CRASH2: ­ Time to give credit credit where credit is due

.Most short pieces, if they’re any good, take the longest time to compose. This one’s been bouncing about between draft and post since mid September when the first serious cracks began appearing in the Great Wall of China.

It’s a sort of Janet & John Go Getting Real.

Geopolitical oil­price games are a red herring. Credit-­fuelled producer/manufacturing investment has taken on debt in expectation of demand­-based recovery. That fails to recognise that such a recovery can only take off via consumer credit, and that credit is not (and cannot be) available until such time as old debt has been paid off, credit suppliers
have loose money and consumers have the confidence to take on debt with at least some degree of dynamic coincidence.

As Joseph Heller coined, it’s Catch 22.

None of the above features of the Dawn are anywhere near the level they need to be, nor will they now appear in unison for several years in some parts of the chain….because the debt levels are so high. Raw material gluts and consequently collapsing commodity prices are not temporary: they are based on a vicious circle of debt. It is not necessary to adopt a Michael Caine voice in order to add menace to the following facts:

* Both output and consumption have been brought forward by credit not just months but years ahead of the natural level: since 1990, producer and distributor capital expenditure have expanded by a factor of five ­ – or $170 TRILLION

* But over that same period, global gdp increased by only $5.5 TRILLION

* The investment to consumption imbalance today stands at 30. Wiping it out at 1% a day would take over eight years.

* However, the over­-Capexed and over-branched average publicly quoted multiple retailer can survive between 130 and 170 DAYS of uninterrupted sales dives before needing desperate credit to pay off Zirp-­fuelled debt.

* And the consumer boom required to avoid both producers and distributors hitting Greek levels of unsustainable debt would be impossible even if average Western wages hadn’t fallen 30% over the period: since 1995, Australian household debt has trebled, since 2011 American consumer debt has been growing at the rate of up to $683 billion per quarter, and the UK – with just 50 million adults – has the fourth-highest total household debt in the world.

* When the whole interrelationship starts to bounce back onto the banking system in terms of gone­bad assets, don’t expect them to stand upright: the Top ten corporate banking outfits have a b2b book risk­leveraged at between 30 and 40 times.

* Equally, don’t hold your breath waiting for Sovereigns to weigh in and help: not a single major player anywhere on Earth now has sound public finances: in an amazing spell of just 22 years, Chinese public debt has grown SIXTY times. A disturbing proportion of that has been spent just propping up the Shanghai index since October.

* The idea that We the People can fork out the difference is like smashing your five year-
old kid’s piggy bank in the hope of paying off a £700,000 mortgage default.

It is the strategy of people who simply can’t add up ­ people like Lagarde, Osborne, Schäuble and all the rest of the amateurs.

Herewith the unvarnished truth: neoliberal globalist monopolism and financialised business is, literally, eating itself. As I began writing five years ago, global debt forgiveness is the only answer. As I posted six years ago, Zirp was a cataclysmic error: we should’ve dumped the eternal
growth/bourse short-­termism model and put rates up. As I suggested three years ago, QE is a patch­up job designed to repair a dam using water. As I opined two years ago, the fabulously rich can only buy so many diamond­-encrusted olive ­stoners: whichever way you cut it, 3% of the populace cannot drive 97% of the economy. It is, ­ every last infantile element of it, ­ the economics of Bedlam.

Enjoy the commute home.

Earlier at The Slog: Gottercammerung or not?

23 thoughts on “CRASH2: ­ Time to give credit credit where credit is due

  1. To a degree you are right. If for example a crash led to 30% of the UK homeowners being unable to service their mortgages then something would be done. Debts would be reduced; forgiven; pushed down the road or whatever. A bank failing, well that’s one thing. A lot of the population (=voters) potentially being made penniless, now that’s a different thing altogether.


  2. When the crash cometh, I will be interested in where the monies held by the politicians, the connected and the 1% are hidden.

    We are not all in this together.

    Liked by 1 person

  3. Makes one wonder if the rush to a cashless society has anything to do with this? It’ll make it even easier to bleed us dry, it was always heading this way I suppose, I imagine that there are some who need time to convert their cash into tangible assets so, the plates will be kept spinning until all the ducks are lined up.

    Liked by 1 person

  4. The rise in junk bond yields indicates that a Minsky Moment could potentially hit us fairly soon. Yes, the Fed will raise rates on Wednesday but by March QE4 will be fired up as the global debt deflation starts to bite.


