Top Three Central Banks Account For Up To 25% Of Developed World GDP

Tyler Durden's picture

For anyone who still hasn't grasped the magnitude of the central planning intervention over the past four years, the following two charts should explain it all rather effectively. As the bottom chart shows, currently the central banks of the top three developed world entities: the Eurozone, the US and Japan have balance sheets that amount to roughly $8 trillion. This is more than double the combined total notional in 2007. More importantly, these banks assets (and by implication liabilities, as virtually none of them have any notable capital or equity) combined represent a whopping 25% of their host GDP, which just so happen are virtually all the countries that form the Developed world (with the exception of the UK). Which allows us to conclude several things. First, the rapid expansion in balance sheets was conducted primarily to monetize various assets, in the process lifting stock markets, but just as importantly, to find a natural buyer of sovereign paper (in the case of the Fed) and/or guarantee and backstop the existence of banks which could then in turn purchase sovereign debt on their own balance sheet (monetization once removed coupled with outright sterilized asset purchases as is the case of the ECB). And in this day and age of failed economic experiments when a dollar of debt buys just less than a dollar of GDP (there is a reason why the 100% debt/GDP barrier is so informative), it also means that central banks now implicitly account for up to 25% of developed world GDP!

What does this mean? It means that nearly $8 trillion in world economic growth is artificial and exists only courtesy of central bank intervention - if one is looking for the reason why there is no mean reversion to a more stable period of time, there's your answer. It also means that central banks will never unwind their "assets", either actively, or passively, by letting them mature, as doing so would effectively mean an accelerated return to a non pro forma status quo, one in which global GDP suddenly finds itself $8 trillion less. It also means that in this age of ongoing consumer and corporate deleveraging, central banks will have no choice but to continue monetizing not to generate incremental growth, but to offset debt destruction elsewhere. And of course, in order to sustain global GDP growth of ~3%, they will have to print even more, in other words, accrue more liabilities (excess reserves) which of course would be funded by monetizing even more paper issuance (which Congress would be delighted to oblige with). Which is why we find the announcement by the Fed that it will notify in advance what the Fed Funds rate will be, to be beyond humorous: after all in an environment of active monetization, the only possible interest rate is zero (although the ECB tried a brief experiment otherwise, when it held higher rates than 1% to combat inflation even as it tried, unsuccessfully, to create a debt monetizing off balance sheet vehicle- the EFSF and the ESM).

Unfortunately, the worst news is that for everyone who feels that the global economy is fake - you are right: up to 25% of all economic growth is what in a different day and age would have been called "one-time and non-recurring" - unfortunately, since now this is the trump card on which the entire western model depends, "one-time and non-recurring" is better known as "constant and endless."

Our advice to anyone in the trading and investing business who has just had enough of central planning, and its ridiculous impact on capital markets which involves but is not limited to reacting to various disjointed headlines constantly, instead of trading based on a proactive, fundamentally-driven strategy is: find a new job. The new normal may be the "new paranormal", but more than anything it is the new centranormal. Because from now until the inevitable collapse of the financial system in its current form, nothing will change.

chart courtesy of John Lohman

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lolmao500's picture

All bullish... according to Geithner.

trav7777's picture

I think he meant TRIllion, not billion

Fukushima Sam's picture

This is Winning the Future.TM

Harlequin001's picture

'Goldman Sachs rules the world' - you better believe it. If you weren't sat on the Board of Goldman with Lloyd and Vinier et al then there is no way you could know at what point Goldman would choose to collapse the US economy by refusing to bid for auction rate securities. If you weren't party as a board member to the discussion at which point Goldman would decide to start buying CDS then you would not know at what point the price would begin to spike.  Only Goldman knew when the market would crash because only they knew at what point they would stop bidding, and how much CDS they would accumulate before they did it.

