Debt Management – The Straws On The Camel's Back
It may have missed the attention of perhaps 99% of the world but last week has been a stretch for me, a stretch of the the imagination that rocks the core of the belief system the mind had established quite firmly since 2008. The seed of doubt has been planted as I observed a meltdown in sovereign bonds that led to stock market and currency weakness as a domino effect.
For 2008 can be considered the inception of the global ZIRP (zero interest rate policy) and the modern QE (quantitative easing) mechanism which by now, more than half the world would be familiar with given they are living in a country that has near zero rates or in the process of aggressive rate cuts.
It is hardwired into our systems that holding cash is a crime and indeed, it is a crime in Switzerland as customers are penalised for large deposits with negative rates.
Thus many a shrewd portfolio and investor have stepped up and upped the ante with leverage that has been pretty free flowing till of late. Bearing in mind that portfolio leverage is not a new concept, its popularity and importance only swelled in recent years exacerbating the difference in returns between the “haves” and “have nots” that resulted in a rush for the borrowers bandwagon. So much for Hamlet’s “neither a borrower or lender be” in this world of beggar or be beggared.
It is a certainly noticeable trend from a national level down to the man on the street as central bankers have added an estimated US$ 10 trillion in new credit (supply) over the past 6 years.
Recent headlines, or the straws on the camel’s back.
* WSJ : China accounting for one-third of the rise in debt globally since 2007 (because they only just learnt about borrowing) http://on.wsj.com/1JrkBSy
* Japan government debt breaks a new record at JPY 1.053 quadrillion (http://www.japantimes.co.jp/news/2015/05/08/business/japanese-governments-debt-swells-to-%C2%A51-053-quadrillion/)
* China’s debt to GDP broke a new record as foreign claims on China tops US$1 trillion. http://www.bloomberg.com/news/articles/2015-05-08/china-s-very-high-mountain-of-debt
Credit continues to drive Asia as we note the upward trajectory of borrowing since 2012.
I think I have painted a picture everyone should be able to understand.