The Global Credit Supercycle: Full Frontal, by Tyler Durden

From Tyler Durden at

Over the past several years, one of the prevailing, if completely incorrect, conventional wisdom memes was that the US, and especially the private sector, had undergone a deleveraging and was ready to load up on debt again. This was wrong because as we showed over the years, the only deleveraging which US households underwent was due to defaults and nothing to do with voluntary debt reduction.

Furthermore, the compounding effect of soaring student loans – which at $1.1 trillion eclipse the total credit card debt of the US – is one of the reasons why the US labor participation rate is at 38 year lows: millennials are unwilling and unable to enter the labor force opting to rollover student loans instead (until said loans are forgiven), while aged workers, those 55 and over, thanks to ZIRP crushing the income-creating capacity of their savings, don’t have the resources to exit the labor force.

As for US banks whose “fortress” balance sheets have supposedly never been more solid due to the collapse in net leverage, here is a chart showing total US commercial bank cash balances when adding the $2.5 trillion in “transitory” Fed excess reserves, and what happens if one were to “pro-forma” the Fed’s monetary spigot out of bank balance sheets.

To continue reading: The Global Credit Supercycle: Full Frontal

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