  5. Taking on debt is borrowing from the future – made possible by the expectation that future income will be sufficient to enable the debtor to pay off the debt. At some point, increases in debt reach a level at which the credit/debt system becomes a Ponzi scheme – one which requires unrealistic levels of future income to service (let alone pay off) the debts. We have long since passed into the Ponzi levels of debt.
    Most of the democracies of the passed the Ponzi level in the 1970s or 1980s. Deficit financing became the norm, for governments and individuals. The illusion of increasing prosperity for individuals has been maintained by vast increases in the availability of credit – exemplified by wallets full of credit cards. Governments increased their budgets and entitlement schemes by increasing their portion of GDP and by taking on debt. Each time there has been an economic downturn or financial crisis, central banks flooded the economies with liquidity, re-inflating bubbles. As bubbles inflated, apparent increases in wealth enabled more debt to be taken on, and thus enabled consumer spending. Consumption became the benchmark for measuring GDP.
    In the meantime, wages and incomes in most democracies stagnated. Manufacturing facilities and wage earning fled to Mexico and Asia, while consumption continued in North America and Europe. Easy credit enabled consumption to continue in the absence of growth in earned income. Quixotically, the yearly increase in consumer debt became the metric for measuring economic health.
    Central banks embarked upon QE, ZIRP and NIRP to keep businesses and governments afloat in their seas of debt and deficits. Individuals maxed out on debt while governments and businesses mis-invested in numerous areas, resulting in (among other things) excess capacity in commodity and finished product areas. The results are becoming apparent in reduced consumer demand, crashing commodity prices, lower factory utilization, and worker layoffs. The flatlining of China’s factory sector is a symptom of the fall in consumption in America and Europe. At the same time, the enormous expansion of productive capacity enabled by ZIRP policies is causing deflation in commodity and finished product prices as consumption falls.
    The whole mess is, to some extent at least, the result of the human failure to grasp the reality of the exponential function – the reality that even a small percentage yearly increase in anything (be it credit, debt, government budgets, money supply, entitlement program payouts, debt service costs, etc.) will eventually lead to astronomical yearly increases – the curve may start off with a low slope upward, but will eventually rise to nearly vertical. This is the Achilles heel of the Ponzi scheme – the need for ever-increasing future inputs to keep the scheme afloat.


  6. Geopolitical oil­price games are a red herring. Or is it the other way round?
    Are these drawn out banking shenanigans just a reflection of the banking monsters making hay whilst the Sun still shines.

    “What Stinks in Saudi Ain’t the Camel Dung” by F.William.Engdahl, Dec 8 2015

    Saddam most likely had a sound reason behind his Kuwait expedition.
    Then everything else started getting jiggy.


  7. Cheap oil is here, and here to stay. There will be consequences for producers of anything and everything. Especially those in debt.


  8. The next crash will bring with it hyperinflation. as in the German Weimar Republic. where the wheelbarrow was worth more than the cash in it.
    In such situations the only value is in tangible goods, such as fertile land, property, power stations water , gas distribution, companies,telecomms, transport and shipping.
    The Masters of the Universe have already cornered these markets ,in UK since Maggie Thatcher gave them free rein to asset strip the country.


  9. Kfc1404 the cashless society would soon collapse ,flee markets all over Europe,many small business & seasonal business like ice cream sales from vehicles,burger bars outside work places & even sporting events & many more would collapse forcing the collapse of certain sections who business provide these business vehicles,cooking equipment & food bread etc etc,even if technology worked,the cost & loss of goods in the food sector ie here’s your burger ,oh sorry your payment hasn’t been taken,who else want a burger,quite from the crowd,i’ll have it at half price!maybe its a dead parrot burger????? or a melted ice cream dripping on the floor anyone for a cream sludge !!! even if the account is 1p short,am glad there trying it,it leaves a trail porn ,prostitution & drugs on the credit cards,such business make up a far greater portion of the economy than many believe!


  10. A debt that cannot be paid will not be paid. Those of us who are savers will see their savings confiscated in order to keep the debt machine turning for a few more years.

    Seven billion people want a middle class life, what they are going to do to earn this income is the problem. The popular fix is income redistribution. Robin Hood will rule the world……or not.


  11. Actually you make a good point about AGW.

    In all his otherwise excellent piece, John omitted that everything above has to occur whilst we are play hari-kari with green taxes newly dreamt up in Paris.



  12. Agree with the sentiments but feel there was an underlying intent since the crunch.

    If the banks go bust then it is a reset and rich and poor lose. Since the banks have been saved when the time comes to pull the plug and 2016 is shaping up the poor alone will bear the brunt.


  13. KfC makes a very good point about cash: if cash is abolished, gold is the only measure of value and the banks have all the gold….you see what I mean?

    But I still think the timing will eff up the MoUs….they don’t have ducks in a row.


  14. Hey, hidden away at the bottom of the Telegraph page, after spacemen and Mourinho is this little piece

    Suspended and not named hey? Not named with intense biographic detail and arrested amidst a throng of journo’s previously tipped off …. the elites look after their own irrespective of circumstances … meanwhile disabled people and poor people are still being killed in Britain today and nobody gives a f……..


  15. If cash is abolished then another measure or measures of exchange will replace it! one that doesn’t involve banks,already in parts of Britain such local exchange mechanisms exist. these will just grow naturally unless banks can physically stop such exchanges banks will actually put themselves out of business as co-operatives & asset owners muscle in as guarantees! it may not be secure or safe many may get ripped of,but in the absence of anything with more creditability,it is likely to thrive!


  16. The whole global warming scam is to get your money , the cashless society will enable instant seisure of YOUR MONEY . Keep cash .


  17. I quote “Equally, don’t hold your breath waiting for Sovereigns to weigh in and help: not a single major player anywhere on Earth now has sound public finances”

    Could it be any other way when the Basel Accord of 1988, for the purpose of capital requirements for banks, declared that the risk weight of the sovereign was zero percent while that of the private sector that usually gives the sovereign its strength was 100 percent?

    And only very recently are regulators starting to ask themselves whether that zero risk weight was that smart.


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