The New CS Board

[jumanji0881]

The Global Debt Problem : https://www.zerohedge.com/markets/global-debt-problem

My Comment : When will this debt driven house of cards collapse ?

Excerpts:
Non-financial Corporate Debt:
Since the Lehman crisis, the increased zombification of large corporate entities has been accompanied by economic stagnation — with the notable exception of tech industries which is not relevant to our story. The general stagnation is even worse when the underreporting of price inflation by standardised CPI method is taken into account. Furthermore, trillion-dollar annual US deficits being matched by substantial US trade deficits led to the expansion from 56% to 96% of GDP of non-financial corporate debt in emerging economies, while non-financial corporate debt in developed economies grew at a slower, similar pace to their GDPs.

Consumer Debt :
Initially, rising interest rates might not be a major factor increasing credit card delinquencies, but as the purchasing power of the dollar and therefore global fiat currencies decline, they are sure to increase. The immediate and far larger consumer problem is over mortgage finance. As a subset to wider problems, the US and UK will face increasing defaults due to rising mortgage rates and the recent rise in house prices will then almost certainly reverse, perhaps to the point where even eighty per cent loan to value mortgages become uncovered and therefore a crisis for the lenders.

In short, a significant element of the $54 trillion of consumer debt will end up as losses to be borne by the financial sector

Financial Sector
With an average ratio of assets to equity of 11.7, US G-SIBs are significantly less leveraged than most of their foreign counterparts, which might explain why so little attention is paid to systemic banking risk in the American financial press. But even at this level, mounting bad debts from the covid crisis amplifies them nearly twelve times for balance sheet equity. China’s four G-SIBs are similarly geared at an average of 11.8 times, Japan’s 21 times, the UK’s 16.8 times, and the Eurozone’s 20.5 times. The leverage ratios in Table 2 additionally take into account market capitalisation, and the three Eurozone banks heading the list tells us that markets already rate them as walking dead.

Government Debt :
But things are coming to a head, with rising bond yields. The realisation that prices, particularly of essentials, will rise well beyond CPI targets of 2%, is leading to losses on government bonds — a process that has only just started. The ECB is now trapped with increased fiscal revenue ruled out. Globally, it has been agreed that to raise taxes in the current economic environment would be counterproductive.

But the imminent failure appears to be that of using monetary inflation to puff financial markets. Once they stall on the back of rising bond yields all these debt obligations will end up being wiped out in a collapse of the fiat currencies along with the financial markets with which their fortunes have become firmly linked.