If you weren't party to the same discussion at which it was decided to buy all their 'insurance' only from one counterparty AIG, then there is no way you could know how Goldman would entice or force the US govt to bail out its one and only counterparty and thereby save it from bankruptcy. The whole world knew that counter party risk would collapse the CDS market and so did Goldman. If you weren't on the Board there is no way you could know, which makes all these 'guest posts' about market trends etc nothing but pure bullshit and blind luck, or insider dealing.

Do yourself a favour, buy gold outside of the banking system. It doesn't matter what Goldman does then because you're always going to hold the same amount of gold, and the more they bail themselves out the more your assets are worth. It is the ultimate global short that becomes more valuable the longer these shenanigans perpetuate. The trick is to hang onto them...

'For anyone who still hasn't grasped the magnitude of the central planning intervention over the past four years...' This has been going on for a lot longer than a mere four years...


Chris Jusset's picture

Central banks now implicitly account for up to 25% of developed world GDP!

Since this arrangement has been so successful, I propose that we double the size of the central banks' balance sheets, such that they control 51% of global GDP.  This would make the unelected and unaccountable central bankers the de facto leaders of the free world. 


What could possibly go wrong?

Ghordius's picture

a currency devaluation of 50% and it goes back to 12.5%, eh? Sustainable?


"with the exception of the UK", always with the exception of the UK

how is it that the Bank of England and it's banking system is nearly never on any scrutiny? the rehypotecation "scandal" is already history

oh wonder, oh wonder...

ATM's picture

Why mention the BOE? It's too small to worry about but not any different than the other thieves.

eureka's picture

Ghordius - RE BOE, I believe it is because BOE - along with US FED - is THE largets contributor to the illusory productivity and growth claim called "GDP" - which really is naught but paper, smoke & mirrors - a.k.a. various asset purchases and stimuli moving from one empty pocket to another - BACKED BY A BIG GUN, of course.

If I say that my paper, which I call eureka-paper, is worth more than anyone elses paper regardless of what they may call it, everyone else will laugh - as they should - but, if I then pull out the biggest gun in the world - and repeat my assertion a lot of people will say "wow, look at the size of that thing, since eureka could afford that, maybe he's right - in any case, let's buy his paper even though it may be garbage, because after all, he does have the biggest gun in the world, and that's worth something, when the shite hits the fan."

People are fans of the biggest gun - and that - and not so much else -explains why GDP is such a beloved bunch of hocus pocus and MSM focus - elite manipulated icon'ery, constantly waved before the sheeple.

Now, in reality, REVENUE, is where the ruber meets the road. But even revenue is manipulated - i.e. forced and printed and leveraged by he who waves the biggest gun to protect his paper mill, central bank. And that's why the USUK central banks - i.e. US FED and BOE are soooo worshipped and protected and inflated.

US Military Empire backed US FED & BOE twart fundamentals and reality itself with biggest-gun enabled paper asset levitation. They just bamboozled Germany, via France, to give up on bond-holder-and bank haircuts - and then quickly proceeded to bamboozle EU, via France, to place a new embargo on Iranian oil AND freezing Iranian Central Bank overseas assets - which latter manouever is only possibly via the fact that Iran has not been allowed to have a big gun - unlike France and Israel and Pakistan and North Korea, all of whom US need to be more cautious and lenient with for obvious macro-strategic reasons - i.e. all these countries are used as regional wedges against their local-region neighbors and partners.

UK debt to GDP is 1,000% - the biggest gap in the entire world - and yet - globalization via financialization - i.e. paper puff bamboozlement - is run via this the older branch of THE USUK EMPIRE.

It is facinating - this levitation exercise- like all magic is, to the un-initiated eye. A new test of its continued applicability is being prepared in the Strait Of Hormuz this very moment.

Let of observe in peace and with complete detachment and dis-sociation, Gentlemen.

