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revision), all of which has taken place purely from discharges on uncollectable mortgage and credit card debt, has been replaced by federal debt, while financial debt has merely soared to take the place of the collapsing shadow debt which is imploding as the confidence in a Fed-free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.

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Thu, 08/16/2012 - 17:04 | 2712203 economics9698
economics9698's picture

"Think the world will somehow miraculously vaporize $28 trillion in debt any time soon?"

Yea like that is going to happen.  More like inflation of 150% to fleece the peasants of their wealth.

1.  Bankruptcy.

2.  Inflation.

3.  War.

4. Austerity.  lol.

 

 

Thu, 08/16/2012 - 17:09 | 2712233 LawsofPhysics
LawsofPhysics's picture

Get Corzine on it, he is good at "vaporizing" funds.

Thu, 08/16/2012 - 19:16 | 2712592 anonymous_user_...
anonymous_user_000001's picture

hmmm

Thu, 08/16/2012 - 19:18 | 2712598 notbot
notbot's picture

Or you can just inflate the denominator.  Poof, Debt/GDP is back to 60%.  At least, that's what I learned in Bernanke's Econ class at Princeton. 

Still not quite sure how you inflate your way out of a defined benefit tho.  Must have been sick that day

 

Thu, 08/16/2012 - 20:03 | 2712708 A Nanny Moose
A Nanny Moose's picture

Hedonics

 

Fri, 08/17/2012 - 03:28 | 2713405 dvfco
dvfco's picture

Do you want to know who I called when I was having personal financial problems?  That’s right, Jon Corzine.  Smartest guy I know – in terms of the economy and on finance.  I literally picked up the phone and called Jon Corzine and said Jon, what do you think I should do?  The reason I called Jon was because he knows about the economy, about world markets, how I had to respond, unlike almost anyone I knew. It was because he had been in the pit -- because he had been in the furnace. And I trusted his judgment.  So, if y’all don’t want to end up in chains, listen to Jon Corzine.

Thu, 08/16/2012 - 17:09 | 2712234 max2205
max2205's picture

Guess what Unicorns and fairy dust and frog shitting skittles is real

Spy up 40% since last Oct

Fri, 08/17/2012 - 04:58 | 2713462 Hohlick
Hohlick's picture

I vote for #1, but sure, #3 is more likely "to be"

Thu, 08/16/2012 - 16:59 | 2712206 fourchan
fourchan's picture

im long ctrl p

Thu, 08/16/2012 - 17:01 | 2712212 Freewheelin Franklin
Freewheelin Franklin's picture

Wait. I thought debt was part of GDP. When you get a loan, it goes in the "receipts" column.The only disbursements are monthly interest payments.

 

[/sarc]

 

 

Thu, 08/16/2012 - 21:21 | 2712897 economics9698
economics9698's picture

-10.1% GDP 2009, -9.0%, -8.7%, -8.5%, its all good.

Thu, 08/16/2012 - 17:08 | 2712213 debtor of last ...
debtor of last resort's picture

Lehman and Greece in one chart. Evolution is a bitch.

Oh, i forgot, i am fucking deleveraging for about 15 years now, so shut the fuck up with financial fascism.

Thu, 08/16/2012 - 17:04 | 2712219 Hype Alert
Hype Alert's picture

Hey wait, I thought EBT was the true basis for America's historic growth. 

Thu, 08/16/2012 - 17:06 | 2712225 Rainman
Rainman's picture

No worry...it's not like it's ever gonna get paid off.

Thu, 08/16/2012 - 17:35 | 2712314 TheGardener
TheGardener's picture

"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)"

Thanks for mentioning entrepreneurship. Explain that
radical school of thought to the up and comers, like
my 30year+ friends and programmers with Porsche SUV
and no idea of entrepreneurship, salesmanship and
any other common sense. Just good surfers of the
best waves.

