Global Deleveraging - You Are (Not) Here

Tyler Durden's picture

In most countries, deleveraging is only in its early stages. In a report today, McKinsey notes that total debt to GDP has declined in only three countries since the 2008-09 crisis (US, South Korea, and Australia) as total debt has actually grown in the world's ten largest mature economies (due mainly to rising government debt - Keynesian style?). Greatly concerned that the UK and Spain are slow to delever, they do note that the US is more closely following the two phase deleveraging process that 1990s Finland and Sweden followed but point to the household segment as leading the way with 15% reduction in debt to disposable income (driven unsurprisingly in major part by mortgage defaults). The bottom line is US (households) are at best one-third of the way through their deleveraging and the UK (financials) and Spain (non-financials) face much more significant pressures (which will inevitably impact aggregate demand given governmental borrowing pressures) as their deleveraging has only just begun. Historically, deleveraging has begun in the private sector and government has stepped up to borrow and fill the aggregate Keynesian hole left behind. McKinsey points out deleveraging normally takes 4-6 years which we suspect will remain an anchor for demand and growth in the mean-time (perhaps as disappointing earnings revisions are already pointing to).

 

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Caviar Emptor's picture

Tangentially related news (times r a changin'):

Microsoft calls for Gay Marriage in Washington State, to help recruit top talent 

Caviar Emptor's picture

The Tim Holt gay marriage rally

Babushka's picture

Why on this chart the Sweden is not synchronized with all other countrys...?

Does that mean that they started do deleveraging  9 years erlier than everybody else?

Dr. Engali's picture

Who cares? Seriously. The world is fucked up, the economy is in the shitter. We are on the cusp of WWIII, and we are still talking about gay marriage? Let them get married, they can't screw it up any worse than I have.

Gadocat99's picture

Sounds like we need divine intervention, not gay marriage.

Confused's picture

Classic distraction. Like abortion.

 

Gets peoples blood boiled. Plus its easier to understand for most than global economics, who most are happy to leave to someone else to worry about.

 

That, and our kids aren't affected by it. ;-P

seek's picture

That distraction isn't worked too well any more, people are seeing through it.

Under-30s simply don't care about the old divisive issues, they're OK with gays, they're OK with guns, think pot should be legal, and they still care about abortion rights but don't believe anyone can credibly ban abortion overnight. Over-30s is a mix, but a lot are coming around to the same llist.

TPTB that are trying to divide are dinosaurs that don't get "it" outside of understanding the internet is now a huge threat to them, and the people have figured out the internet is too important.

This means that the the power plays start shifting to the big guns -- false flags, police-state style intervention on TPTB side, and revolution on the people's side. Interesting times.

AbelCatalyst's picture

The only thing the US did was move the ramp up in debt to the government.  Yes, many people have defaulted on their mortgage and it appears the US is delveraging, but the US Gov is adding trillions in debt...  This is the final bubble - when the government debt bubble finally bursts things will be a mess...

Tech bubble moved to the RE bubble which moved to the government debt bubble...  when the US Govt debt bubble starts to burst who will be the saviour of last resort?    

Manthong's picture

Mssrs. Smith, Wesson, Remington, Colt and Henry among others.

gjp's picture

Yes +1. The US is still the biggest credit hog in the world, when EU is considered as a whole. The US treasury market is the biggest bubble in the world (and in world history) and it is where the nonsense will finally end. Deleveraging my ass.

ultraticum's picture

They are taking advice from the numb knut Orafice of Omaha again . . . I'll be Gates never really cared about such a completely vacuous issue in the days when he was actually building something.

Ruffcut's picture

borrowing money to pay down debt is not delevering. just another bullshit term of denial.

mayhem_korner's picture

 

 

Other terms of debt-heroin art: "refinance" & "consolidate"

Babushka's picture

It's like: I am off to my dealer to consolidate some supplyes

or : I am going cold turkey and need irgently to refinance ....?

glenlloyd's picture

Ditto, it hardly makes any difference if the govt leverages more than households are delevering IMO because the ultimate backstop of the govt is the tax payers wallet. Deleveraging only matters when it's viewed in total.

The chart would be more relevant if it was viewed in the context of total debt.

And I'm not sure the US households have delevered as much as the chart indicates. It wasn't that long ago Bass was claiming that households had only delevered about 6-7 pts.

mayhem_korner's picture

 

 

Denominator is waning also, as disposable incomes are thinning by the minute, despite the rants of CNBC.

centerline's picture

Deleveraging?  Or just trying to outlive the system?  Some brave folks might actually gamble the other way and max out everything.

Anyhow, the real deleveraging will be population decline, not monetary.  This crap is both "transitory" and "relative."  

hidingfromhelis's picture

I'd say TPTB are already maxxing out everything for their own benefit.  The looting at that level seems to have gone parabolic, and it's being done openly with no fear of punishment.  For a peon, to try to game the system will be dangerous.  To preserve the status quo, anyone who tries to play that game against those who view it as their proprietary game will find themselves crushed as an example.  Better yet, it will be in the name of justice. 

Sorry about that whole population decline thingy...just not enough room in the lifeboats for everyone.

Stax Edwards's picture

Awww hell yeah.  Rebirth bitchez!!! 

Get you some!

GeneMarchbanks's picture

Deleveraging really hasn't even begun. These numbers seem optimistic.

