Five Years Since The Great Financial Crisis: "No Growth, No Deleveraging"

Tyler Durden's picture

One of the populist buzzwords of the past 5 years, particularly in Europe, has been "austerity", which as we have said for the roughly the same past 5 years, is simply a synonym for "deleveraging" but one which carries just the right amount of negative connotations, and is used by crafty politicians to shift blame from their own failure to enact proper policy (which over the past 30 years has merely meant to borrow growth from future political cycles, aka, issue debt) onto a "technical" word conceived by Ph.D.-clad economists, who too, are looking for a passive victim on which to project their failure of enacting a voodoo economic theory. There is one problem with all of the above. As we have also been saying for the past five years, the austerity deleveraging myth is one big lie. We are setting the record straight below with facts and figures. We would be delighted if some politician, somewhere, could disprove these facts, which essentially imply that the world is now in a global recession, having experienced no growth as the recent 100% contractionary PMI print of all major economies confirms, yet without any country actually having implemented austerity, pardon deleveraging to have at least a modest justification for this failure of growth.

Finally, this article proves that the European chorus screaming for "growth" when everyone knows it demands merely more of the same drug - debt - is 100% wrong, and that while the underlying causes of "growth" are there, the only thing missing are the symptoms. DB's Jim Reid provides the charts and facts:

Figure 37 shows the combined Debt to GDP of the EU-12 (excluding Luxembourg), the US, UK, Japan and Australia. This debt includes Governments, Financials, Corporates and Households. Ireland’s small economy and large financial system (domestic and foreign), ensures an outsized reading which we cut off in the chart.

Figure 38 then shows; 1) how this ratio has changed from the end of 2007 to the end of 2011; 2) what the trend was in the 1-year to the end of 2011 to see momentum; and 3) where the ratio is from the peak point. The data is represented in percentage point moves.

As can be seen, only the US and Australia have seen their overall economy Debt to GDP fall since the end of 2007 and for both these the fall is negligible. The US has gone from around 348% to 345% on this measure. From the peak the US has fallen from the 366% seen in 2009 and the 353% seen in 2010 but few other countries are seeing their debt/gdp ratio move in the right direction. Many are currently at their peak overall  economy wide leverage number and as already discussed when looked at from the start of the crisis all but the US and Australia have seen this ratio rise. Interestingly as we’ll see below Australia and the US have still seen debt rise but Nominal GDP has risen by a higher amount, thus helping them see leverage ratios decline slightly. It shows how important growth and inflation are if you want to delever.

Deleveraging problems from both the debt and growth side

The deleveraging problem comes from both sides. As we saw in Figure 36 in the previous section, growth has struggled to eclipse its peak levels across a number of countries with only inflation allowing many to surpass their peak activity levels. In terms of debt, Figure 39 shows the growth of an index of economy wide liabilities from our DW sample rebased at 100 at the end of 2007. We have gone back as far as the full data starts for each country.

Figure 40 then shows a simple un-weighted average and median of this basket and shows that debt is still increasing in the developed world.

Figure 41 then looks at the numbers for each country again from the end of 2007 to Q1 2012, since the end of 2010 and also from the peak. Debt hasn't started to turn down anywhere in the Developed World since the end of 2007. As already discussed, those that have seen their debt/GDP ratios stabilise (e.g. US and Australia) have required some nominal GDP growth.

So debt is still climbing in most countries. Clearly the splits are changing with more emphasis on public over private debt but there's little evidence that the DM deleveraging trend has started yet.

Given such an unparalleled run up in debt over the last few years and decades, will we be able to de-lever naturally and without defaults? If we can find a higher pace of growth and inflation than debt accumulation then we can. But can every country succeed? The reality is that we would make a strong argument suggesting that the high debt burdens are actually holding growth back thus ensuring a problem of circularity. As a minimum it likely ensures that these economies remain fragile and vulnerable to shocks for many years to come.

So in aggregate the DM post-GFC world can be characterised by a “No Growth, No Deleveraging” mantra and one where we are still in a similar situation to where we were five years ago.


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deez nutz's picture

With no debt, there is no growth.  With no growth in today's environment there is only collapse.    There will be war before the US sees austerity.

Bicycle Repairman's picture

You can't have austerity without the strict internal controls that war can justify.  You can achieve a recovery by smashing up a bunch of productive equipment, including carbon-based equipment, through the use of war, if you win.