I have a lot of seed money invested and watch these guys
in awe, but common stock gets a new meaning if you are in it for real...

Thu, 08/16/2012 - 17:09 | 2712229 Zero Govt
Zero Govt's picture

"Deleveraging Needed In Next 4 Years: $28 Trillion"

...and that's in just General Motors sub-prime car loans division

Thu, 08/16/2012 - 17:11 | 2712239 JLee2027
JLee2027's picture

Self-deleveraging!  Stop paying paper debts backed by a broken and doomed currency. Put your money into physical Silver so you can survive when the house of cards comes tumbling down.

Thu, 08/16/2012 - 17:13 | 2712246 Temporalist
Temporalist's picture

I just leveraged myself 400x on Disgracebook, I mean, Facecrook...whatever it's called.

Thu, 08/16/2012 - 17:14 | 2712250 diogeneslaertius
diogeneslaertius's picture

$4Q #NWO Holographic #EconomicDeathstar

Thu, 08/16/2012 - 17:15 | 2712252 reader2010
reader2010's picture

Holy shit. The writing is on the wall. Be prepared and the world is gonna be a totally different place. 

Thu, 08/16/2012 - 17:18 | 2712259 silverserfer
silverserfer's picture

so usarary is a sin after all?

Thu, 08/16/2012 - 17:25 | 2712281 NotApplicable
NotApplicable's picture

Notrary.

Thu, 08/16/2012 - 17:26 | 2712285 jimmyjames
jimmyjames's picture

Think the world will somehow miraculously vaporize $28 trillion in debt any time soon?

**************

That and much more has already vaporized and it didn't change much on the surface-

The real pain will come when we're all forced to Acknowledge it-

Thu, 08/16/2012 - 17:29 | 2712292 ParkAveFlasher
ParkAveFlasher's picture

Gold reserve revaluation, bitchez!!!

Thu, 08/16/2012 - 17:29 | 2712293 Arnold Ziffel
Arnold Ziffel's picture

deleveraging $28 Trillion...no wonder the Dow plunged  today.....NOT  !!!

Thu, 08/16/2012 - 17:33 | 2712305 kito
kito's picture

But ray dalio said the united states has been undergoing a "beautiful deleveraging"......i thought ray was the smartest guy on earth!!!??? The king of hedge funds!!!!.......

Thu, 08/16/2012 - 18:33 | 2712483 machineh
machineh's picture

He also said the Bernank needs to keep printing.

From Ben's printer to Ray's bank balance.

Beautiful!

Thu, 08/16/2012 - 19:46 | 2712665 lotsoffun
lotsoffun's picture

there are some pretty smart guys out there.  jon corzine.  stanley o'neal.  angelo mozila.  jamie and lloyd ain't doing too shabby either, especially if you ask the whale and the fabio.  and let's not forget richard (i hate calling people dicks) fuld.  to mention just a few.  but, what the hay.  you and i get up tomorrow and go to work.  that's a lot of fun.  and let's not forget turbo timmie - who we know has resigned.  anybody got any idea where he is going.

big bad bama and mitty may not be any different, but i'm voting mitty because at least i hope he's going to send dear mr. shalom to find something to do with his time, other than wipe the ink off his fingers.  not saying it's any better, but...

 

Thu, 08/16/2012 - 17:38 | 2712322 Hype Alert
Hype Alert's picture

Green Shoots!

Thu, 08/16/2012 - 17:41 | 2712332 humblepie
humblepie's picture

$28 Trillion. So my question is, where the hell is that money?

Thu, 08/16/2012 - 21:15 | 2712886 Better_late_tha...
Better_late_than_never's picture

In your wallet and mine at the same time.

Thu, 08/16/2012 - 17:51 | 2712346 lolmao500
lolmao500's picture

So sell gold and silver...

No really. What does that mean for asset prices? They are all gonna crash right?

Thu, 08/16/2012 - 17:51 | 2712370 robertocarlos
robertocarlos's picture

If you are over 30 prepare for caravel.