Caviar Emptor's picture

It's complex. I'm contending that the needed deleveraging cycle is being disrupted by biflation. Under free market conditions deleveraging goes hand in hand with deflation. The price reset sets the stage for the next growth cycle boom. Central banks are short-circuiting the process. That's why the economy is creating no jobs or real growth. Instead we've paved the way to gradual decline

walküre's picture

Exactly. How are people without jobs supposed to deleverage their debt other than by defaulting on it entirely. There is no solution until we hit the jubilee phase.

donsluck's picture

Household debt level analysis is good for predicting consumer spending, as a directional trend, but do not forget that for macro analysis, government debt must also be considered as it is eventually the same as household debt since taxpayers have to pay it.

Haole's picture

Canadian household debt is still headed for the stars if I'm not mistaken.  Being one "Canadian" who doesn't have a penny of debt, I continually feel like I'm surrounded by the enemy.  

GeneMarchbanks's picture

You are. Worry not. The liberators are coming.

Haole's picture

"Worry not. The liberators are coming."

 

That might make sense to you but is of absolutely no comfort to me.  ;)

mayhem_korner's picture

 

 

Making sense and being uncomfortable are two different things.  Athletic supporters are like that.

DanDaley's picture

Living in the big C. with no debt? Do what Canadian Survivorman Les Stroud did -find a place out in B.F.Ontario and stock up.

Dr. Engali's picture

Other than the mortgage, which will be gone soon, I delevered down to zero. Never again will a bank get a nickle directly from me.

walküre's picture

Is that the right thing to do when government and corporations are taking on more and more debt? Why would you want to be debt free? Max out on debt and store portable assets of value. When it all goes in the crapper, they can't possibly come for everyone who is defaulting on their debts. It will be one gigantic reset of epic proportions and it would be a total shame if you weren't coming to the party!

mayhem_korner's picture

Max out on debt and store portable assets of value. When it all goes in the crapper, they can't possibly come for everyone who is defaulting on their debts.

You're right - instead they'll come for those who have stored portable assets of value.  :D

flattrader's picture

I'm concerned about that myself.  Best to have portable and be mobile as well.

I can think of any number of scenarios political/economic, natural disaster related and or both that will make staying in one place a bad choice.

Plan A good, Plan B better, Plan C best.

"Carry and cache," is my motto.

walküre's picture

Don't leave traces including electronic records of your purchases.

In other words. Pay cash.

mayhem_korner's picture

the U.S. is more closely following the two phase deleveraging process

 

Phase 1: Self-imposed austerity to cut debt pile from "Everest" to "Anconcagua"

Phase 2: Give up on Phase 1, go out and buy a new Benz and let the chips fall

That's the reality...

Jerry Maguire's picture

Such deleveraging as would be necessary is impossible, not only practically but even theoretically, which is why Steve Keen is calling for a jubilee.  He wants to do it through money pumping.  I want to do it through the law.  The constitution:

http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-ed...

along with a return to hard money.  It could be done, but time is running out.

If things continue as they are going, you'll just have millions of homeless, millions of empty homes at the same time, and it still won't be enough.

The constitutional amendment process is there for a reason:  government gets away from you.  There's still time to rein it in.  But just barely.

Schmuck Raker's picture

Semi-OT:

"This is the transcript from a speech by Dr Guido Westerwelle, federal minister for foreign affairs of Germany, at the Brookings Institution, Washington DC, on January 20, 2012." - Ekathimerini, providing a...

LINK: The euro and the future of Europe

"We have to recognize that we need nothing less than a paradigm change for our countries and our societies. The debt economy itself has reached its limits. Fiscal responsibility and sustainability are not arcane concepts for experts. Nor are they awkward hobbies of Germans still traumatized by memories of hyperinflation three generations ago. They are the imperative of our time.

The policies of debt, combined with the shortcomings of the eurozone construction, and compounded by the effects of the financial crisis, have led us into the danger zone. We have taken it too far. Beyond the point of credibility. And -- allow me the question -- can we really be sure that this is only a problem of the eurozone?"

GeneMarchbanks's picture

''can we really be sure that this is only a problem of the eurozone?"

Well, of course not but what does it matter when you can always just point at the problems of others?

Three years of spotlighting Greek problems hasn't exactly helped anyone else deleverage so what you're seeing now is the perspective of: if the media isn't covering it, then it can't be a problem.

azzhatter's picture

Does Ballmer want to marry Gates for the inheritence?

Belarusian Bull's picture

This is a banker's nightmare fit into 1 picture.

Poetic injustice's picture

No, banker's nightmare is Bernanke not picking up phone and not giving unlimited free money.

falak pema's picture

this chart is not representative of the Derivative bubble in shadow banking. Those US deleveraged figures are not the real figures.

 

Dr. Engali's picture

I don't think they can make a chart big enough to represent the derivative bubble. Comparing the world GDP to the derivative bubble on a chart is kind of like a scale picture of the earth to the sun. The sun is so big you can't see the dot that represents the earth.

847328_3527's picture

GE and GOOG tumbling? How can that be? They just about control DC...if they are losing steam we are in BIG trouble.

Bullwinkle Moose's picture

Debt to GDP ratio has increased in the US not decreased.

MeBizarro's picture

Why only look at household debt?  Only one leg of the 3-legged stool (household, gov't, private sector).  As others have noted, the overall debt level in the US haven't gone done at all.  It has just been a massive transfer to the gov't ledger sheet. 

Roger Raoul's picture

WTF ? US is deleveraging ?  How can it be   O_o

Ag1761's picture

Overall a misleading article. If I stop eating next week then my disposable income will increase. If to this I stop buying silver and little bars of gold then I swear this graph is wrong.