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Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains
Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains
But why is the credit impulse so critical?
To answer this question Citi’s Matt King has published a slideshow titled, appropriately enough, “Why buying on impulse is soon regretted”, in which he explains why this largely ignored second derivative of global credit growth is really all that matters for the global economy (as well as markets, as we will explain in a follow up post).
King first focuses on the one thing that is “wrong” with this recovery: the pervasive lack of global inflation, so desired by DM central banks.
As he notes in the first slide below, “the inflation shortfall isn’t new” and yet the current “level of credit growth would traditionally have seen inflation >5%”
To be sure central banks always respond to this lack of inflation by injecting massive ammounts of liquidity, i.e., credit, in the system: according to Citi, the credit addiction started in 1982 in the UK, while in 2009 it was in China. However, there was a difference: while in the 1982 episode, it took 3 credit units to grow GDP by 1 unit, by 2009 this rate had grown to 6 to 1. Meanwhile, central bankers “simply stopped worrying about credit.” That also explains the chronic collapse in interest rates starting in 1980 with the “Great Moderation” and their recent record lows: the world simply can not tolerate higher rates.
…click on the above link to read the rest of the article…
Changes to Total Global Credit Affects The Oil Price
Changes to Total Global Credit Affects The Oil Price
In some posts on Fractional Flow I have presented some of my explorations of any relations between the oil price, changes to global total credit/debt and interest rates. My objective has been to gain and share some of my insights of how I see the economic undertows that also influences the price formation for crude oil.
I have earlier asserted;
- Any forecasts of oil (and gas) demand/supplies and oil price trajectories are NOT very helpful if they do not incorporate forecasts for changes to total global credit/debt, interest rates and developments to consumers’/societies’ affordability.
In this post I present results from an analysis of developments to the annual changes in total debt in the private, non financial sector of some Advanced Economies (AE’s), and 5 Emerging Economies (EME’s) from Q1 2000 and as of Q3 2014 with data from the Bank for International Settlements (BIS in Basel, Switzerland).
The AE’s are: Euro area, Japan and the US.
The 5 EME’s are: Brazil, China, India, Indonesia and Thailand which in the post are collectively referred to as “The 5 EME’s”.
Year over year (YOY) changes in total private debt for the analyzed economies were juxtaposed with YOY changes in total petroleum consumption in these based upon data from BP Statistical Review 2014.
- As the AE’s slowed growth in, and/or deleveraged their total private debt after the Global Financial Crisis (GFC) in 2008/2009, the EME’s continued their strong growth in total private debt and China accelerated it significantly in 2009.
- The AE’s petroleum consumption declined noticeably as from 2007, resulting from the combination of high oil prices and tepid debt growth and/or deleveraging.
- The EME’s remained defiant to high oil prices and continued their strong growth in petroleum consumption, which likely was made possible by strong growth in total private debt.
- Demand remains what the consumers can pay for!
…click on the above link to read the rest of the article…