Thu, 08/16/2012 - 18:07 | 2712415 GoldandSilverTrain
GoldandSilverTrain's picture

Deleveraging debt with more debt is like emptying a bathtub by pouring in more water

http://www.MiningStockValuator.com -portfolio tracker & analysis of gold and silver stocks

Thu, 08/16/2012 - 18:13 | 2712425 YesWeKahn
YesWeKahn's picture

We have to inflate, hyperinflate, Bernank had it right.

Thu, 08/16/2012 - 18:19 | 2712447 cougar_w
cougar_w's picture

Okay, that's a lot of printing, I don't care who you are.

Thu, 08/16/2012 - 18:25 | 2712459 falak pema
falak pema's picture

basically all this means is that the Oligarchy wealth is worth zilch; surplus earnings have to be sacrificed as they are ALL based on hyperinflation of FIRE economy since 1982. 30 years of fiat pump has created this wealth and its riding on the back of twice as much debt! Thats the price we 99% paid for the oligarchs to accumulate their 30T. 

If you write down the books of risk assets by 30 trillion and liquidate the corresponding counter party debt, the world can begin again but not on this geometric interest rate trajectory fiat monetary economy. Our new paradigm has to place sustainability as centrepiece in a finite world and forget about phony capital accumulation based on compounded interest fiat monetary world!

Deflate, reset and change paradigm to make the labour economy centerpiece with local production getting a priority, say 80%. Using innovation to allocate resources to fuel both the remaining 20% of world trade as well as the 80% of local economies. 80/20 principle prevails and labour productivity at Home calls the captial to it. Build to this horizon. 

Thu, 08/16/2012 - 21:45 | 2712947 robertocarlos
robertocarlos's picture

If the rich screw us we will burm them and their assets to the ground. Their new net worth will be zero. They'd have to kill us all to get out of it. Oh, that's what the bullets are for.

Fri, 08/17/2012 - 03:09 | 2713382 dvfco
dvfco's picture

I hate to resort to ad hominum attacks, but if you believe what you write - you are a fucking moron.   You're describing GM, the airlines, etc. where the 'workers' were given ownership and control of companies - and ran them down the shitter.  Really? You are kidding right? 

The 80%/20% Pareto suggests that 20% most productive workers produce 80% of all output.  You are suggesting to give ownership and basically 'shares in the world's companies' to the 80%.  Even in a perfect world, the best 20% would become owners, but the remaining 60% of the worthless 80% would become owners of all means of production, etc.  That 60% would always outnumber the hard-wroking, intelligent 20%, and destroy the company.  See any company that's done this.

You should work for Obama..  It actually seems like his closet plan for success.

Good God Man!

Fri, 08/17/2012 - 05:08 | 2713454 falak pema
falak pema's picture

I would refer you to this link on ZH  :

 22 Stats That Show How The Emerging One World Economy Is Absolutely Killing American Workers | ZeroHedge

You are another one of those people who fight tomorrow's war using yesteday's paradigm. We are more a more in a finite world. Peak everything that built yesterday's model. Tomorrow requires new thinking. These are tipping point moments. Our capitalist model is down the shute built by the financial John Galts. Its back to the drawing board and as socio-cultural disparities between continental blocks are huge, trying to push the global meme further down this massive trend based on international labour arbitrage will not work. We have hit the asymptote. We need new ways of creating growth.

You tell me how you bring jobs back to first world without putting in some intelligent checks and balances on the big levers of the economy Mr John Galt. Don't go hiding your head in the pages of Atlas Shrugged. The road to Serfdom has been written for first world by Ronnie and Maggie, and Hayak and company's admirers in the US elite.

Wake up, get yourself a new perception of tomorrow's reality. It won't be Atlas Shrugged! 

