It's The Debt, Stupid - Massive Borrowing Binge Producing Fake Recovery

Tyler Durden's picture

Submitted by John Rubino via,

What do the following headlines have in common?

US wages grow at fastest pace since 2009


Euro area economy ended year with strongest growth since 2011


Surge in home prices is beating the one in mortgage rates


Manufacturing in U.S. Expands at Fastest Pace in Two Years


German Inflation welcomed back

Obviously they’re all favorable, with the possible exception of German inflation – though even that is “welcome”. Taken together they paint a picture of a global economy that’s finally returning to the kind of solid growth and steady, positive inflation that most people consider both normal and good.

Unfortunately, the reason for the improvement is emphatically not good: In 2016 the world borrowed a huge amount of money and spent the proceeds. The result is “growth,” but not sustainable growth.


Federal Debt in FY 2016 Jumped $1.4 Trillion, or $12,036 Per Household

( – In fiscal 2016, which ended on Friday, the federal debt increased $1,422,827,047,452.46, according to data released today by the U.S. Treasury.


At the close of business on Sept. 30, 2015, the last day of fiscal 2015, the federal debt was $18,150,617,666,484.33, according to the Treasury. By the close of business on Sept. 30, 2016, the last day of fiscal 2016, it had climbed to $19,573,444,713,936.79.



According to the Census Bureau’s latest estimate, there were 118,215,000 households in the United States as of June. That means that the one-year increase in the federal debt of $1,422,827,047,452.46 in fiscal 2016 equaled about $12,036 per household.


The total federal debt of $19,573,444,713,936.79 now equals about $165,575 per household.


Corporates Lead Surge To Record $6.6 Trillion Debt Issuance

(The News PK) – Global debt sales reached a record this year, led by companies gorging on cheap borrowing costs.


The bond rally that dominated the first half of the year helped entice borrowers that issued debt via banks to take on just over $6.6tn, according to data provider Dealogic, breaking the previous annual record set in 2006.


Companies accounted for more than half of the $6.62tn of debt issued, underlining the extent to which negative interest rate policies adopted by the European Central Bank and the Bank of Japan, as well as a cautious Federal Reserve, encouraged the corporate world to increase its leverage.


Corporate bond sales climbed 8 per cent year on year to $3.6tn, led by blockbuster $10bn-plus deals to finance large mergers and acquisitions.


The remaining debt included sovereign bonds sold through bank syndication, US and international agencies, mortgage-backed securities and covered bonds. The figures exclude sovereign debt sold at regular auction.


“The low cost of financing with record-low interest rates simply made building up leverage tempting,” said Scott Mather, chief investment officer for core fixed income at Pimco.


Total global debt tops 325 pct of GDP as government debt jumps: IIF

(Reuters) – Global debt levels rose to more than 325 percent of the world’s gross domestic product last year as government debt rose sharply, a report from the Institute for International Finance showed on Wednesday.

The IIF’s report found that global debt had risen more than $11 trillion in the first nine months of 2016 to more than $217 trillion. The report also found that general government debt accounted for nearly half of the total increase.


Emerging market debt rose substantially, as government bond and syndicated loan issuance in 2016 grew to almost three times its 2015 level. China accounted for the lion’s share of the new debt, providing $710 million of the total $855 billion in new issuance during the year, the IIF reported.

To sum up: Emerging market borrowing in 2016 was triple the year-earlier level. Corporate borrowing was the highest since 2006. And the US somehow managed to add another $trillion of government debt in the late stages of a recovery, when tax revenues are usually strong enough to shrink or eliminate deficits.

Since every penny of that new debt was presumably spent, it should come as no surprise that the latest batch of headline growth numbers have been impressive. Which is the basic problem with debt-driven growth: The good stuff happens right away while the bad stuff evolves over time – in the form of higher interest costs that depress future growth – making it hard to figure out what caused what.

That’s bad for regular people who have to live through the resulting slow-down or crisis. But it’s fine for the people who made the borrowing decisions because they get credit for the growth pop but won’t be around – having retired with huge pensions and high prestige – before the secondary effects really kick in.

This time, however, the cause-and-effect dynamic is being accelerated by a spiking dollar and rising interest rates, both of which raise the cost of debts that are denominated in dollars and/or have to be refinanced in the year ahead. So the mother of all financial crises that has been inevitable for a couple of decades has, thanks to all this new debt, taken a giant step towards “imminent.”

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wisehiney's picture

Why the FUCK does no one EVER point that out when oBUMMer weasel and minions are bragging about their "recovery"?

And people wonder why I drink.

UndergroundPost's picture

Just maxed out my 41st credit card...only a few more until I'm buying an apartment in Trump Tower

38BWD22's picture



Obviously the solution for us as individuals is to reduce or eliminate our own debts.  Couple that with buying assets outside the financial system and/or that are hard to seize by .gov.  Diversify too.

They will eventually be coming for any of us who still have any worth after this explodes.  

Hide your assets well.


NoPension's picture

I don't try to outrun the bear. I outrun my buddy.
Sorry pal.

BennyBoy's picture


It's Not The Debt, Stupid.

