::: ANALYSES 2015 :::

Commentary: 2015 1st quarter musings

April 2015

Sounding like a broken record

We all know that even broken watches can be right twice a day; writing my last musings, I appreciate how much my credit-bubble narrative of the past 15 years sounds like a broken record notwithstanding having proven accurate twice in 2002 and then again in 2008 when the tech and housing bubbles respectively popped. In both meltdowns central banks doubled-down with new credit and money-engineered injections to save the day and postpone the deleveraging of the 200 trillion global debt mountain (excluding entitlements), corresponding to a stunning 286% of global GDP and the annual 4-5% of GDP in new credit needed to service it. The law of compounding tells us that there is a concept such as peak debt in our future, probably closer than we assume, once markets break through the manipulation of financial repression. Central bank policy since the 90s has been to deleverage accumulated debts by inflating the asset collateral (increasing the denominator), also known as the Greenspan ‘put’, rather than by paying down debt the old fashioned way (decreasing the numerator). The problem is that debts keep accruing a good deal faster than nominal growth, effectively at multiples of economic growth when entitlements are accounted for. Never in the past were such levels of ‘promises to pay later’ accrued while the world keeps pushing the outer-limit of peak-debt and unfunded entitlements. Our current economic model assumes that debt don’t matter as long as future expected growth keep it sustainable, no matter how dismal real growth is eventually realized. (more)

2015 ANNUAL MUSING

December 2015/January 2016: The bubble is dead, long live the bubble

We all know that even broken watches can be right twice a day; writing my last musings, I appreciate how much my credit-bubble narrative of the past 15 years sounds like a broken record notwithstanding having proven accurate twice in 2002 and then again in 2008 when the tech and housing bubbles respectively popped.

In both meltdowns central banks doubled-down with new credit and money-engineered injections to save the day and postpone the deleveraging of the 200 trillion global debt mountain (excluding entitlements), corresponding to a stunning 286% of global GDP and the annual 4-5% of GDP in new credit needed to service it. The law of compounding tells us that there is a concept such as peak debt in our future, probably closer than we assume, once markets break through the manipulation of financial repression. Central bank policy since the 90s has been to deleverage accumulated debts by inflating the asset collateral (increasing the denominator), also known as the Greenspan ‘put’, rather than by paying down debt the old fashioned way (decreasing the numerator). The problem is that debts keep accruing a good deal faster than nominal growth, effectively at multiples of economic growth when entitlements are accounted for.(more)