The Economic Pie is Shrinking!

Posted at 5:09 PM (CST) by & filed under Bill Holter.

Dear CIGAs,

No matter how you look at it, the global economic pie is shrinking. One might be able to argue this is not so based on individual statistical reports issued by various nations. The problem though is this, many reports do not line up with real world reports. For instance, how can “retail sales” in the U.S. grow when retailer after retailer reports worse than expected and contracting sales? The answer is what your own eyes, common sense and of course “individual companies” added together tell you.

On a broader scale, we are told the world is in recovery. Never mind contraction in Europe or bogus reporting in the U.S., China and elsewhere, “we are in recovery dammit!”. The best way to look at this fallacy for yourself to divine the truth is to look at trade. Or better, “trade rates”. I have mentioned this before, the Baltic dry index has been crashing and now is very close to where it was back in the late 1980’s.


If you look at nearly any freight index, you will see weakness and contraction. Whether it be total trade, shipping rates or even the amount of “empty containers” moving around the world, you will see weakness. The picture of trade is that of contraction, not concentrated in any one particular region but globally!

Why is this important you ask? In one word “DEBT”! We have lived in a world for most all of our lives where “debt” has done nothing but grow. It used to be that (bad) debt would be liquidated in recessions, a natural cleansing if you will. We have not been allowed to have any real recession to cleanse malinvestment since 1982. Each and every recession in the U.S. has been either avoided or aborted early by fiscal or monetary policy means.

The last such instance was 2008 until present. The Great Financial Crisis was aborted and the cleansing process postponed. The problem is this, we (the world) reached what I call “debt saturation” levels where more debt could either not be taken on or was “chosen” to not be taken. This was the true cause of the crisis. Sovereign treasuries around the world and their central banks then stepped in to pick up the debt growth void …and have now reached their own debt saturation levels. You see, all Ponzi schemes need new and more investment to survive …which has for all these years been provided by new and growing debt levels!

As for the chart above and the “shrinking pie”, this is a very big problem. In the old days it would not pose the current problem but current debt levels and ratios are collectively higher than they ever have been …while the underlying economies to create cash flow have stopped growing and are beginning to shrink! Part of “the game” was to lower interest rates to make the debt serviceable. Now, even with zero percent rates the debt service is beginning to pinch. Can interest rates actually go negative to accommodate more debt? Maybe, but not in any credible world I know of. The next question of course would be “how credible is it to believe we will have higher interest rates”? Or better said, higher rates “by choice”?

My point is this, we live in a world where by definition we must grow debt levels just to survive financially. However, the real economy which is already being choked off by too much debt …does not generate enough cash flow collectively to support current debt levels let alone higher ones. Everything today is supported by (or is) debt. All assets values are supported by debt. All currencies are actually themselves debt. In fact, there are very few unencumbered assets left to borrow against. It is THIS very reason that stock markets cannot be allowed to falter. Neither can real estate markets be allowed to fall. As for the global credit markets, these are the foundational lynchpin to everything and why interest rates cannot be allowed to rise in any meaningful manner …the underlying collateral cannot be allowed to shrink in any size nor for any length of time or it is over!

I know this writing is very basic and some of you are saying “well duh”, but we have gotten so far from the basics that many can no longer even see the trees, save the forest. I say this because a real economy with real markets should work for the betterment of the standard of living and Main St.. We now live in a world where nothing matters other than financial assets and Main St. be damned. We are now very close to the point where Main St. will matter again because without it, Wall Street won’t be able to pay their monthly credit card bill! Those sitting on the most unencumbered and immediately liquid assets (money) will be greatly sought after (and hopefully not by a mob)!

Standing watch,

Bill Holter
Holter-Sinclair Collaboration
Comments welcome,