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The Next Wave of Debt Monetization Will Also Be A Disaster

November 20, 2019

The Next Wave of Debt Monetization Will Also Be A Disaster

According to the IMF (International Monetary Fund) and the IIF (Institute of International finance) global debt has soared to a new record high. The level of government debt around the world has ballooned since the financial crisis, reaching levels never seen before during peacetime. This has happened in the middle of an unprecedented monetary experiment that injected more than $20 trillion in the economy and lowered interest rates to the lowest levels seen in decades. The balance sheet of the major central banks rose to levels never seen before, with the Bank Of Japan at 100% of the country’s GDP, the ECB at 40% and the Federal Reserve at 20%.

If this monetary experiment has proven anything it is that lower rates and higher liquidity are not tools to help deleverage, but to incentivize debt. Furthermore, this dangerous experiment has proven that a policy that was designed as a temporary measure due to exceptional circumstances has become the new norm. The so-called normalization process lasted only a few months in 2018, only to resume asset purchases and rate cuts.

Despite the largest fiscal and monetary stimulus in decades, global economic growth is weakening and leading economies’ productivity growth is close to zero. Money velocity, a measure of economic activity relative to money supply, worsens.

We have explained many times why this happens. Low rates and high liquidity are perverse incentives to maintain the crowding out of government from the private sector, they also perpetuate overcapacity due to endless refinancing of non-productive and obsolete sectors t lower rates, and the number of zombie companies -those that cannot pay their interest expenses with operating profits- rises.  We are witnessing in real-time the process of zombification of the economy and the largest transfer of wealth from savers and productive sectors to the indebted and unproductive.

 …click on the above link to read the rest of the article…

Global Debt To Hit All Time High $255 Trillion, 330% Of World GDP

November 16, 2019

Global Debt To Hit All Time High $255 Trillion, 330% Of World GDP

There are three certainties in life: death, taxes and that global debt will keep rising in perpetuity.

Addressing the third, yesterday the Institute of International Finance reported that global debt has now hit $250 trillion and is expected to hit a record $255 trillion at the end of 2019, up $12 trillion from $243 trillion at the end of 2018, and nearly $32,500 for each of the 7.7 billion people on planet.

“With few signs of slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,” the IIF said in the report.

The surge was driven by a $7.5 trillion surge in the first half of the year which was used to reverse the global slowdown that sent stocks into a bear market in 2018, and which shows no signs of slowing. Around 60% of that jump came from the United States and China. Government debt alone is set to top $70 trillion this year, as will overall debt (government, corporate and financial sector) of emerging-market countries.

The total debt breakdown as of Dec. 31 is as follows:

  • Household debt: $47.9 trillion
  • Non-financial corporate: $75.7 trillion
  • Government: $70 trillion
  • Financial corporate: $61.7 trillion

And this is what the total debt picture was like at the start of the century, 20 years ago…

… and again today:

This amounts to a grand total of just over $255 trillion, roughly equivalent to a record 330% of global GDP.

WATCH: Follow the increase of global #debt over two decades.

Latest IIF Global Debt Monitor finds global debt has now surpassed a record $250T & is projected to reach $255T by the end of 2019. pic.twitter.com/D001VVzZmD— IIF (@IIF) November 14, 2019

Separately, Bank of America’s Michael Hartnett on Friday calculated that since the collapse of Lehman, government debt has increased by $30tn, corporates debt by $25tn, household by $9tn, and financial debt by $2tn; And with central banks expected to support government debt, BofA warns that “the biggest recession risk is disorderly rise in credit spreads & corporate deleveraging.”

 …click on the above link to read the rest of the article…

As Global Debt Hits A Record $247 Trillion, The IIF Issues A Warning

July 11, 2018

As Global Debt Hits A Record $247 Trillion, The IIF Issues A Warning

Every quarter the Institute of International Finance publishes a new number of the total amount of global debt outstanding, and every quarter the result is the same: a new record high

Today was no exception: according to the IIF’s latest Global Debt Monitor, the amount of debt held in the world rose by the biggest amount in two years during the first quarter of 2018, when it grew by $8 trillion to hit a new all time high of $247 trillion, up from $238 trillion as of Dec. 31, 2017 and up from by $30 trillion from the end of 2016.

