THE GLOBAL FINANCIAL MARKET IS THE NOW THE GLOBAL DEBT MARKET

 

Private Equity is  now Private Lending.   Investment Banking is now Debt refinancing Banking.  And the business of the Central Banks is Debt issuance and management.

The Debt Financing and Refinancing Market is the driver of global financial activity and it dwarfs the Real Economy in size and as a driver of Global Liquidity.

There is currently 350 trillion dollars of global debt with an average lifespan of about 5 years.

Every year there is about 75 trillion dollars that the financial markets need to refinance.

For perspective: Global GDP is about 120 trillion dollars.

Debt refinancing has replaced Capital Investment Financing as the major activity of the Global Finsancial Establishment.  

The Debt Finance industry is three times the size of the Global Real Economy.

We've shifted from a world of New Capital Raising to Debt Financing and Rollover.

The question is: what is the global Balance Sheet supply of Capital necessary to roll over this ever increasing amount of debt?

Or where is the Funding Liquidity for all this debt coming from?

1) Central Banks create liquidity by creating money out of thin air and injecting it in various ways directly into the economy.  (this is not just about Balance sheet expansion or shrinkage or interest rates.  There are a myriad ways for central banks to inject liquidity.  Think of the massive funding facility for SVB and many other undercapitalized banks.  Or think the Repo market)

2) Collateralized loans from Private Investment Banks are the driver of the new Private Lending Facilities.

3) Traditional Commercial Bank lending which has come under massive pressure as the capital requirements have been raised after the banking collapse of 2008.  Many commercial banks are still undercapitalized.

The Financial Capital available to fund debt rollover is about 170 trillion dollars.  So about half of the debt in the system.  

The real economy is still driven by innovation, productivity, enrepreneurship. drive etc.  Just as it has always been.  But the Liquidity available to drive economic activity comes from the Debt Markets.  The debt market are the Financial Markets.  So the Real economy is dependent on the Financial economy rather than the other way around.

This is new.  This has happened over the last 10 years or so.  And it is accelerating at an alarming pace.

In order to keep the economy moving you need an ever greater amount of debt added to all the debt that needs to be refinanced.

AND THE KEY IS THIS: DEBT IS NEVER REPAID.  

IT IS SIMPLY ROLLED OVER.  

THE MORE THERE IS THE MORE YOU NEED TO GENERATE TO FINANCE THE REAL ECONOMY WHICH NECESSARILY SLOWS UNDER THE BURDEN OF DEBT REFINANCING.

So the real economy slows as the Debt/Financial econ0my grows ever larger.

Think about that.  Then add the costs of the current economy that are growing while debt is growing and real economic activity is slowing:

1) an ageing population that needs to be serviced through massive Medicair, Medicaid and Social Security payments.

2) Growing Global Tensions - wars and trade wars - that necessitate ever greater Defense Spending.  and Tarrifs that make all goods more expensive.

3) the Politcal reality that no politician will ever have the guts to raise taxes to pay for anything because it's political suicide.  In fact politicians brag about Tax cuts which add ever more debt to the deficit, fuel inflation and slow the economy (which was not the case when the financial economy was investment based rather than debt based).  Just as no politician will cut transfer payments to their elderly constituents because they are the sector of the electorate most likely to vote.

4) US treasuries are now being sold globally at the margins rather than bought.  The current instability in the United States works against the treasury market that is our major economic advantage in the global economy.  This makes it ever harder to finance our own debt burden.

5) MOST IMPORTANT: The effect of compound  interest means that now Interest Payments in the US are more than a trillion dollars a year and growing exponentially.

So how do you fund all this?  (ha ha ha)

Print money to buy the debt.  That is the only answer.  

Monetize the Debt.  

Which devalues all paper money.

Which makes inflation intorlerable for all who do not benefit from asset inflation.

It's a one way process with no end game.

The only true protection over time is Gold and Hard Assets.

That way you become one of those who benefit from Asset Inflation.

That is the only protection.