Barclays Director: "Precarious" Debt Crisis "Could Reverberate Around The World"

Tyler Durden's picture

Authored by Dambisa Moyo, published op-ed by The FT,

Virtually every class of US debt — sovereign, corporate, unsecured household/personal, auto loans and student debt — is at record highs. Americans now owe $1tn in credit card debt, and a roughly equivalent amount of student loans and auto­loans which, like the subprime mortgage quality that set off the 2008 financial crisis, are of largely low credit quality (and therefore high risk).

US companies have added $7.8tn of debt since 2010 and their ability to cover interest payments is at its weakest since 2008, according to an April International Monetary Fund report. With total public and private debt obligations estimated at 350 per cent of gross domestic product, the US Congressional Budget Office has recently described the path of US debt (and deficits) as almost doubling over the next 30 years.

But this is not just a US phenomenon. Globally, the picture is similarly precarious, with debt stubbornly high in Europe, rising in Asia and surging across broader emerging markets. A decade on from the beginning of the financial crisis, the world has the makings of a fresh debt crisis.

In November last year, unsecured household debt in the UK passed pre­financial crisis highs in 2008. In the UK, debt excluding student loans crept up to £192bn, the highest figure since December 2008, and it continues to rise this year. Meanwhile, in the eurozone, debt­to­GDP ratios in Greece, Italy, Portugal and Belgium remain over 100 per cent. As of March there were more than $10tn negative yielding bonds in Europe and Japan.

There is also the perennial risk and market concern that debt levels in China will at some point bubble to the top of the country’s economic woes in a very damaging way. Among the most risky are non­performing loans of stateowned enterprises, and mismarked and therefore not properly accounted for debt obligations in the over­heated real estate market.

More broadly, emerging market borrowing is surging. Sales of EM corporate dollar­denominated notes have climbed to about $160bn this year, more than double offerings at this point in 2016 and the fastest annual start on record, according to data compiled by Bloomberg going back to 1999. The total stock of foreign currency EM debt stands at more than $15tn.

The threat of a looming crisis is not solely down to the absolute volume of debts. At least three things make the situation especially precarious.

First, debt — particularly dollar denominated — is becoming more expensive as market expectations are pricing at least three rate hikes by the US Fed this year, and a relatively strong dollar is putting pressure on borrowers to service foreign currency obligations. The recent downgrades of South Africa to junk status follow a year in which credit rating agencies cut EM borrowers’ grades in record numbers. Moody’s downgraded 24 sovereigns (including Brazil, Nigeria and Saudi Arabia) in the first half of 2016, adding to concerns as to whether borrowers will be able to service their obligations.

 

Second, the ability to repay debt is under strain in countries whose revenues stem disproportionately from commodities, whose prices have suffered. Furthermore, nations exposed to significant Chinese trade and investment face fiscal stress as China itself has a relatively soft economic outlook.

 

Finally, the prevailing mixed global economic growth picture — underscored by the forecasts in the recent IMF World Economic Outlook — prompts questions as to how (and indeed whether) outstanding debts will be paid or brought under control.

It is possible that US corporate debt repayment could be boosted by president Donald Trump’s plans attract $2.6tn in corporate cash residing offshore back into the US. Barring any stipulations on its use, the prospect of a significantly low repatriation tax of just 10 per cent (compared with the 35 per cent current corporate tax rate) could help put a meaningful dent in outstanding corporate debt obligations.

Meanwhile, with crippling student debt now a political issue, there is scope for a resolution that could see significant writedowns and debt forgiveness with vast amounts potentially subsumed on to the government balance sheet.

But neither of these would help debt repayment outside the US. Of a shortlist of prescriptions to escape unsustainable debt — from outright default and austere fiscal policy to bailouts — only growth itself can lift countries out of high indebtedness in a non­disruptive way. Without it, we have the makings of a debt crisis that would reverberate around the world.

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hedgeless_horseman's picture

 

Whomever held a gun to the heads of the two women with the ball and chain in the photo, and forced them to borrow the money to go to an expensive university, instead of workiong and saving money to attend a community college, is responsible.  

wildbad's picture

wow! what a headline!

who would have thought?

errr. anyone here for the past 8+ years maybe.

but its not just US debt baby, al the dominoes are strung together.

MalteseFalcon's picture

Debtors have had 8+ years to get their houses in order.

Fuck them and that goes doubly for the 2 womyn's studies majors pictured above,

Put your horse collar on and figure it out.

 

SubjectivObject's picture

Got to get behind the mule

In the morning and plow

Pin your ear to the wisdom post

Pin you eye to the line

Never let the weeds get higher than the garden

Always keep a sapphire in your mind

Always keep a diamond in your mind

Creepy_Azz_Crackaah's picture

All fake and B.S.