Once all the other methods have been used, there's always war.

gwiss's picture

Austerity is how we did it in WWII.  But, this time it won't yield the benefits that our politicians secretly hope it will, because they incorrectly think it was just the enforced savings of the war and turning the economy into a command economy that produced the post war golden years, which is a feat that they believe can be replicated any time we can produce the right trigger or external necessity for this conversion.  The reality was that during WWII we simply exchanged depression austerity for wartime austerity, but the wartime felt better because it was "patriotic."  We then leveraged our essentially unlimited energy and raw material supplies against the savings freed up by that austerity to build factories at home, and we spent the rest of it destroying the factory capacity and infrastructure of the rest of the advanced economies, and both of these choices yielded outsize returns.  We were ideally positioned at the end of the war to be not only the sole global source of industrialized goods and be well compensated for this monopoly, but since we had also captured the reserve currency position by nature of our energy and production monopoly, we were thus able to engage in a spree of currency debauchery with which we purchased a better standard of living. 


Thus, the fruits of WWII were long lasting, but the energy supplies are mostly gone, as are the highly and therefore easily obtainable concentrations of raw materials, and thus that horse has run about as far as it can, and we will not get another one.  No war that we launch from here on will result in a rebound of our fortunes.  Just ask Great Britian how they fared after WWII.

Sandmann's picture

Really ? what country do you live in ? Austerity in WWII ? Where ?  The British alone mobilised 5,000,000 men and had to feed, clothe, pay and arm them. If that is austerity we can call the past Bank Bailouts by the Fed "Austerity" too. Only WW2 exceeded British spending on Bank Bailouts - The fact that people were paid who had previously been unemployed but had nothing to buy and faced rationing unless they could afford restaurants. Bread was not rationed until AFTER the war. Britain had exchange controls until 1979  and Germany until 1957.

People had better diets in wartime and the divergence postwar was between a USA which had suffered no material damage and had accumulated British and French gold reserves and British assets and corporations in the USA. Britain basically faced financial repression until the 1980s when Deregulation of Banking started the cycle all over again.

The numbers today are too big to be inflated away which is basically what Britain did 1951-1990



gwiss's picture

I should have specified that I was talking about individual austerity, not national.  Of course, the US government borrowed a lot, and from the perspective that there is no entity of government but rather government simply borrows on behalf of the individuals in society, you are right that there was no austerity during WWII.  The spending and debt load on a per capita basis went up during WWII, not down.


The perspective I was talking about is that this borrowing had to come from somewhere, and a lot of it came from bonds, which meant that people were spending a lot less than their income and recycling this extra capital into the war effort.  The individual experience of war time was of draconian limits that were worse than what was generally experienced during the Depression.  Limits on gas, limits on tires, clothes, metal , butter, eggs, meat, etc etc etc.  And understand, this was not by choice.  You were issued ration books, and you absolutely could not buy more than you were rationed.  This was enforced austerity on an individual basis, and the caps on individual spending created a large differential between national output versus aggregate individual consumption, which was then dragooned into the war effort.  And, as per my post, the only reason it worked in this one particular instance was because the goals it was spent on (destroying other nations productive capacity and seizing the position of international reserve currency) actually brought benefits.


The point of the post was that it was not the governement spending that got us out of the Great Depression, but rather what the government purchased with this spending that got us out of the Great Depression, hence the different postwar outcomes between the US and Great Britian, who both borrowed and spent a great deal during the war years.  Thus, the typical meme of "Central Planning and war got us out of the last Great Depression and thus can get us out of the Great Financial Crisis" is absolutely flawed, because it presumes that government borrowing and spending is the magic bullet regardless of what it is spent on, when in fact it only worked specifically because of what it was spent on, and what we bought cannot be bought again.

MrBoompi's picture

Silly man, you forgot soveriegn debt is not debt, it's an asset!  Now put that on the correct side of the balance sheet and redo those charts like any good Princeton economics grad would do.

THE DORK OF CORK's picture

People are missing something quite simple in all of this , forget about the debt for a second - debt is a metaphysical concept.

Whats more important is the leaking of Hard currency because of non national control systems set up withen the Euro Market state experiment.

This is the primary driving mechanism behind $100 + oil

If Spain, Italy , even Germany go back to more national systems of control the energy leakage withen these now Euro systems will slow.

This means more will be available for domestic demand & rational investment.

When a country , a nation state and not the current market  states prints the energy is not lost , how could it ? it is simply redirected towards less wasteful domestic demand.

