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"Your Debt Bubble Is Here" - The Updated Leverage Cycle Map

Tyler Durden's picture




 

As we head into December and the market anxiously awaits an FOMC decision which, if the Fed were truly “data dependent”, should tell us something about what the PhD economist cabal thinks about the state of the US economy, the market is bracing for a significant monetary policy divergence between the US and the rest of the developed world. 

According to the standard and oft-repeated narrative, the US is the so-called “cleanest dirty shirt.” Growth is abysmal, especially in a historical context, but at least America didn’t just enter its fifth recession in as many years (like Japan).

Similarly, inflation expectations may not be where Janet Yellen wants them to be (understated rent inflation and $170 million Modiglianis notwithstanding), but hey, at least the US isn’t sinking into deflation (like Japan and Europe). 

Of course it’s not just about the US vs. Europe and Japan. The world’s emerging economies are at another point in the cycle entirely and are in many cases (e.g. Brazil and China) facing an outright meltdown. 

For those looking to make sense of it all, SocGen is out with an updated “leverage clock” which shows where the world’s economies are in the “deleveraging-no bubble-leverage-bubble burst” cycle.

As you’ll see below, the cycle begins after a burst bubble with asset price stabilization. As the private sector stops deleveraging and confidence comes back, debt growth accelerates anew and monetary policy “fails to curb” excess leverage. Ultimately, the music stops, “asset prices decline triggering balance sheet destruction,” and central planners resort to QE. Once QE bumps up against the law of diminishing returns, governments make the switch to fiscal stimulus and the cycle starts again.

Obviously this is an oversimplification and one wonders whether, given the myriad idiosyncratic factors at play across individual markets, it’s even possible to categorize all of the world’s economies based on the cycle as described above.

In any event, here is SocGen’s “leverage clock”:

From SocGen:

Our SG Leverage Clock summarises our current view on the positioning of each economy in the cycle. As seen, the advanced economies span the full spectrum of recovery. Most advanced is the US entering the more mature phases of the cycle, but with further life left in the current cycle. Turning to the emerging economies, these tend to group at the top half of the clock, with the notable exception of the CEE region which groups closer to the US. China is turning over and we expect the cycle to bottom out soon, but this against the backdrop of a structurally slower economy.

For brevity's sake, we'll save you our country-by-country analysis and simply ask the following: "Why the hell is everyone other than Brazil, Canada, and India parked in one of the three 'no bubble' zones when at least 9 countries have debt/GDP above 300%, and a whopping 39% countries have debt-to-GDP of over 100%?"


 

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Tue, 11/24/2015 - 18:16 | 6834900 Cognitive Dissonance
Cognitive Dissonance's picture

I see dead people zombie countries.

<The only reason they're still walking around is they don't know they're dead.>

Tue, 11/24/2015 - 18:19 | 6834912 Occident Mortal
Occident Mortal's picture

I find a lot of these debt to GDP ratio's to be very subjective.

 

For example unfunded liabilities can simply be reneged on by changes in law.

 

If the bonds don't exist it's not a real debt, as the debtor can shaft the creditor without triggering a CDS event.

 

Only bonds should count, and really, only bonds in foreign hands. All other debts are voluntary.

Tue, 11/24/2015 - 18:23 | 6834934 Money Counterfeiter
Money Counterfeiter's picture

Gold standard bitches.

Tue, 11/24/2015 - 20:23 | 6835375 Money Boo Boo
Money Boo Boo's picture

.......because a manipulated standard works so well??? You don't get it, it's human greed and hubris that fucks everything up not the economic metrics.A gold standard just gets controlled by few oligarchs and the same shiite happens. The rest of us get fucked over.

Tue, 11/24/2015 - 19:10 | 6835113 Consuelo
Consuelo's picture

So MMT by any other name, correct...?

Tue, 11/24/2015 - 18:30 | 6834954 venturen
venturen's picture

bankers or countries?

Tue, 11/24/2015 - 20:36 | 6835044 Cognitive Dissonance
Cognitive Dissonance's picture

Countries, then eventually a few token bankers before 'We the People' beg them to fix the problems they created. Problem, reaction, solution. High risk for the unlucky banker minority, low risk and high reward for the majority.

Tue, 11/24/2015 - 18:54 | 6835049 Cognitive Dissonance
Cognitive Dissonance's picture

Fat finger dup.

Tue, 11/24/2015 - 18:17 | 6834910 stant
stant's picture

Maybe some iodine might be a good idea

Tue, 11/24/2015 - 18:32 | 6834961 DukeMakewater
DukeMakewater's picture

Good post Tylers.   What if debt/gdp has no upper limit in this reality, though?  How big can the bubble become?  I wonder if it can exceed all my (short) capital?  

Tue, 11/24/2015 - 19:29 | 6835173 Cognitive Dissonance
Cognitive Dissonance's picture

The insanity most certainly can outlast your short capital. For every Joe who actually profits from the fall 10,000 more are destroyed. In my opinion the key is to survive the great fall relatively intact.

Tue, 11/24/2015 - 18:39 | 6834995 bubbbles
bubbbles's picture

So bubbles are the center of the universe?

Tue, 11/24/2015 - 19:06 | 6835090 tunetopper
tunetopper's picture

when the Central Bankers' true clients - the International money changers / importers and exporters (those who use Art, Diamonds, Bearer Shares, Arabian Ponies, etc to transfer their smaller sums across the borders) decide to pull the rug out from under these countries via currency shorts, loan calls or social unrest- it shall be done.  Just like they used socialism in Argentina for many years after the populace had decided it wasnt working.  When their government finally realized they'd been screwed by the International Bankers, they refused to pay on some old bond issue- one they knew had been largely purchased in  the secondary market for 20c / $. They began to move from socialism to populism as they came to the realization that they were being manipulated by the ultra-wealthy (Kirchener crowd). Now they finally did the "right thing" and are beginning to rebuke their "populist" attitude--- basically coming back in-line with the International Bankers.  Thats how its done folks!

Tue, 11/24/2015 - 19:03 | 6835091 yogibear
yogibear's picture

Their itching to start a war so debt is irrelevant. 

Tue, 11/24/2015 - 19:06 | 6835100 djofrich
djofrich's picture

Its so obvious.. Israel, -22 and why everybody needs to pay them?!

Tue, 11/24/2015 - 19:10 | 6835116 Watson
Watson's picture

What would be interesting would be the same data going back, say, to the 1950's.
Or, better, the 1920's.

Does anyone have such data?

Watson

Wed, 11/25/2015 - 00:12 | 6836456 TheAntiProgressive
TheAntiProgressive's picture

Just move the decimal point one notch to the right or left, problem solved. 

Its all digital anyhoo.  We will all be rich. 

Either create more for free or forgive a big chunk and start the pyramid scheme all over.

Sheep won't know what hit them.

In either case the folks holding the fixed paper get screwed. 

Massive inflation or loss of principle.

They could of course "distract" us all with a really big war. 

It seems as if that might be the program being cued up.

 

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