If there was no debt there would be ZERO money, in this stupid, corrupt, debt based money system.

Go ahead, pay off ALL debts with interest. Do the math. See how much money is left.

JohnG's picture

Stop using thier fucking jewbux.

Fix it, make it, barter it, grow it, brew it, do without it, any way you can think of to not use the fiat.

Trade what currency you must for metals, gas, and things you just cannot do without, but minimize everything but metals.

This is the way to beat them at thier own game: DO NOT PLAY.

Vlad the Inhaler's picture

Quite the opposite, when inflation starts kicking in, you max out on as much debt as they will give you, and use it to buy hard assets.  Later on you roll into the bank with a wheelbarrow full of worthless hundred dollar bills and pay it all back.

knukles's picture

Lemme point out a not so obvious to the Progressives (Or any fiscally responsible person needs to remember, especially with the incoming administration's supposed fiscal stimulus) that the Growth of Federal Debt/Spending has grown at multiples of the Growth of the Economy.

Meaning that the Keynesian Multiplier Effect is Negative!

NoPension's picture

It has to.


It. Has. To. Grow.

Not giving Zero a pass, but he , powerless to change the trajectory.
Come on now. The people here at ZH, know better than average society, this is the "future" of a debt based monetary system. The future is NOW. We are in the hockey stick part of the graph. It's math. The exponential function.
They ONLY thing that will stop it, is to go "bankrupt " on the whole system. Write it off, and start over. We know it. They know it.
The only question (s);
When, exactly?
How bad will it be?
Who exactly takes it up the ass?

JohnG's picture

4 to 5 years, but progressively worse in the meantime.

Very fucking apocalyptically bad.

Anyone who is not very fucking wealthy, a politician who can vote themselves money, a banker, or who does not own PM's.

root superuser's picture

Multiplier is not negative its simply less than 1. But even this is false because it asumes that without this new debt we would be having 0 growth. We would have decline at rate of (current growth)-(new debt)*(multiplier) where multiplier is certainly more than 1.

ZH Snob's picture

using dollars to pay down debt is like extinguishing a fire with gasoline.

Wulfkind's picture

And the Lord High Raging Cheeto who self proclaims to be the "KING OF DEBT" is going to help this situation.


techpriest's picture

Given his previous ventures, my expectation is that he will borrow like crazy for his projects, and then default if they don't pan out.

IOW, stay the hell away from bonds.

VWAndy's picture

 The only growth I see is in the length of the gravytrain. It grew bigtime.

Jubal Early's picture

I just picked up a '73 type 181 Kübelwagen.  She needs lots of love but I will do it just right... 

VWAndy's picture

 Put a real roll cage in it please with door bars.

TrustbutVerify's picture

This scenario can be applied to the last 4-5 decades. Perceived prosperity - debt = ? Wake....up.

francissba's picture

$20 trillion later and all I got was this friggin' t shirt  "It's the debt, stupid"


Bay of Pigs's picture

Well, I'll be....look who is a ZHer now.

Welcome to the jungle AGX!!!

Edit: oops, guess I didn't know you've here so long! Aloha...

francissba's picture

Aloha Bay of Pigs.  5 years as a member and first time to post.  The people around here are freakin' brilliant,  funny as can be and always thought provoking.  I told the Tylers they should moderate and ban me before I ever snuck in the back door but they must have been asleep.

I read ZH 5 times a day for content and comments. Best cure for MSM brain damage, troll spewage and the idiocracy that substitutes for current writing  

Better than a frontal lobotomy or a bottle in front of me.  B7 is worth the price of admission alone. 

CorporateCongress's picture

So what comes first

-->. 20 trln debt

-->. 20k dow

Batman11's picture

The world is saturated in debt and if rates rise this is going to blow the neo-liberal experiment sky high.  

Neo-liberalism is a system that uses debt to keep going and the world has nearly maxed out. It’s underlying neoclassical economics uses spurious assumptions about money and debt and so no one sees the problems coming.

2008 – “How did that happen?”

Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions. They all thought the problem came from excessive debt levels.

Having all our mainstream experts using spurious assumptions about money and debt, doesn’t actually stop the whole thing blowing up.  

Attributing 2008 to a “black swan” has allowed us to think more debt can be used to solve a debt crisis, needless to say the debt levels are much higher than 2008 and excessive debt has now spread through emerging markets. China and emerging markets are not going to provide an engine of growth next time.

The other day I was watching a particularly apocalyptic video from Peter Schiff, he is no fool, he was one of the twelve that saw 2008 coming. Steve Keen is another one of the twelve and he is of the same opinion.

(Ignore first 50 secs. just intro).


Most people don’t realise money = debt, all the money in existence has a corresponding amount of debt.

We can see what Steve Keen saw by looking at the US money supply.

No, it wasn’t a black swan and if the FED could have understood what the money supply was telling them they could have nipped it in the bud.

M3 was going exponential and a credit bubble was forming, Steve Keen saw it in 2005.

The spurious assumptions on money and debt in neoclassical economics leave you blind.

Batman11's picture

We went into a time warp and Trump emerged.

Neoclassical economics saturated the US economy in debt in the 1920s. They used debt to maintain demand.