Downtoolong's picture

Central Banks, Of The Banks, By The Banks, For The Banks, but, funded, guaranteed, and paid for by the People.

iinthesky's picture

Why would Barry Obama advertise with ZH.. Do they really think anyone who reads ZH would ever vote for him? Curious. But hey.. if its funding this site, Go BARRY!

Oh regional Indian's picture

Ze meeth of infeeeneet exspawnsion is meeting it's logical end. Eat eat and explode.

For those who might know Pat Farley but not know of his comeecs... please see and in-joy...

First everthing gets swallowed. Scarfed.Then the swallower bursts.



markmotive's picture

One look at the % of government expenditures that must be borrowed and you can see that the central banks will continue to buy.


This is why we could see hyperinflation and this is why I own gold.

Vic Vinegar's picture

These charts alone provide a compelling case for owning gold (GLD)

Nicely played mark.  You out-spammed the uber-spammer.

Oh regional Indian's picture

Vic, pull your Dic out of the Vinegar, go see Rush Limbaugh eat everything and laugh.

And crunch some more NUMBers and stroke your gold.

I'm sure your sniping is equally if not more tiresome.


Take this.... ;-)

Vic Vinegar's picture

Believe you me, Rush's 'See I Told You So' was some seminal reading for me during 10th grade English class.

Re your link: I clicked it, saw Osama bin Laden, got scared and closed the window quickly.  Fucking CIA didn't get him yet.  Damn government and their lies!

Oh regional Indian's picture

There ya go. I highly recommend the entire Electric Sheep Comix set. 

Osama? I wrote a song about him... sorry, is this too much spam for your tastes? Somehow apropos though...

Enjoy! ;-)



MrBoompi's picture

So please explain what Mitt Romney is going to do to get us out of this mess.  Will he buy the country, fire 20% of us, then resell?



LiquidityandLunacy's picture

How long before they cant deny it anymore

Jim in MN's picture

Just noticed something: Ron Paul polls better against Obama than ANY other Republican candidate except Romney.  As in, single digit gap.

Better than Perry.

Better than Gingrich.

Better than Santorium.

Check it out for yourself:

Another lying sleazy MSM meme busted.

Rob Jones's picture

Romney is not a Republican.

ISEEIT's picture

Hate to say it bro', but Romney is the republican. Labels change but reality doesn't. Fact is we are all Libertarians. Problem is that FUCKING GOVERNMENT hates Libertarians ( that's us).

Proof is in the pudding (and the charts).


The other jokers want to be the governments president.

Oh regional Indian's picture

RepublocRAT. All of them actually. Flexible fellows, these pols.


Vic Vinegar's picture

RepublocRAT.  Clever!

But enough with the sniping...I'm here to write a personal plea to Tyler:

I had two thoughts when I woke up this morning (no joke):

a) The first came after firing up Wall Street Bear and seeing the great Robot Trader say this:

I get knocked off all the time, then I'm able to post the next day. 

Something in their server thinks you are "spam" and eventually the spam filters figure out you are a regular person and you will be able to get on the next day.

Uhm, no.  You get knocked off b/c you are talking about Citi's stock price when Tyler is putting up articles about cats storming the White House.

b) I would probably choose being Sasha Grey's designated partner over working for ZH.  But I swear that's the only job I'd leave this one for.

Tyler - you need an ombudsman now more than ever.  There are plenty of cats more qualified than me, so pick them if you want.  But none of them wants it more than me.

Urban Redneck's picture

Gordon Gekko is unelectable- which is why he is the most desireable opponent from the Democrats' perspective (which they won't admit until the Republicans have formed their circular firing squad- same cliche, same idiocay, different party, same as the other party)  

macholatte's picture

Romney is not a Republican

Barry is not a Democrat.

They're both Progressives wearing different lies.