This level of globalisation is just too costly for present energy systems......Europe needs to go back to at least pre 1987 political and economic systems...this will then be reflected in their energy & trade balances.

 E.G. In 2010 Dublin & Ireland had the biggest drop of air passenger traffic in Europe at -10.1% & -12.1% ....

In a national economy this would prevent the export of hard currency......but Ireland is not a national economy - its export of hard currency continues to climb since then.

Its rump domestic economy outside of multinationals and the banking sector is a direct result of its non sov nature - because it pumps out internal Euro money to the financial centres and cannot print domestic currency it must try to game whatever crumbs from the bloated financial and multinational sector that is then given out via social programmes.

Post 1986/87 .....was the end of Irish society .....its not a country ...its a conduit.



Please look at the UKs current account Post 1986 (The Big Bang)


This enpowered various local pseudo criminals in Ireland such as the former  Guiness peat aviation crowd ,Ryanair etc etc....

These are the local oligarchs withen Irish society who need a waste based culture to continue their power do this now that there is no more oil to waste , they must waste people one by one.

Element's picture



"...forget about the debt for a second - debt is a metaphysical concept."


Lost me right there DC ... try not repaying ... is the outcome only metaphysical?

Temporalist's picture

What crisis?  The Kardashians are just fine.  Scared me for a minute there.

Sledge's picture

lots of sports on the boob tube as well, nothings wrong! (sarc)

Bicycle Repairman's picture

Can their butts keep expanding exponentially in a world with limited resources?  Yes.

Never One Roach's picture

Brilliant article! perspective on the issues shows the progress...or lack of it.

I see lots of "defaulting," but very little "deleveraging." Many people I know are now simply not paying their:

1. credit cards;

2. doctor/hosptial bills; and

3. mortgage or rent, since it takes months to years to evict people nowadays.

FreedomGuy's picture

Austerity on national levels in our collectivist governments is simply people actually paying for what they get or getting less than what they pay for till debt is resolved. It is that simple, that painful and highly unlikely.

michael_engineer's picture

If growth isn't there even though all want it and it was there for almost everyone in the past, then the simplest explanation for that is something structural has changed and prevents it.

LawsofPhysics's picture

we find ourselves at the limits of our current energy technology.  Despite all the new "efficiency" in paper-pushing bullshit, in order to delivery any real goods or services you need to use/burn some energy, period.

In lieu of those fusion reactions coming on line anythime soon, or a dramatic increase in the photon capture and conversion of solar voltaic cells, all I see are over 7 billion "unfunded liabilites" walking around that are still growing exponentially. Ask yourself do you really think that humanity's ability to deliver energy is also growing exponentially?  Most electrical grids I have looked at need major overalls to begin with.

Welcome to the post growth world, hedge accordingly (all you can really do anyway).

michael_engineer's picture

Not unfunded but "underfunded" relative to the past and relative to the comfort zone many have come to expect and even rely upon.

boogerbently's picture


"Misfunded" relative to results promised. (See Solyndra).

$500 MILLION govt. contract to repay $38,000 campaign contribution.

This is an UNDERESTIMATED and rarely recognized addition to our annual budget......underperforming investments.

Bicycle Repairman's picture

Birth rates have plummeted world-wide.  birth control has largely been a success.  Population growth continues, because people are living longer.

LawsofPhysics's picture

Either way, the problem is still exponential growth in the population and the point by the above commentor remains valid.  History is very clear on what happens next.  If you are an optimist you might hope this time is really different.

booboo's picture

A chicken bone in every pot.

Heroic Couplet's picture

Republicans want deregulation and they're too dumb to understand deregulation always leads to increased risk, which is the last thing you want in the finance sector. So let the finance sector collapse. Total up the dollar amount caused by Phil Gramm, and lay the bill and Phil Gramm's feet. If secondary derivative products were created in a private, UNregulated environment, then it stays in a private, unregulated environment.

We know the people who don't shelter their money in a Cayman Island account, so if Cayman Island accounts get demolished, good. Take complaints to Phil Gramm.

LawsofPhysics's picture

Correct.  and when the jack-booted thugs come to your house to collect the taxes in order to cover the private losses of those elitist fucks, pay them in lead.

michael_engineer's picture

If growth isn't there even though all want it and it was there for almost everyone in the past, then the simplest explanation for that is something structural has changed and prevents it.

