Vicious Cycles Persist As Global Lending Standards Tighten

Tyler Durden's picture

One of the major factors in the Central Banks of the world having stepped up the pace of flushing the world with increasing amounts of freshly digitized cash is writ large in the contraction in credit availability to the real economy (even to shipbuilders). Anecdotal examples of this constrained credit are everywhere but much more clearly and unequivocally in tightening lending standards in all of the major economies. As Bank of America's credit team points out, bank lending standards to corporates have tightened globally in Q4 2011 and the picture is ubiquitously consistent across the US, Europe, and Emerging Markets. Whether it is deleveraging, derisking, or simple defending of their balance sheets, banks' credit availability is becoming more constrained. While the Fed's QE and Twist monetization and then most recently the ECB's LTRO has led (aside from self-reinforcing short-dated reach-arounds in BTPs and circular guarantees supposedly reducing tail risk) to nothing but massive increases in bank reserves (as opposed to flowing through to the real economy), we suspect it was designed to halt the significantly tighter corporate lending environment (most significantly in European and Emerging Markets). The critical corollary is that, as BAML confirms, the single best non-market based indicator of future defaults is tightening lending standards and given the velocity of shifts in Europe and EM (and very recent swing in the US), investors reaching for high-yield may be ill-timed at best and disastrous credit cycle timing at worst (bearing in mind the upgrade/downgrade ratio is also shifting dramatically). Liquidity band-aids are not a solution for insolvency cardiac arrests as the dual vicious cycles of bank and sovereign stress remain front-and-center in Europe (with EM a close second) and the hope for real economic growth via credit creation kick-started by an LTRO is the pipe-dream the market is surviving on currently.


The US recently shifted from slight softening to tightening standards while at the same time, Europe and the Emerging Markets have tightened standards quite significantly. Furthermore, the dispersion in European markets is much less than one would expect with only Germany really holding steady as the rest (including other core nations such as France) are tightening aggressively.

The reason this is such a concern is the leading nature of this indicator for high yield defaults. But it is not simply the high yield bond investor directly who will suffer, it is the real economy that faces significant drops (largest since data began in 2003) in Euro-area loans to non-financial corporates  (noted in Barclay's chart below) as a dearth of credit-worthy borrowers combined with banks unwilling (and almost implicitly pushed away from direct lending to the real economy via carry trades, capital needs, and closed private debt markets) leave sbanks squandering the cash (and rightfully so in their risk-managing minds).

Clearly this impact has already been felt across European economies in terms of growth and jobs and while throwing more money at the problem (LTRO 2.0) may be the choice of the Kenynesian kleptocrats, it should seem obvious from Japan's bank reserves (and balance sheet recessionary debt minimization versus profit maximization), the US huge rise in bank reserves and drop in lending (and Keynesian multipliers) that the European efforts will merely get swallowed up in the bank balance sheets never to see the light of day in the real economy.

This leads us back to LTRO as a liquidity band-aid on an insolvency cardiac-arrest as the austerity focus drags any growth prospects into vicious spirals, as illustrated here by a recent Barclay's presentation.

The hope, as they note, is that the LTRO can do more than just fix banks balance sheets (and create a self-aggrandizing demand for local government debt as the all-in ultimate bet of all time) and actually has an impact on the real economy via lending and credit creation...we wait with baited breath for the disappointment to wash over a stunned economist and politician audience.

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jarboejl's picture

Been quiet for a while.  I knew Tyler was cooking up something good!

Hugh G Rection's picture

Off topic....well, maybe not.


Jumping the thread to spew some shit.

Israelis arrested on 9/11 for 1) celebrating the attacks 2) blowing up a van on King St. and 3) caught trying to blow up the GW bridge???? watch?v=3aKj6uJ5Mt4&list=FLttU-lPuKrF73VJzvgjGdZg&index=13&feature=plpp_video

Hugh G Rection's picture







Michael's picture

Ron Paul's organization are to try a bit harder keeping the inside info to themselves.

The words coming out of Ron Paul's mouth are not like the words coming out of any of the other candidates mouths.

