USG can print money to pay for whatever it wants, it doesn't need to borrow and it really doesn't need to tax.  And the current USG debt, what does it owe as payment?  The money it owns.  It's all a bunch of stupid, artificial nonsense.  But it does make for great theater...... 

Tue, 09/15/2015 - 16:10 | 6552278 J Jason Djfmam
J Jason Djfmam's picture

If the FED/central banks would just promise to absorb all of the debt after the crisis was over,

I would have no problem with spending like a drunken sailor.

Tue, 09/15/2015 - 11:52 | 6550840 Panafrican Funk...
Panafrican Funktron Robot's picture

"This means that the USG can print money to pay for whatever it wants, it doesn't need to borrow and it really doesn't need to tax."

This is a very simple and very misunderstood point.  Taxes/borrowing in a fiat scheme are unnecessary/pointless except as a means of control.  

Tue, 09/15/2015 - 11:41 | 6550779 Kickaha
Kickaha's picture

Yes, just float the trillion dollar coin, minted with shiny Unobtanium.  

Tue, 09/15/2015 - 10:16 | 6550405 Bullionaire
Bullionaire's picture

Former Fed chief Alan Greenspan said recently:

"Debt, deficits and entitlement programs are all coming to a head in a few months, all over the world."

 

Gee, it's almost like he knows something...like this is all part of a long-term plan. A long-term ZioMafia plan. Hmmmmm...

Tue, 09/15/2015 - 16:18 | 6552323 J Jason Djfmam
J Jason Djfmam's picture

Shemitah is the word, is the word, that you heard, it's got groove, it's got feeling.

Do NOT follow this link or you will be banned from the site!