MrBoompi's picture

So true.  These so-called leaders take their orders from people who are neither Democrats nor Republicans.  They are oligarchs, and only oligarchs.  And you either play their way or you get nowhere.  Fascism, totalitarianism, or corporatism are old school terms.  We need a new term to describe the submission of the "free" world's politicians to the financial elte.



q99x2's picture

As I've heard it Mitt Romney follows one leader that was so odious to the common folk, the townspeople, that they had to break into the jail he was being held/protected in just to kill him. I think that guys name was Joseph Smith. Another he is working with is ... well he is a good follower.

Au_Ag_CuPbCu's picture

The funny thing is that the hi-jacked MSM tried to ignore Ron Paul, and had Santorum and Bachmann as actual contenders LOL! That's better than anything MDB can come up with.

That's a direct challenge MDB...bring it!


saints51's picture

who do they poll to get these results?

I have to ask because who in the hell would even vote for Obama. And don't say the blacks because I know a lot of them who regret their vote and are not even considering it. Got some black friends that tell me they are democrat in the day and republican at night....interesting.

eddybaby's picture

Incredible, yet the good ship S&P still sails onwards.... 

WonderDawg's picture

Probably not for much longer. We've either hit an important high this week, or we'll have another little pop higher, and then the markets roll over. We're at a very significant point in the markets right now. I'll go out on a limb and say we've either already hit the high for the year, or we will within the next week. Yes, I said high for the year.

ghostfaceinvestah's picture

Exhibit A of why to own physical gold

Boston's picture

In addition to making the rational/analytical case for gold, data like this should help with the emotional aspects of major price corrections in gold.

Data like this, when it fully sinks in, should help provide the confidence to 1) ride out the pullbacks when you're already long, and 2) buy more---a lot more---physical when the pullbacks become fierce.

Not that I'm predicting that gold will fall so low, but on the off chance that it does, I'm prepared---mentally---to buy down, in growing quantities, all the way to $1,000, and lower.  The more it falls, the happier I will be, despite any temporary and unrealized losses during the process.

chump666's picture

Very good post. 

earleflorida's picture

amen to that brother,... amen

Irish66's picture

I agree and its simple to understand but infuriating.

Judge Arrow's picture

8 Trillion straight up and then the rocket runs out of the fuel sucked from the GDP tanks. We should feel the effects of a very unpleasant re-entry it would seem, in oh, about - a year?

Jim in MN's picture

Before the election, or after?

How many licks DOES it take to get to the center of a Tootsie Pop?

UP Forester's picture

Uh, I'm thinking more like Challenger than Columbia....

knukles's picture

Print on, dude.

Caviar Emptor's picture

25% of everything you own belongs to The Fed. 25% of everything you eat, everything you ever learned, and 25% of your inner body parts since government pays for most of healthcare. 

Bernanke's new plan to hold regular public press conferences for "transparency" is just a transparent attempt to also control 25% of your mind. You will soon receive papers in the mail which you must sign and return, stating that you think you are being treated fairly by The Fed. 25% of your safety depends on it. 

Teamtc321's picture

This post game show will certainly have fire work's. 

kito's picture

That flat line at the end of the upward curve will continue to flatten because Ben ain't printing........

Tyler Durden's picture

You seem to have completely missed the point of the article. It is not about the Fed or the ECB or the BOJ in isolation. These are essentially the same entity. They print in isolation, leading to a relative devaluation of currencies, or combined, leading to an absolute devaluation against hard currencies like gold. The point is one or all - they can't stop printing. Look at the first chart which shows the combined assets - it is exponential.

And incidentally, of course the Fed will print.

kito's picture

15 minute timeout for me...Tyler has intervened...... :).

NotApplicable's picture

ZIRP4EVA, kito. It's their only choice. They kill off the markets that they monetize, while trying to avoid the consequences personally.

hedgeless_horseman's picture



They print in isolation, leading to a relative devaluation of currencies, or combined, leading to a absolutely devaluation against hard currencies like gold.

As I have been saying, it is no longer a competitive race to the bottom, but rather synchronized diving.