Deleveraging Needed In Next 4 Years: $28 Trillion

Tyler Durden's picture

Over the past several years, there has been much speculation and numerous reports that America is deleveraging. It isn't. In fact, consolidated across the 5 different kinds of American debt, which takes into account not only federal, but also financial, municipal, household and non-financial, total debt as a percentage of GDP has not budged over the past 4 years and is flat at 350% of GDP. Which simply means that all of the household debt that has supposedly vaporized (at least until the next major Flow of Funds revision), all of which has taken place purely from discharges on uncollectable mortgage and credit card debt, has been replaced by federal debt, while financial debt has merely soared to take the place of the collapsing shadow debt which is imploding as the confidence in a Fed-free financial system erodes to zero. Which of course, is the worst possible outcome: instead of funding private, individual entrepreneurs, who are the true basis for America's historic growth, prosperity and success (and who, unlike the government can and will fail if they dont allocated capital efficiently) the transferred debt (from household to federal) merely goes to fund the unproductive components of the US economy: the US government which by definition produces nothing, and the financial sector, whose only product is financial innovation which serves to make the TBTFs TBTFer, and pay record bonus after record bonus, and... that's it.

 

But wait, it gets better.

Recall, that as Reinhart and Rogoff, and numerous other analysts doing actual empirical analysis over the years have discovered, the threshold for sovereign instability in terms of debt/GDP is 60% (the number above which European countries will have to pledge their gold to Germany once the Redemption Fund kicks in in 6-9 months). So where are we now?

Sadly, nowhere. The chart below explains the problem: where in 2006 the global excess debt to hit the required threshold was only $7 trillion, most of it located in Japan, a decade later, or in 2016, this number has soared to $28 trillion!

Somehow, somewhere, the developed world will have to delever by just under $30 trillion over the next 4 years. Will this happen? No. Because as the chart above also reminds us, when we had the Lehman and Greek collapse, which combined accounted for precisely 0% in terms of debt/GDP reduction, the world almost ended. Think the world will somehow miraculously vaporize $28 trillion in debt any time soon?

In other news, today total US debt just hit a new all time record high of $15,944,869,685,894.92. The $16 trillion threshold will be breached in just about 2 weeks. When did America cross $15 trillion? November 16, or 9 months ago.