FREE $HIT FOR EVERYBODY(!!!!) works. The Bern Feel told me, and still tells me, so.

GreatUncle's picture

But slowly they are joining together.

brushhog's picture

Exactly, the great thing about debt is ITS OPTIONAL.

skbull44's picture

But it's different this time!

CRM114's picture

In terms of education, no it isn't. Try getting a job without having whatever HR demands. You don't even get past the computer filter. And HR left reality quite a while ago. No degree, no job.

brushhog's picture

No degree no job? Thats a laugh. Then why are so many college grads working at starbucks or UPS? Degrees arent getting people jobs anymore. If you cant afford college, go to a trade school. The people I know who are working consistently are trades people, not college grads.

Raffie's picture

Let's toss in all the kids who can't and will not pay for their school loans into Debtors prison.

$5hr is very fair for them to work off their outstanding loan(s). Chain gangs always nice for labor along side roads and such.

GreatUncle's picture

Now if you are providing food, accomodation, energy, water and clothing for free with free healthcare and dental treatment.

Can I go there /S because after you have removed them from a persons income there is fuck all else left.

HRClinton's picture

Their parents were just as dumb. 

They should've used their HELOC to pay for  a good chunk of the tuition.

Recall that home prices in key markets keep rising, and homeowners who had their home for years, have a substantial home equity that translates into a large HELOC.

Of course studying something employable and getting good grades for a scholarship also helps, if you don't qualify for Affirmative Action entry to college, or freebies that go along with it.

CRM114's picture

That would be HR departments.

They now demand top BAs in Business Admin just to be the Coffee Go'fer.

It absolutely does not matter if you can do the job without it, they need their boxes ticked.

BOXES MUST BE TICKED.

small axe's picture

craziest idea I ever heard...un-american! I'm entitled! Says so in the Bill For Rights, or somewheres. 

I am Jobe's picture

Nice to know and wise

 

Most of them are keeping up with the Kardashians. 

Son of Captain Nemo's picture

After watching that and remembering when I laughed at it the "first time" I saw it all those years ago -you can only feel sick to your stomach how much control the CBs have over us to make that SNL skit our "reality". ...

Solio's picture

Yes, fine, but what about several police actions that have been foisted upon the people that so few ever wanted, but everybody gets handed the bill?

Sonny Brakes's picture

You hit upon an interesting idea for a late night infomercial.

spag's picture

an amendement,

 

don't start wars you can't afford - after all, you break it, you own it.

ToSoft4Truth's picture

It's all funny-money.  These debtors should Google "bankruptcy lawyer". 

 

Could you imagine people carrying signs through your kitchen because they have too much debt while playing the Monopoly game? 

 

 

NumNutt's picture

You hear that noise far off in the back ground, low, dull humm? That is the printing presses running full speed at the US treasury. Like the jet engines on a jetliner, annoying, and loud, but necessary. when they go silent, that is when you panic, until then remain seated and order another round of drinks!

Silver Savior's picture

We could just start stealing from John to pay both Peter and Paul. lol.

Bad Goy's picture

How old is this picture? We're long past $13 Trillion in debt.

ENTP's picture

I think there is a decimal there, $1.3 trillion.  That's pretty close to total student loan outstanding, which isn't even included in the 20 trillion the federal government is in debt.

Hurfenurbler's picture

Probably it is not included because it is not an obligation of the US.  It is obligations of students.  The students who borrowed should repay - there should be no mass writeoffs of student debts.

Joebloinvestor's picture

As long as snake oil salesmen like the great Tourre exist to spread the misery globally, you can bet the misery will be global.

GreatUncle's picture

What is the Keynesian limit?

Isn't it like 260% (Japan having hit it already)?

Batman11's picture

Neoclassical economics was rolled out globally and it doesn’t consider private debt in the economy, queue global debt binge.

Japan was the first to blow itself up in 1989 by saturating its economy in debt, though the US has done it before in 1929 when they used neoclassical economics before the Keynesian era.

The FED weren’t looking at private debt in the economy that caused 1929 and 2008:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

Once an economy is saturated with debt you can’t keep stimulating it with more debt.

If you look at the bottom blue line of credit, you can see how much the US has been adding to its economy each year through debt.

From 1945 to 2008 this has been a major factor behind US growth but when the economy saturates with debt, this techniques is no longer available.

The forecast problem due to not factoring in private debt in the economy.

The FED’s models always show things should get better but they don’t:

http://4.bp.blogspot.com/-5utH2NlaeI4/U3IIaPM7Y7I/AAAAAAAAMbA/Uh_e5okMNWw/s1600/Fed+GDP+forecasts.PNG

When you don’t include the debt that is causing the problem this is what your forecasts will look like.

The IMF’s forecasts are the same:

http://static4.businessinsider.com/image/56cd9d646e97c61d008b9408-800-600/screen%20shot%202016-02-24%20at%207.05.40%20am.png

The IMF predicted Greek GDP would have recovered by 2015 with austerity.