And don't get me taking sides in red-blue divide. Obammy is part and parcel of crony capitalism and the banana republic like the other guy! This is a social elitist disease called Oligarchy scam.

I am and have been a private sector entrepreneur all my life. But I do not buy into despotic Oligarchy neo-feudalism under the facade of John Galtism. There is, has to be, balance between top down and bottom up logic. Its the very cement of civilization. Just read history.

But before all that occurs, as the heading of this post clearly points out, we have to resolve the current rip-off organised by the Oligarchy cabal. And it will mean that one way or the other the Oligarchs cough up their ill gotten wealth, based on thirty years of financialised mayhem.

Fri, 08/17/2012 - 06:44 | 2713506 i-dog
i-dog's picture

Hmmmm ... another in a long series of about a dozen posts from Falak - all linking John Galt to state cronyism!! This is the meme of the month from the left of TPTB. Don't get sucked into it.

It'd be a good idea for you to read the book before placing its main character totally out of context!!! Galt was the ultimate disengager from the state - into an independent enclave that was totally invisible to the state. Those who joined him there made no effort to sabotage the state (most tried until the last minute to remain within the statist paradigm), merely to also disengage.

I don't know whether you are doing this out of ignorance, or whether you are a member of the rising US statist campaign against libertarianism (presumably 'they' - both left and right! - are currently running scared of a possible 'Ron Paul factor' in GOP voters - notwithstanding that Ron Paul is still a statist).

Irrespective of your personal opinion of Ayn Rand, her personality, her political ideology or her eventual fate, she, like Marx, formed tha basis of many other similar/subset ideologies which she would not personally endorse.

Branding everyone who may have been inspired by Atlas Shrugged to loosely call themselves a Libertarian - from anarcho-capitalists (me), through minarchists (Thatcher, Ron Paul), Objectivits (Friedman, Reagan), to anarcho-syndicalists (Zeitgeist) - is no different than branding all socialists as Marxist - from Eurofanatics (Merkozy), through moderate Social Democrats, to Pol Pot and Kim Jong Il.

 

Full disclosure: I'm a voluntarist (anarcho-capitalist), which means that I totally reject coercive or compulsory government. If somebody else wishes to live nearby under a government, then let them do so and allow them to elect their own leader-representatives, but without forcing me to join in at gunpoint, or annexing my (and my fellow ancaps') territory into their scheme. In fact, I'd rather they set up their own state than have them join in only to subvert 'our' voluntarist enclave.

Fri, 08/17/2012 - 06:57 | 2713523 Ghordius
Ghordius's picture

+1 and my compliments for raising the black and yellow flag, it's a worthy cause. My disclosure is that I'm a moderate centrist, btw.

I understood - without having read the other John Galt comments - him with "Our capitalist model is down the shute built by the financial John Galts" as an argument agains cynic system exploitation by a few, from a capitalist's point of view. An argument against having a system that can be exploited in such a shameless way. And I detect little US political involvement in his usual comments - something that reflects my restraint in getting entangled in them.

i-dog, the frank truth is that many of us here don't really see that much difference in the two US parties, except for the culture war sides, and being mostly used to multi-party politics has some drawbacks in correctly understanding your positions.

I start to think that what he writes is utterly incomprehensible for most Americans - and he points this out in his comment.

Read this sentence of him: "I am and have been a private sector entrepreneur all my life. But I do not buy into despotic Oligarchy neo-feudalism under the facade of (<incendiary label removed>). There is, has to be, balance between top down and bottom up logic. Its the very cement of civilization. Just read history."

To me, it makes sense. It could have been written by me, though his style is usually more elegant than mine.

To put it in a different way, the typical <incendiary label removed> does not help.

Fri, 08/17/2012 - 07:25 | 2713570 i-dog
i-dog's picture

 

He's wrong on so many points, Ghordie, that I usually don't bother responding to his moronic mish-mash of mixed metaphors and meaningless mythology. He tries to be too cute by half!