CNN Catches Up To Ron Paul In Nevada For A Quick Interview 02/01/2012!

Oh regional Indian's picture

I think the Rand Paul incident in Tennessee was a tell as to what the establishment can do with RP and RP when they want to. A shout out, so to speak.

But on topic, here in India, credit runs funny.

a) Big company with foreign tie-up looking to expand, you got all the money in theworld at your disposal.

b) Openign a retail establishment? Even if it is the 6th coffee shop on the same street? Banks will give you money, easy.

c) Salary man? Three pay-slips available? Everything is available to you, on credit, punishing rates of course (most with floating teasers)

d) Got a failing renewable energy model? Windmills, Solar farms? Well, as long as the Chief Minister is your uncle, money no problem.

e) And this is the scariest.... Never traded Forex? No problem, here is a fat margin account...

It's all upside down and broken and the pigs are at the swill, swilling away.

And anyone just needs to hark back to 1929/39, when credit was tightened...rather debt standards were tightened.... like a hangman's noose, all hope left the economy and the minds of people.

Old playbook...saw it play out in the us from 1998-99 through 2006. The repeat is almost exact, just time-shifted.



Hugh G Rection's picture

Who gives a shit about India Our Regional Idiot???


Make sure the slurpee machine is full, the magazines are displayed aptly, and get the fuck out the way!

You realize a "Mumbai style attack" would have lasted 5 minutes in my neck of the woods?  Some douchebag running around with an AK would have his head split by any number of pissed off patriots with itchy trigger fingers.

Michael's picture

"You don't want to bail out the big banksters" ie Ron Paul. True?

This is absolute MUST SEE VIDEO to see the genius of Dr Ron Paul;

Ron Paul interview on "Face to Face with Jon Ralston" - Local Nevada News (February 1, 2012)!


Michael's picture

Dr Ron Paul is the only President who will let you know everything about his entire life.

Oh regional Indian's picture

Hey Huge Douchebagwhocannotgetitup, India is an emerging market. From the article which you obviously did not read...


"we suspect it was designed to halt the significantly tighter corporate lending environment (most significantly in European and Emerging Markets)"


As for the Mumbai style attacks..... sure, I see you all pulled together to stop Waco, eh? or can? 

Your own government is the biggest terririst and dick-heads like you with overblown egos (or worse yet, veterans who have gone and shot and blown-up countless innocents world-over) sit twiddling your brave trigger fingers.

Take your jingoistic superiority and shove it where the sun never shines.

You name speaks volumes for you anyways.


Hugh G Rection's picture

Ya... India is an emerging market....


HAHAHAHAHAHAHAH.  Minoring in dog shit cultures I was tasked with reading "the city of joy" and learning about the wonderous caste system of India, shitting where you washed your 1 pair of clothes, and how to cook 6 day old roadkill from the last pullcart to run over a rat last week.


I agree with Slewie.  You can wheez your own juice.  I have no jingoistic superiority... just life experience.  Unlike a defeated culture that gets victimized by a handful of douchebags with cheap Chinese rifles.... My brothers will never be victimized by trash running around spraying helpless people.  From my cold dead hands Habeeb.

Hugh G Rection's picture

(shakes head in a manner inconclusive as to agreement or disagreement.)

economics1996's picture

ORI is trying to add something to the conversation, about his area of the world, and you are a dick.  Do I fucking care about India?  Not a lot but it is a interesting take on what is happening.  In 20 years the tables could be turned.  Wherever the manufacturing jobs go so goes the economic and political power. 

Stuck to your Joow bashing asshole.

jeff montanye's picture

you are giving anti-zionism a bad name through obvious anti-anyone different from you.  get a clue.

Hugh G Rection's picture



Wolf Blitzer proves... if you're half a fucking retard (see his appearance on Jeopardy) you can still have your own MSM show, as long as you're a Jew.  Ron Paul is the last hope to awake from this ZOG nightmare, and he won't get the bid.  I will write him in no matter what... but we are WAY passed voting out of our problems. 