Wall Street played its games with securitisation to inflate the US stock market using debt.

Keynes looked at 1920s neoclassical economics and the Great Depression to learn some lessons.

1) Only fiscal policy would work in a severe recession; we are just coming back to this way of thinking eight years after 2008.

2) The system was demand driven which is why fiscal policy works, it creates jobs and wages which are spent into the economy and trickle up.

3) He thought the system trickled up, we assumed it trickled down, cut taxes on the wealthy and inequality soared.

4) Income is just as important as profit; it is income that looks after the demand side of the equation. The IMF and others are commenting on the chronic lack of demand in the system.

5) Re-cycling the surplus works in the long run unlike debt.

We went back to 1920s neoclassical economics and lost all Keynes 1930s updates.

Neoclassical economics saturated the economy in debt. We used debt to maintain demand.

Wall Street played its games with securitisation to inflate the US housing market using debt.

It’s exactly the same.

1920s/2000s - high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase

1929/2008 - Wall Street crash

1930s/2010s - Global recession, currency wars, rising nationalism and extremism

The US moved to the New Deal in the 1930s, Europe didn’t and let the populists rise.

The US hasn’t remembered and has now got Trump.

“Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.

Irving Fisher’s belief was based on an absolute faith in markets based on neoclassical economics which states markets reach stable equilibriums.

In 2007, Ben Bernanke could see no problems ahead.

Ben Bernanke’s belief was based on an absolute faith in markets based on neoclassical economics which states markets reach stable equilibriums.

I don't believe it!

Batman11's picture

How did things used to work?

We re-cycled the surplus following Keynes from the 1930s.

At a personal level through strong progressive taxation to provide low cost housing, education, healthcare and other services.

Neo-liberalism uses Payday loans, student loans, subprime mortgages, subprime auto loans, etc ... When the consumer maxes out on debt it stops working.

Wealth concentration with neo-liberalism.

2014 – “85 richest people as wealthy as poorest half of the world”

2016– “Richest 62 people as wealthy as half of world’s population”

Doing the maths and assuming a straight line …….

5.4 years until one person is as wealthy as poorest half of the world.

It’s going to fall over and die through lack of demand.

Larry Summers one time 100% neo-liberal:

But that was yesterday’s problem, Summers said. The economy now faces secular stagnation, or a chronic lack of demand."

This is why you re-cycle the surplus.

At a national level ….

When Keynes was involved in putting together the new international order after the Second World War, mechanisms to recycle the surplus were put in place in the Bretton-Woods agreement.

When the Euro was designed we assumed the Euro area would naturally reach a stable equilibrium and there are no mechanisms to recycle the surplus.

The Euro-zone is polarising and the poorest nation, Greece, has collapsed under its debts and the other Club-Med nations are heading that way.

The sticking plaster solution of debt maxes out, recycling the surplus can keep the whole thing going forever.

hxc's picture

Fuck off, Keynesian high-school faggot.

Seasmoke's picture

Time to start borrowing and NOT paying back. Unsecured debt. Usury.

JohnG's picture

This is exactly what theve been doing to us for 103 years, only it's our very life they steal.

Bryan's picture

Sustainable, shmainable.  All we want is for next week to be bigger than last week.

Dragon HAwk's picture

Some people have to pay debt back..

  Others  not so Much.

RonnieM's picture
RonnieM (not verified) Jan 8, 2017 2:37 PM

Very true. But the debt could get higher and the bubble bigger before the burst. Careful thinking things are ready to belly up yet. 


Good analysis here. They are the one analysis group who actually calls markets correctly. 

RonnieM's picture
RonnieM (not verified) HokumYTrader Jan 8, 2017 2:41 PM

Past data and charts don't lie. 

HokumYTrader's picture
HokumYTrader (not verified) RonnieM Jan 8, 2017 2:48 PM

YOur so funny Ronnie Moron

buzzsaw99's picture

wait for it, wait for it... the form of higher interest costs that...

and there it is. every one of these articles ends the same way. :yawn:

NoPension's picture

The interest rate is irrelevant to me. I'm not borrowing. Period.

The only way to win, is to not play. It's futile.

angry_dad's picture
angry_dad (not verified) NoPension Jan 8, 2017 7:36 PM

You have $0 in savings or in a pension???

angry_dad's picture
angry_dad (not verified) buzzsaw99 Jan 8, 2017 7:35 PM

If interest rates were increased to 6% overnight, the us would be a paradise for savers, pensioners, insurers, and lenders.

Washing out the 0% leeches would drive consumer prices back down to 1970's levels to match the usa 1970's wages.

Stan Smith's picture

From the "Well Duh" department.   The worst part is debt will crush those who most likely can least afford it when the bubble bursts.   Yikes.

hoopsiouzip's picture

I love to sing-a about the debt explosion in the Spring-a

Able Ape's picture

Money fer nutt'n and da crashes are free...

mendigo's picture

DBit of a spike in 2016 election year. Trump is eating Hillarys cake.

Paul Morphy's picture

None of this matters until all of this debt gets realised.

When that happens - the debtor and the creditor will both be fooked.


Neither a borrower nor a lender be""