"Our capitalist model is down the shute built by the financial John Galts"

a) It's not a capitalist model. Capitalism depends on capital, ie. private savings that can be deployed as capital to improve productivity (and thereby, profit). What we have had over the past 100 years is an ever-increasing robbery of private savings to be diverted into income redistribution and wasteful government. That, and in parallel, the extension of statist protection of state-sanctioned corporations ... to the point that we have now reached where the state is a corporation and the corporations are the state!

b) The characters in Rand's novels that were allocating resources to themselves, their families, and their cronies had absolutely nothing whatsoever to do with John Galt. That is pure hype and distortion born purely out of juvenile frustration.

Fri, 08/17/2012 - 07:42 | 2713590 Ghordius
Ghordius's picture

I agree with a) and will take your word on b). My point was: does he make sense to you if you exchange "John Galt" with Corzine? His point is that libertarians are being manipulated and exploited. If he is right - and I can't judge from here and now - then it would not be the first time that a worthy cause suffers this fate.

Fri, 08/17/2012 - 08:04 | 2713615 falak pema
falak pema's picture

an anarcho-libertarian hibernating in ideological limbo, devoid of all link to reality. Denial, denial, denial... in bad faith about what politics really means. Pathetic! 

3000 years of western tradition have taught us ONE thing : without government there is no civilization. How is good government done...is the issue; not reverting to non-governance based on a new god "the free self governing market!"...what tripe. 

and its tripe as the current conundrum of capitalism at work in 3D and over 30 years has shown. 

Come up with ONE factual argument i-dog, one factual argument, and leave the comfy, idealised world of anarcho-libertarianism that has never existed in western history. Never! 

Fri, 08/17/2012 - 08:13 | 2713637 Ghordius
Ghordius's picture

1. he said anarcho-capitalist. subtle difference

2. we don't know if government is really necessary for civilization - we never tried in earnest. my take is it depends on many factors, and one of them is population densities and how far you are from the next rapacious horde or empire. I personally can't imagine a city without gov, but a county? they did, in part of the US history, form many systems you and I would not recognize as "governed".

+1 for the reminder that for all purposes, the current conundrum is about the quality of governance.

Fri, 08/17/2012 - 08:33 | 2713672 falak pema
falak pema's picture

- we never tried in earnest.

lol, turn the other cheek and give to Caesar what is his...was the closest we got to non governance.

It subsequently led to the Catholic church and to Dictatus Papae... and three hundred year tussle in the west between Popes and kings!

Now that is an awesome example of anarcho-libertarian ideology going virally despotic to protect its competitive advantage as the first private multinational in western civilization selling the universal church! 

You really have a good example of how anarcho-libertariansim morphed into psychorigid orthodoxy  with a huge clerical bureaucracy right there! 

So we have tried...and it failed and it ultimately spawned ....Machiavellic Prince, and reason of state!

The christianity wheel came a full circle to absolutist nation state! 

Fri, 08/17/2012 - 11:09 | 2714163 Ghordius
Ghordius's picture

LOL - falak pema, you made my day. Thank you. Yes, I agree with you, the "times of the tussle" is an excellent example, and Machiavelli's Prince the terminal ideological result. So perhaps this is an experience our American cousins will have to do themselves. But they are still struggling with their not-to-be-mentioned empire and their feeling towards their res publica. If history really rhymes, I'm afraid we'll witness first the appearance of an American Crassus or two. I hope not.

Fri, 08/17/2012 - 08:08 | 2713630 AnAnonymous
AnAnonymous's picture

What we have had over the past 100 years is an ever-increasing robbery of private savings to be diverted into income redistribution and wasteful government.

_____________________

Once again, the 'American' meme that the 'American' robbing spree only started 100 years ago...

This when the champion of the 'American' world, the US, stole so much land to redistribute it to its citizenry through the US government...

'American' mantra: robbing is only robbing when you rob an 'American'...

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