What we NEED, is the Military to step in.  We need a Smedley Butler/s to step up and speak truth about 9/11 and the infiltration of our Government by Zionist agents.  Under NDAA, a Major General would have the power to extradite the likes of Zakheim, Wolfowitz, Perle, et al... straight to Gitmo for an intense round of truth by waterboarding.  Ooooo the irony of using their own Orweilian bullshit against them.  I would pay $50 on pay per view to see that shit.  The day Israel realizes they fucked the wrong country in the ass is the day i dance the jig.

Michael's picture

Don't worry about ZOG, don't worry about the Jews, they are over represented in the financial sector and will be over represented in the unemployment line soon enough, as in what comes around goes around. The complete and total worldwide economic collapse will take care of that.

Don't drag Dr Paul's name into this Jew bashing conversation as it is irrelevant at this point, and the Use of the US Constitution negates the need to engage in such folly as people are placed in individual compartments and not in groups, making it impossible to bash groups as groups no longer exist in the real world and in a Paul administration! 

Hugh G Rection's picture

Never underestimate your enemy Michael!

Financial Services Industry... are you sure that is the extent of it????

Probe deeper my friend.  How was Mossad able to pull off the attack? Chertoff and his ilk were highly placed sayanim, ready to whitewash the truth.


Michael's picture

All this is taken into account. We have names, addresses, and all property locations of the real evildoers who are on the list to be dealt with.

Hugh G Rection's picture

Just make sure Dov Zakheim is at the top of that list.

Systems Planning Corporation.

Pentagon Comptroller.

PNAC Asshole.

Hugh G Rection's picture


ORI I was trolling you for the sport of it.  If Tyler would clear my second account I wouldn't have to troll from my primary! 

C'mon Tyler approve my Troll Account!

Michael's picture

It's amazing what you can dig up on the Internet, and everybody has access. I'm talking 3D satellite imagery and everything.

vast-dom's picture

and asian markets up nearly 2% across the board tonight....insane!

lewy14's picture

Scarier that it's crazy - or scarier that it's not crazy?

Consider: perhaps it's dawning on Asia and those who invest there that the RMB is perhaps _not_ going to the moon, that in fact (per Michael Pettis et al) it could actually devalue, and that (therefore) equities are more attractive. Just a thought.

Dollar negative news here gooses equities. Why not in China?

Darkness's picture

The Federal Reserve has been doing this for decades. It has always been only a matter of time before it caught up with them. 


Time to be Bullish on Gold and Ron Paul

bob_dabolina's picture

Best trades on the net. 

Stevie Cohen can lick this...


;) rawr

mattu13048's picture

Armada Markets had a good point about all of this in their weekly market forecast. Basically there will shortly be no eurozone anymore. Time to buy stocks of funeral companies.

Jefferson's picture

I thought the whole point was to get rid of the private credit markets, destroy the entreprenurial classes and put everybody on the government dole sucking up to Big Brother. Looks to me like things are going according to the Plan.

ebworthen's picture

What incentive do the banks have to lend?

They are hoarding cash and still handing out bonuses.

The more "trouble" the banks get in, the more governments and central banks "ease" or give them money at 0.05% interest and ZERO prosecutions or perp walks for slipshod practices and outright theft.

What is to motivate them?

lewy14's picture

The problem is that they need the other side of their balance sheet. They have to own "something". The asset side of their BS is getting steamrollered by the Fed's pushing the ZIRP window wide open years into the future. There is a shortage of good collateral.

There is a surfeit of bad collateral. That would be crap loans and new loans (which are crap, because all the good cash flows are taken now). 

Does anybody really believe that if a new, credible cohort of cash flows came knocking at the doors of the banks that they wouldn't be accommodated? 

I may be wrong. But I'm seeing this as a supply problem - nobody is bringing stuff into the pawn shop that's worth hawking.

Acet's picture

The main purpose of the modern corporation is to hide and excuse the actions of individuals. Outright psychopatic actions are done under the excuse of boosting corporate profit and are sold as "the company did it" covering up for the individual that took the decision and those that carried his orders.

People need to be reminded more often that "banks" have no opinion and make no choice - it's the bankers that do the choosing.

