The G-20s Big Fat Zero - Now Comes The Bubble’s Demise

The tens of millions of taxpayer money wasted at the G-20’s Shanghai soirée had a silver lining. The assembled masters of world finance came up with a big fat zero on the coordinated global stimulus front.

So doing, they essentially admitted that their money printing central banks are out of dry powder (“…but monetary policy alone cannot lead to balanced growth”) and that they are divided and confused on the fiscal front.

Indeed, the best result of the weekend is that the gaggle of G-20 statists acquiesced to Germany’s absolute “nein” on the foolish notion that a world self-evidently drowning in debt can still borrow its way back to prosperity. With respect to that ragged Keynesian shibboleth, Germany’s intrepid finance minister left nothing to the imagination:

Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said…….“Fiscal as well as monetary policy has reached their limit.”

So this is not about a failed G-20 meeting; its about the end of a vast, long-running policy scam conducted by global officialdom and their central bankers. In a word, they did not save the world in 2008-2009 with the “courage” of extraordinary policies. They just temporarily buried the symptoms by resort to crank monetary theories and fiscal snake oil.

Indeed, every bit of the financial rot owing to the mutation of financial markets into debt-fueled gambling casinos and the vast economic deformations and malinvestments fostered by massive central bank financial repression prior to the 2008 financial crisis is still with us. Except it has subsequently metastasized into an even more egregious and incendiary form.

In fact, a fair argument can be made that virtually all of the global nominal GDP gain since 2008 is simply that pass through into both investments and consumption of the huge new borrowings enabled by central bank money printers. That is, total global debt outstanding has increased from roughly $145 trillion on the eve of the great financial crisis(GFC) to $225 trillion at present or by $80 trillion——-a gain that dwarfs the $16 trillion of GDP gain during the last seven years (from $63 trillion to $79 trillion).

That’s right. The global economy incurred about $5 of new debt for every $1 of additional GDP. Given the fact that most of the world was already at peak debt the implication is quite clear. To wit, this was phony GDP that is not organic or sustainable; it will be clawed back in the coming global deflation/recession, meaning that the world’s true leverage ratio has only gotten dramatically worse than it was in 2008.

To be sure, the G-20 statement attempted some whistling past the graveyard, suggesting that financial markets have over-reacted and there is no need for an April 2009 style global stimulus.Or as clueless Jack Lewinsisted, don’t expect a crisis response in a non-crisis environment.

Let’s see. The global trade data for 2016 reported to date is an absolute disaster. China’s exports were down 11% worldwide and by far greater amounts to key boom-time partners like Brazil, where shipments sank by 60% in January over prior year. Likewise, Japan’s exports were off by 13% at the start of the year, and in February South Korea was down by more than 20% on a Y/Y basis.