There's plenty of evidence that weakness in the resource base is the blocking mechanism. The bottom line is and always has been that the driving force of economic health for society has been resource flows. No resource flows, no economy. Debt and money both are derived from those resource flows.

So in a way, both debt and money are in fact derivatives. Weakness in debt and money issues would seem to indicate a possible weakness in the resource base itself.

Freewheelin Franklin's picture

But, but, but "deleveraging" would cause a c-c-c-currency crisis and, and, and.........deflation.

taraxias's picture

Tylers for fuck sakes, stop repeating this garbage about "no country has implemented austerity". Greece HAS in a big way and the plebs are getting crushed. And this latest round forced down the people's throat by the Samara's lead triumvirate will get them out in the streets. Or at least I hope it does because that's the ONLY way this ends, not the "financial system is about to collapse" shit you guys keep posting at nauseum on here depsite all evidence that Central Banks have this illusion firmly by the balls so far.

Wake the fuck up.

Bicycle Repairman's picture

I view Greece as the "austerity test lab".  Watch and learn.

ultraticum's picture

You need to live in Asia (ex Japan) for a while to understand "austerity".  The Greeks and the rest of Europe (and the US for that matter) are nothing but a bunch of whining pussies with their mandated vacations, health care, etc.  Yeah, the Greek "plebs" are getting crushed, relative to a system where they got everything for free their whole miserable life including mandated spa treatments.  Worse, they still cling to the "EU" kool-aid and don't even have the balls to tell their complicit bankster overlords to pound sand.


If I had a violin I'd play it for them.

taraxias's picture

They are not being crushed "relative to the system they got everything for free", they are being crushed period. They can't provide medical care for their children for fuck sakes, where do you see that relative nonsense in that? Or may be you are just another one of those misguided "capitalists" on here who believe that those less fortunate in society and lacking the financial means to receive medical attention should be "tough luck" kicked out in the street?

Fuck that, if that is what capitalism means I don't want any part of it.

A Nanny Moose's picture

Appeal to emotion. Your particular strawman is merely a symptom of a symptom of goverment "solutions." Who are "they" exactly? The Greek government? It doesn't have two euros to rub together, of course it cannot provide health care. Is "they" the Greek individuals? Perhaps they be more interested in helping their fellow man in a time of need?

In any case, kids need to go out, roll in the dirt, and pick up germs. Diet, lifestyle, and sanitation (access to substances with anti-microbial properties, like baking soda, vinegar, alchohol, stevia, and silver) are a better health plan, than the fucking rent seeking corporate owned, government run health sick care system.

Monopoly control, or even Oligopoly control over the money is distincly NOT capitalism. It is however, a plank of Communism IIRC.

Finally, the only country that approached anything like austerity, was Iceland (by way of BK). It told bankers to fuck off, then blew some ash their way, and now it appears to be recovering.


AssFire's picture


Tyler is right.

No country has implemented a meaningful austerity that would lead to economic conditions improving.

There is a disconnect with too many people unable to understand how to provide for themselves..shit federal workers don't even know they are on welfare and the people on welfare think that it is their job.

taraxias's picture

He would be right, if that's what he's been spewing. it's not.

Don't get me wrong, I love this site and have been on here almost from the very beginning but at some point one must question the Tyler's incessant the sky is falling calls when clearly the central banks have demonstrated they can kick the can down the road at will, with no visible end in sight.

Yes, someday gravity will assert itself but if that were to happen when all those who followed and are devoted to the bearish sentiment propagated by this site are insolvent, then may be it's pointless.

Yeah, yeah, I know, there's always cans of spam, guns and gold. Right, got it.

BKbroiler's picture

wooowww there buddy, stirring the pot.  Guns, gold and spam have all done very well, but yeah, betting against the US gov has burned quite a few...  it's always just a matter of time until whatever the next bubble is makes a few people rich and breaks the rest.

taraxias's picture

I have no issue with anything you are saying but I would have a lot more respect for it if instead of "it's just a matter of time" you had a date in mind. The Tylers thought the "it's just a matter of time" would have happened a few years ago, yet here we are yet.

I appreciate the candor of this site that you no longer find in MSM. I appreciate all the guest posts that always, whether I agree with their point of view or not, give me something to think about. I appreciate pulling the curtain back from all the massive fraud in the financial system, central bank shananigans and an HFT controlled market. I really do but had I traded the bearish daily sentiment spewed by the Tylers I would have blown up by now.

