Saturday, March 28, 2015

This Isn’t the Mises Institute!!!


Sorry, I had to get that out of the way.

John Mauldin, from his latest “Thoughts from the Frontline” [PDF], is discussing excessive debt and the risks thereof.  Some interesting tidbits:

The world has been on a debt binge, increasing total global debt more in the last seven years following the financial crisis than in the remarkable global boom of the previous seven years (2000-2007)!

He cites a McKinsey Institute study:

Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points (see chart below). That poses new risks to financial stability and may undermine global economic growth.

He cites a similar report from the Bank of International Settlements (BIS), often referred to as the central bankers’ central bank.

He cites Ambrose Evans-Pritchard, reporting on the BIS report:

Sitting on the desks of central bank governors and regulators across the world is a scholarly report that spells out the vertiginous scale of global debt in US dollars, and gently hints at the horrors in store as the US Federal Reserve turns off the liquidity spigot….

“It shows how the Fed's zero rates and quantitative easing flooded the emerging world with dollar liquidity in the boom years, overwhelming all defences. This abundance enticed Asian and Latin American companies to borrow like never before in dollars – at real rates near 1pc – storing up a reckoning for the day when the US monetary cycle should turn, as it is now doing with a vengeance.”

Mauldin writes himself (emphasis in original):

I believe the fundamental imbalances we are seeing in the world (highlighted in the two papers mentioned above) are the result of the massive increases in global debt and misunderstandings about the use and consequences of debt. Too much of the wrong kind of debt is going to be the central cause of the next investment crisis.

Look, where did all of these geniuses think that central bank money creation by the trillions was going to go?  I don’t recall any of them pounding the tables against pumping, saving the banks, driving down interest rates, massive liquidity, etc.  Sure, here and there occasionally, but more often to say that central banks weren’t doing enough.

But what does this have to do with the title of my post?

Again, citing McKinsey (emphasis in original):

High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions.

Mauldin’s thought from the frontline?

Read that again. This isn’t the Mises Institute. This is #$%%*# McKinsey. As establishment as it gets. And they are clearly echoed by the BIS, the central banker’s central bank. (I added the emphasis this time!)


Sorry, I can’t help it.

Yeah, this isn’t those nutjob Austrians who have been telling us this all along; the ones who say you can’t print and spend your way to prosperity; the ones who say every boom will be followed by a bust; the ones who say a bust is necessary to clear out the mal-investments of the boom; the ones who say central banking is central planning of the single-most important factor in a division of labor economy – the central planning of money and credit.

No, it isn’t those nutty nutjobs.  It is the respectable nutjobs, the ones who got us into this mess in the first place.

Either by choice or by market, all of the Yahoos will eventually learn.  Hopefully, the rest of us survive the trip.

1 comment:

  1. Put another; Money is an abstraction representing value created by a producer of such value. If a non-value-producing functionary generates money and the value-producer doesn’t generate corresponding value…….