Here's a follow up to our recent "The Unexpected" post, financialspuds.blogspot,
about why central banks have been and are on the wrong track and just a few of the dangers of what's ahead, one of which is the central bank agendas mentioned. zerohedge.com/news/2016-07-20/worlds-central-banks-are-making-big-mistake.
One thing we don’t have to wonder about is the impact of rising debt. The world is just as addicted to debt today as it used to be addicted to OPEC oil. You might think the pace at which we take on debt would slow as regulators crack down post-crisis. Not so.
Total debt in all categories (except households, whose debt has shrunk only a very little in the advanced economies since 2010) is still growing at a steady clip relative to GDP.
The right-hand chart above shows global debt growing. Pretty much everyone is in hock to someone. Pay down private debt, and government debt goes up. Reduce government debt, and household debt rises. This is what addictive behavior looks like. Forget heroin and OxyContin; debt is the world’s favorite drug by far.
Periodically, addicts concerned about outcomes try to get clean. The results are never pretty at first. Our politicians, unwilling or unable to go through the painful detox process, always go back for another fix. Dealers are always happy to provide. The dealers, in this context, are banks—and central banks more than private ones.
This addiction to debt is one reason we keep having market tantrums. Last year, people got concerned about China. Before that it was Greece. Now China is off the radar (even as its currency drops more than it did during our tantrum last summer); and we’re obsessed with the UK, Germany, and Italy.
BIS says the results of this oscillating calm and turbulence are troubled equity markets, wider creditspreads, a stronger dollar, and lower long-term interest rates.
We forget that debt used for consumption doesn’t create new supply. It simply pulls supply forward in time. The problem is that debt can’t do this forever. Pulling your consumption forward to the present means you will consume less later.
What's the author is discussing here is the difference between productive versus non-productive debt. If you buy another pair of blue pumps on credit just because you like them not because you need them and toss them in the closet with your other 97 pairs, that's non-productive debt. That's the history of American consumption and what MSM and its elitist supporters are currently criticizing consumers for not continuing like they have in the past. It's called amok Keynesianism.
Americans has been the global consumers of last resort. If you think not just visit one of your aging friend's or parent's garage. Hopefully, that is ending. Now that consumers are reluctant to take the usual scraps that MSM and the higher ups always toss their direction in downturns, the fear spreads. Everyday we get closer to point, set, match for a system that is really bankrupt. That's what Brexit is about, Trump traction is about and a whole host of others problems on the global scene including those bankrupt Italian banks and the arrogance of EU bureaucrats. And don't forget political correctness.
China is an economic mess and Japan has been one for years. There is more air in some global property and stock markets than there was in the old Goodyear blimp. You should recall governments always ask their subjects to tighten their belts to help those governments out. But when if ever is the last time they tightened theirs to help you out?
What needed is a good cleansing, like a giant global colonic, high, hot and a lot. A good place to start is those Italian banks. Then the EU. From there just follow your instincts.They won't lead you astray.
about why central banks have been and are on the wrong track and just a few of the dangers of what's ahead, one of which is the central bank agendas mentioned. zerohedge.com/news/2016-07-20/worlds-central-banks-are-making-big-mistake.
One thing we don’t have to wonder about is the impact of rising debt. The world is just as addicted to debt today as it used to be addicted to OPEC oil. You might think the pace at which we take on debt would slow as regulators crack down post-crisis. Not so.
Total debt in all categories (except households, whose debt has shrunk only a very little in the advanced economies since 2010) is still growing at a steady clip relative to GDP.
The right-hand chart above shows global debt growing. Pretty much everyone is in hock to someone. Pay down private debt, and government debt goes up. Reduce government debt, and household debt rises. This is what addictive behavior looks like. Forget heroin and OxyContin; debt is the world’s favorite drug by far.
Periodically, addicts concerned about outcomes try to get clean. The results are never pretty at first. Our politicians, unwilling or unable to go through the painful detox process, always go back for another fix. Dealers are always happy to provide. The dealers, in this context, are banks—and central banks more than private ones.
This addiction to debt is one reason we keep having market tantrums. Last year, people got concerned about China. Before that it was Greece. Now China is off the radar (even as its currency drops more than it did during our tantrum last summer); and we’re obsessed with the UK, Germany, and Italy.
BIS says the results of this oscillating calm and turbulence are troubled equity markets, wider creditspreads, a stronger dollar, and lower long-term interest rates.
Something has to give
Debt is future consumption brought forward. Once debt is incurred, consumption that might have happened in the future won’t happen. And it should come as no surprise that at a certain debt level, growth and income begin to diminish. That is exactly what we are seeing in the real world. There are basically two categories of debt: debt used to purchase or create productive activities (like tools for a carpenter or a new factory for a business) and debt used to consume.We forget that debt used for consumption doesn’t create new supply. It simply pulls supply forward in time. The problem is that debt can’t do this forever. Pulling your consumption forward to the present means you will consume less later.
What's the author is discussing here is the difference between productive versus non-productive debt. If you buy another pair of blue pumps on credit just because you like them not because you need them and toss them in the closet with your other 97 pairs, that's non-productive debt. That's the history of American consumption and what MSM and its elitist supporters are currently criticizing consumers for not continuing like they have in the past. It's called amok Keynesianism.
Americans has been the global consumers of last resort. If you think not just visit one of your aging friend's or parent's garage. Hopefully, that is ending. Now that consumers are reluctant to take the usual scraps that MSM and the higher ups always toss their direction in downturns, the fear spreads. Everyday we get closer to point, set, match for a system that is really bankrupt. That's what Brexit is about, Trump traction is about and a whole host of others problems on the global scene including those bankrupt Italian banks and the arrogance of EU bureaucrats. And don't forget political correctness.
China is an economic mess and Japan has been one for years. There is more air in some global property and stock markets than there was in the old Goodyear blimp. You should recall governments always ask their subjects to tighten their belts to help those governments out. But when if ever is the last time they tightened theirs to help you out?
What needed is a good cleansing, like a giant global colonic, high, hot and a lot. A good place to start is those Italian banks. Then the EU. From there just follow your instincts.They won't lead you astray.
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