Let's keep things in perspective. 

mick68's picture

I'm no economist, but I am a member of Mensa, as was my dad, for whatever that's worth.
In my humble opinion, all that sites like this missed in their calculations was the unavoidable effects of printing large amounts of fiat. Like the great depression, the market has disconnected from the economy due to printing.
This, and not economic improvement, explains your gains in the market sir.

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

I'm not a member of Mensa, but I did do their IQ test and got a score of 155. For whatever that's worth, I don't know shit about what's going on except that it's FUBAR.

DoctoRx's picture

It's really, really hard to make money shorting anything (apparently except Tom Stolper, LOL).  But ZH's main positive focus-- owning gold/silver-- has been right on.

css1971's picture

At this point I'll stick my oar in and say.

The Bank of England has been doing this since 1694. It hit it's 300th birthday 18 years ago.

Quite a bit of can kicking going on there. World class can kicking. This can go on for a while yet.

Totentänzerlied's picture

Greek austerity is a joke. You obviously live in fantasyland where deficit spending is the eternal duty of the state and right of the people - to not pay for. Greece has implemented, by force, being bankrupt, morally, socially, economically, politically, and every other way. Shed a tear for the 1 or 2 people in Greece who aren't so fucking enamored of the crade to grave nanny state.

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

I'm assuming there's a 'net effect' of no austerity. In the end the common people are the ones to pay.

AssFire's picture

Laws of Physics...all I see are over 7 billion "unfunded liabilities" walking around that are still growing exponentially.

Ya know, we have been paying a segment of society not to riot since the mid 60's

Since then this group has increased exponentially causing additional costs on people who need to commute to avoid living by the entitled as well as the crime and incarceration costs. The cost of allowing them to essentially live for free has had the affect of causing both husband and wife to work so that single mothers and fathers don't have to. Hell, they won't even raise their own spawn.

The cost of "being the policeman of the world" (giant lie) is insane- I get it. That being said, it is impossible to simply cut defense spending and not expect to be in Europe's shoes (huge entitlement population- even with almost nothing going to military).

It is simple math so everyone knows what MUST happen: WAR. I must say something that is very dark: If the US military is gutted, then perhaps there will be more civilian urban causalities here. Sadly, that may be the only solution to the unending money drain that these people have become.

I know it is some sick shit, but I don't see the USA taking the approach of French during the Great Terror when the prisons were emptied by executioners to lessen the state burden.

Sorry to be so macabre, I expect the down votes.. the reality is very unpopular. As long as the scenario falls under the "plausible deniability" that the shadow government operates under- it remains a very possible scenario. 

LawsofPhysics's picture

And I thought that I was a pessimist.  History certainly would support your thesis, perhaps this time really is "different".  Just the same I won't hold my breath.

hedgehog9999's picture

It is interesting to note that Greece and Canada have the best stats for debt growth, of course we know about Greece's forced austerity that got them to where they are now albeit with a huge amount of pain......Canada just tracked the US more or less from a lesser base of debt hence its good standing in the stats....

The other point to be made is that any additional debt will trigger ZERO GDP growth from an already recessionary environment............

folks , we are at the top of the rollercoaster now!!!!!!......................raise your arms and start screaming!!!!

gjp's picture

I can't believe the charts showing the US deleveraging over the last few years.  There's no way, with the debt binge by government, student loans, and the reexpansion of the leveraged speculating community.  Something fishy.  The US is still the epicentre of the global debt binge still living beyond their means at a scale beyond all but some small peripheral European or third world countries, somehow something is not being counted right in these stats.

lunaticfringe's picture

I'm turning Japanese, I think I'm turning Japanese, I really think so.

steve from virginia's picture


Presumably this is all in nominal terms. For countries such as Greece where nominal deleveraging is underway, REAL debts are rising sharply (euros being impossible to obtain at any affordable cost).

In REAL terms, the weight of debt is increasing along with the quantity of it. Repayment increases the weight further. The more that is repaid, the more that is owed in real terms. This is due to a shrinkage in the quantity of circulating money.

Adding more credit is pointless ... in fact counterproductive (diminished marginal utility of debt).


We've painted ourselves into a corner.

Element's picture

"... the more it capsizes the more it tends to capsize ..." - Fisher, 1933


Which implies non-linearity to the dynamic .... </glug>

tony bonn's picture

my guess is that in most cases the marginal productivity of debt is 0 or negative, thus exacerbating the economic growth prospect....debt is the worst tax because it carries a penalty - it is a cancer.