We're in the shit-hole we are in because of the choices and actions of people.


ss123's picture

I asked this on another thread, but will ask again, more bluntly this time:

Where in the fuck is all this parabolic 'money' going?

lewy14's picture

Memory. It's going into memory. Used to be hard drives, now increasingly SSDs.

[That guy? That guy who says guns don't kill people - bullets do! I am that guy.]

Acet's picture

Out of the top of my head I can see 3 places where this money would be flowing to:

  • Into price inflation, so everythings costs more dollars and each dollar is worth less.
  • Into bank reserves parked at the Fed.
  • Abroad to pay for things that the US imports, eventually ending as foreign dollar reserves. As long as other countries continue to hold and accumulate dollar reserves, they serve as a sink for new dollar money (which would otherwise go mostly into inflation)

The last point is important and something that at the moment only the US has. Notice, for example, that when the Bank of England printed money in 2 QE actions it overwelmingly ended up in inflation (which is about 5%).

If the dollar looses it's state as a reserve current and the currency of choice for international trading, then all this new money will flow into US inflation, quite possibly triggering a widespread loss of confidence in the dollar and thus hyperinflation.

ebworthen's picture

It goes places like this:

Interesting tidbit - Henry "Hank" Paulson's $4.6 million dollar home was previously owned by non other than Jon Corzine.

Hank and Jon are probably using some of their ill-gotten gains to look for luxury homes on tropical beaches.

non_anon's picture

'gasp', can't breath

Sandmann's picture

The whole story of the past few decades has been the rise of Intermediaries to Principals - whether Banks, Telecoms Companies, Law Firms, or Facebook. Service businesses supposedly servicing the needs of business and households have emerged to feel everyone else is there to service their needs, not least of which is Politics which bizarrely since 2007 has chosen to sacrifice the REAL economy to preserve the privileges of Bankers - like some insolvent aristocracy . As a Supreme National Effort saving institutions wrecked by Fraud and Incompetence hardly merits the scale of commitment, which is probably decades of poverty for the general welfare

q99x2's picture

Great late night article. The banks know what they are doing. It is the same each time. Give us everyone's money or face catastrophy. 

When do we get to see the first scapegoats? I'm waiting to see who turns on who first.

They seem ready to distract us with something scary as an alternative.

A few movies about the possible and probable outcomes that are the result of banker financial terrorism might help at this point.

Documentaries/movies could spawn a sense of social responsibility, create a desire to re-establish rule of law and provide other beneficial options.

Maybe hope this time is one cycle too late. 

cnhedge's picture

the tightening standards will be manifested by the europe crisis.

BlackholeDivestment's picture

 Chairsatan's drunk Hell's Angels knock down the construction worker and then they get pulled over on their Vicious Cycles, after pushing the Middle Class Mods into the ditch, and the Hitchhiker ends up on the back of a Push Scooter on the road to the Great Wal Mart of China.

Monedas's picture

You guys are getting too serious !  Thank God we have another SE Asian (New Guinea this time!) ferry boat sinking to lighten the mood and provide a little comic relief !     Monedas  2012  Certified Zero Manifesto Poster

PMakoi's picture

My Grandmother told me that during the Great Depression, it wasn't that there was a shortage of food (picture the apple peddlers on the streets), but that no one had any money to buy anything.

Where did the money go?  Maybe just like the times we are facing now, the "money" just didn't exist. 

BlackholeDivestment's picture

...there is an official term for that PMakol, ''Vaporized'' 


Quantitative Easing AKA Vaporization


Vampyroteuthis infernalis's picture

the "money" just didn't exist.

PMakoi, what your grandma told you concerning her point-of-view was true. The masses of people had no money, but the wealthy did. There was food available to the few who could afford it. When corporations start defaulting in mass numbers, all of those poor loans will be wiped off of the investor's books instantly as fiat money vanishes. It will be monstrously deflationary.

falak pema's picture

Ostensible deleveraging of debt fed asset levitation, with the QE3 spiggot wide open and concomitant LTRO splurging in Euro zone, will make biflation a common day global reality. The Corporates are now regrouping in the real economy like the Glencore/Xstrata merger; to get their monopolisitc hands on hard assets, all the while feeding the asset bubble by their very acts. As their intentions are not to solve the world's asymmetric construct between first world debt and new world surplus, impossible equilibrium, but to plunge it deeper into distortionist dystopia, to heighten existing fault lines even more; be it the very scent of irresistible perfume that  fuels their personal hubristic urge feeding the bonfire of uber-alles vanity binge now hurtling like runaway wagon train to nowhere but hell. 

