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 $55 BILLION

* There are a thousand billions in a trillion. The investment to consumption imbalance today stands at 3000. Wiping it out at 0.1% 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?

Filed under: CRASH: CHEAP CREDIT ABOUT TO BECOME UNREPAYABLE DEBT, Uncategorized Tagged: Credit/Debt Catch 22