In other words, there is now a quarter quadrillion dollars in global debt, and it represents 318% of global GDP. More concerning is that this was the first time since Q3 2016 that global debt to GDP increased, suggesting that the marginal utility of debt is once again below 1.

This is how the debt is broken down as of Q1 2018 and compared to Q1 2013:

  • Non-financial corporate debt: $74 trillion, up from $58 trillion in 5 years
  • Government debt: $67 trillion, up from $56 trillion
  • Financial debt: $61 trillion, up from $56 trillion
  • Household debt: $47 trillion, up from $40 trillion

And visually:

Some more details from the report, via Bloomberg:

  • The government debt-to-GDP ratio has surged to 101 percent in the U.S.
  • Non-financial corporate debt is now at record highs in Canada, France and Switzerland
  • Household indebtedness in China, Chile and Colombia grew over 3% since Q1 2017, topping 49%, 46% and 30%, respectively.

What was surprising about the report – certainly not the latest all time high debt numbers, those are now standard – is that the IIF voiced a strongly negative opinion of recent developments in the debt arena.

…click on the above link to read the rest of the article…

High Priests of Global Finance Stoke Emerging Market Fears

October 5, 2015

High Priests of Global Finance Stoke Emerging Market Fears

Two of the most important guardians of global finance, the IMF (International Monetary Fund) and the IIF (Institute of International Finance), gave their verdict on the current state of the global economy this week. And their message could not be clearer: beware the dreaded fate of emerging markets.

The World According to A Prestigious Club of Global Banks

The IIF warned this week that hot money is pouring out of emerging markets at a startling rate, primarily on the back of China’s crunching slowdown and rising fears of a looming US rate hike.

Before we go any further, here’s a caveat: The IIF is a prestigious “club of global banks.” After the Club of 30, it is arguably the most powerful financial lobby association on the planet. It is also one of the strongest proponents of self-regulation in banking, a major cause of the Global Financial Crisis. Could an organization like the IIF have ulterior motives?

This year capital outflows from emerging economies will surpass inflows for the first time since 1988. Residents sending cash out of the emerging markets has accelerated amid recent financial market volatility while at the same time foreign investment is set to nearly halve from $1,074 billion in 2014 to just $548 billion this year.

The countries most at risk are those with high current account deficits, pronounced levels of corporate debt denominated in foreign currencies, and extreme political uncertainty. Brazil, whose currency has suffered a 30% currency depreciation this year, and Turkey (15%) are among the nations “in this situation,” the report warns. The nation most at risk is Venezuela, which (according to estimates by US financial firms) is currently suffering annual inflation of 120%. The country’s risk of default is “extremely high” and could even happen as early as 2016, warns the IIF.

…click on the above link to read the rest of the article…

How Bad Can This Get, And How Fast?

October 3, 2015

How Bad Can This Get, And How Fast?

There’s so much negative real bad economic and financial news out there that it’s hard to choose a ‘favorite’, but I guess I’m going to have to go with what underlies and ‘structures’ it all, the IIF stating that for the first time since 1988 and the Reagan presidency, there’s more money flowing out of emerging markets than there’s flowing in. That is for sure a watershed moment.

And no, that trend is not going to be reversed either anytime soon. Emerging economies, even if they wouldn’t include China -but they do-, have relied exclusively on selling ‘stuff’ to the rich world which combined cheap commodities with cheap labor, and now they see their customer base shrink rapidly just as they were preparing to harvest the big loot.

Now, I hope I can be forgiven for thinking from the get-go that this was always a really dumb model. That emerging nations would provide the cheap labor, and the west would kill of its manufacturing base and turn into a service economy.

This goes very predictably wrong if and when we figure out that A) economies that don’t manufacture anything can’t buy much of anything, and B) that we can sell those services our economies are ‘producing’ only to ourselves, as long as the emerging nations maintain a low enough pay model to make their products worth our while to import.

It makes one wonder how many 6 year-olds would NOT be able to figure this out. In the same vein, how many of them would be hard put to understand that our economies, overwhelmed by, and drowning in, debt, cannot be rescued by more debt? Here’s thinking the sole reason so many of us don’t get it is that we’ve been told it’s terribly hard to grasp, and you need a 10-year university course to ‘get it’.

…click on the above link to read the rest of the article…

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Olduvai II: Exodus
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