This ‘Chart of Doom’ Explains When A Global Recession Will Begin…

Few question the importance of private credit in the global economy. When households and businesses are borrowing to expand production and buy homes, vehicles, etc., the economy expands smartly.

When private credit shrinks — that is, as businesses and households stop borrowing more and start paying down existing debt — the result is at best stagnation and at worst recession or depression.

Courtesy of Market Daily Briefing, here is The Chart of Doom, a chart of private credit in the five primary economies:

Chart of DoomThe Daily Reckoning

Why is this The Chart of Doom? It’s fairly obvious that private credit is contracting in Japan and the eurozone and stagnant in the UK.

As for the US: After trillions of dollars in bank bailouts and additional liquidity, and $8 trillion in deficit spending, private credit in the US managed a paltry $1.5 trillion increase in the seven years since the 2008 financial meltdown.

Compare this with the strong growth from the mid-1990s up to 2008.

This chart makes it clear that the sole prop under the global “recovery” since 2008-2009 has been private credit growth in China. From $4 trillion to over $21 trillion in seven years — no wonder bubbles have been inflated globally.

Combine this expansion of private credit in China with the expansion of local government and other state-sector debt (state-owned enterprises, SOEs, etc.) and you have the makings of a global bubble machine.

In other words, both the faltering global “recovery” and all the tenuous asset bubbles around the world depend on a continued hypervelocity rocket rise in China’s private credit. What are the odds of this happening? Aren’t the signs that this rocket ship has burned its available fuel abundant?

Three out of the five major economies are already experiencing stagnant or negative private credit growth. Three down, two to go. Helicopter money — government-issued “free money” to households — is no replacement for private credit expansion.

Once private credit rolls over in China and the US, the global recession will start its rapid slide down the Seneca Cliff: The global economy could fall farther and faster than pundits expect.

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About the Author: Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning .

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  • JohnDille

    SO… I TELL YOU EXACTLY WHAT IS HAPPENING… AND WHAT WILL CONTINUE T HAPPEN…. AND YOU THINK I AM FEEDING YOU FANTASIES??? I AM NOT FOX NEWS, NOR AM I A RIGHT WING WELL PAID PROFESSIONAL LIAR, WORKING FOR COPORATE AMERICA!!! NOW, THOSE FOLKS PREACH FANTASIES AND LIES AND BULL MANURE… ENDLESSLY!!!

  • Mike

    Actually Eileen, he is telling you the truth…..

  • Mike

    What planet do you people live on? Are you not paying attention? Or are you simply paid stooges for the Wealthiest 3%?

    For your information it has already happened from November 2007 until March 2009. It began under Republicans Cheney/bush and ended under Democrat Obama…. Much like the prior one happened in 1929 under Republican Hoover and ended in 1932 under Democrat FDR…..

    History folks, history….. Incidentally, you GOP folks might want to consider firing Rove as, in my opinion, he has taken you and the American people down the same path that Goebbels took another government down from the 1930’s to 1945…..

    You can only tell so many lies!….. 🙁

  • Eileen

    Dream on!

  • JohnDille

    WOW… LOOK AT ALL THAT DEBT!!! THE RICH ARE GOING TO LOSE TENS OF TRILLIONS WHEN ALL OF THOSE LOW WAGE WORKERS CAN NO LONGER AFFORD TO BUY THE STUFF THAT IS KEEPING MILLIONS OF BUSINESSES AFLOAT… AND CAN NO LONGER SUPPORT THOSE COMPANIES BY ACCEPTING EVER LONGER HOURS AT EVER LOWER WAGES!!! WHEN ALL THOSE BUSINESSES START GOING BANKRUPT AND DEFAULTING ON THEIR DEBTS, ALL THOSE SUPER RICH LENDERS ARE GOING TO TAKE IN THEIR SHORTS!!! I GUESS RICH PEOPLE NEED TO BE MUCH MORE CAREFUL ABOUT WHOM THEY LOAN MONEY TO!! OH, WELL… NOT MUCH OF A PROBLEM, REALLY! THEY CAN WRITE OFF THEIR LOSSES, AND GET THE GOVERNMENT TO TAKE ON A NEAR MAJORITY OF THOSE LOSSES! HECK… THEN RICH FOLKS CAN TURN AROUND AND LOAN MONEY TO THE GOVERNMENT… SO THE GOVERNMENT CAN AFFORD TO COVER ALL THOSE CORPORATE AND INDIVIDUAL BILLIONAIRES LOSSES… JUST AS THE GOVERNMENT HAS BEEN DOING EVER SINCE RONALD REAGAN FIRST TOOK OFFICE!!!