By 2015 it was down 27% and still falling.

Batman11's picture

The Central Banks are trying to solve a debt problem with more debt.

They use neoclassical economics and haven't worked out the problem as they don't look at private debt.

 

Batman11's picture

The US saturated its economy in debt and blew up in 1929.

Japan saturated its economy in debt and blew up in 1989.

The US saturated its economy in debt and blew up in 2008.

Someone has looked at the data:

https://www.youtube.com/watch?v=8YTyJzmiHGk

Saving the banks and leaving the debt in place ensured Japan didn’t recover after 1989.

The West did the same after 2008, leading to the new normal of secular stagnation.

Batman11's picture

Canada, Australia, Scandinavia, Hong Kong.

Global craponomics that doesn't look at debt in the system. 

The UK shit show .....

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png


GreatUncle's picture

Needed to purge the debt.

During a Keynesian cycle of boom bust economics if at the end of the cycle you delay it or refuse to purge.

The money creation is now used to support the debt that should have been purged.

These snowflakes and millenials do not realise being dumb it is their futures where they no longer get the money the debt does.

Then they wonder why life is shit ... well paying for debt and getting fuck all for it.

This they need to start to realise.

Batman11's picture

That was one of the functions of old fashioned recessions, to purge bad debt from the system.

To get rid of all the dead wood, ready to grow again.

 

lilmac929's picture

Why is it that people keep writing articles, or responding in posts like here at ZH, about how much debt is in circulation?  The fiat system of central banking / fractional reserve lending can only grow exponentially.  Without exponential growth of debt you have a "credit crisis" like the one that occurred in 2008.  It's physics!  It's inherit in the system!  It's like gravity...if you throw a ball in the air it will come back down.  The only question is when.  This shouldn't be a shock to anyone nor should we "hope" for some magical solution.  The only question is what triggers it...loss of pertrodollar status, another bubble blows and effects the other bubbles...I just don't understand why this is even a topic that gets rehashed daily.  It's like writing articles that the sun will rise and set tomorrow.  Even the most basic understanding of Austrian economics tells you the outcome.

NumNutt's picture

Sir you are correct! I agree 100%, please refer to my earlier comment above, and have a nice day. Because that is all we can do.

lilmac929's picture

I should have been clear, I didn't mean people like you or the other 30% to 40% of ZH readers where it's very apparent that they understand how the system works.  Rather the influx of ZH posts over the last few years who are here for a reason, but they still don't seem to grasp the fundamental workings of the system still.  I have empathy because I was there 10 years ago, but at this point with all the readily available information out there...how does one still not understand that these crazy debt numbers are just an output of a horribly corrupt fiat/CB system?  It can't do anything different.

 

Here's my prediction...if Trump is in office for 8 years and the system doesn't collapse within that time period (highly unlikely), then he'll double the debt from the guy before him...who doubled the debt from the guy before him...who doubled the debt from the guy before him.  Then someone will write an article about how Trump doubled the debt from the guy before him insinuating that there is another option.

 

I'm not even that smart and I get it.  

Paul Morphy's picture

Fair point.

I guess by publishing the article, ZH is again reiterating the precariousness of the current debt situation. Is it a problem to be reiterating the same point? Personally I have no difficulty at all with the debt issue being reiterated as often as ZH chooses. 

In about 5 billion years time, if we haven't destroyed Earth by then, those that are here on this planet will experience the last day when the Sun will expand to the size of the Solar System, before contracting to a size of perhaps the Earth and dies. No more Sun, no more life, no more Earth. We know that this will happen and we can even identify an approximate date! Unlike identifying the approximate date for the debt implosion!

skbull44's picture

Infinite growth on a finite planet, what could possibly go wrong?

AE911Truth's picture

You have been brainwashed.  We are not a type zero civilization. 

https://youtu.be/iwubPWt_lrE?t=2695

 

Lady Jessica's picture

This is regarded as "news"?

The planet operates on a debt-based money system!

The greatest trick the Devil ever pulled was convincing the world he didn't exist.

lilmac929's picture

My favorite quote when trying to explain to sheep how they're getting fleeced.  Well done sir!

Lady Jessica's picture

Thank you.  But it's Lady, not Sir.

falak pema's picture

Well it does have some downsides : you can't use both bathrooms.

rf80412's picture

The greatest trick the Devil ever pulled was convincing the world he didn't exist.

As an analogy for our financial situation, I might offer C. S. Lewis' alternate version: "The greatest trick the Devil ever pulled was convincing the world that he existed but God didn't."

People know they're fucked but don't believe there's any way out except into a different kind of being fucked, so a sullen stasis endures from quarter to quarter and election cycle to election cycle.