Facebook puts out a claim to Internet 2 monopoly with a 5 billion first tranche teaser to up the ante for the next round with the GS shills as lead bankers orchestrating the band playing sweet Vienna waltzes on this new corporate Titanic in the making, while the world economy is baking in the oven of Weimarista fiat bubblenomics. 

What an eerie feeling of morn dawn the rich world wakes up to every day...a litte less richer, a lot more in debt, its belly retching the rising stink of mindless, unhealthy, diabolicoecological over-eating unimpaired by basic decency; as hyperconsumerism is the respected mantra of the age; all engonced in financial purple, all blessed by Congressional approval. 

We look on in bewilderment as the most powerful nation of the world ratchets up its traditional four year election charade. The Repubniks now looking like the hoard of Barbarians at the gates of civilization; here an Odoacer, there an Alaric, and on the horizon the banners of Attila the Hun wave their ominous totems of bloody reckoning in the making. Rambo mania and Terminator hysteria, will they be the outcome, the road to inevitable Armageddon?

Meanwhile the second pillar of immobility sweats in dire recession, flamed by obsession to defend a hybrid, five legged and twenty headed monetary construct making Euro zone Gulliver land all tied down to immobile ground in Lilliputian strands of impotence.

Plan A is save the Euro at any costs, fueling higher the cacaphonic dialogue in this tower of Babel, where now Germany towers like the Colossus of Rhodes of antiquity revisited. As Thomas Mann is alleged to have said : Germania is too big to not want dominating Europe, but too small to be able to achieve it...

Charlemagne's legacy still unfulfilled as France and Germany stay at loggerheads. Neither can dominate, only a European solution can prevail. It was de Gaulle's intuition but it stays sterile vision; from the Atlantic to the Urals! 

Who will build this common construct? Legacy of two thousand year quest since Julius Caesar. 

Is there a plan B visible for Eurozone; where each nation state can find its own economic competitivity by devaluing relative to the MAster continental currency, which is used COMMONLY for all EXTERNAL transactions while, intra-euro trade is restructured around new national currency alignment which takes into account the North South economic paradigm divide. 

Now there is a project that these dumb Euro technocrats and the elected leaders of nation states should contemplate to reinject some dynamism into Euro Doldrums, whose current momentum will make Euro burn and Eur$zone be condemned to social destitution and worse. No amount of ESM/EFSF can kicking can save the current construct, as the fire fighting hose pump is totally insufficient and will end up by becoming the proverbial, pierced barrel of legendary Danaides; whose daughters were condemned to replenish it incessantly!

This Plan B proposal has been put on the table but can it even be debated in the convoluted hysteria and knee-jerk decision-making atmosphere of current Merkozy land? 

Your guess is as good as mine! But time waits for no friend or foe, once the hand has moves on! So said Khayyam!

Ghordius's picture

"Neither can dominate, only a European solution can prevail" - Correct. The New Concert of Europe. The Franco-German friendship is only one of the living parts of post-war Europe.


Economic turmoil? All this shall pass, too. Empires rise and fall. Their fiat currencies rise and fall with them, even more expendable then the Empires that they fuel. Meanwhile, as long as the European Sovereigns act in a sensible, grown-up way showing solidarity among them, there is a silver lining in the sky.

Even hyperinflations pass, or Brazil would not shine, at the moment, and it's only years since they experienced it. The diesel-like motor that is the real economy chugs along, and will with or without this immense turbo-booster that has been our current banking system. Which is expendible, too.


America, too, can show it's greatness again. Give them a crisis like they have not yet had and you'll see.

ebear's picture

"The diesel-like motor that is the real economy chugs along"

until we run out of