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The path to the Global Depression


The world economy has never faced a more perilous situation. While many have just started to debate whether a recession will start in 2019 or 2020, very few perceive the ’black hole’ the global economy is about to get sucked into…

The hole has two main “gravitational forces”: the wide-spread mispricing of risk and stagnating productivity growth. Central bank meddling with their bond buying programs (QE) have seriously distorted prices in the capital markets, which means that risk has also been mispriced in vast magnitude. The implications and repercussions of the six-year period of stagnating global productivity growth has also not been understood. These intertwined developments will lead the world economy into a serious economic downfall, a Global Depression.

See no risk, hear no risk

We devoted most of the March issue of our Q-review to explain how the asset purchase (QE) programs of the central banks have created an environment which encourages risk-taking, leverage and yield-hunting. At the heart of it is the suppression of yields on assets considered safe, most crucially government bonds, which have been the primary target of their QE-programs. QE created a stupendous, multi-year pulse of artificial central bank liquidity forced into the financial system. As the major central banks kept on pumping it eventually ended up increasing the price of almost every single asset class in the world with the possible exception of precious metals.

While leverage can be usually measured with some suitable metric (like debt-to-income or -equity), evaluating financial risk requires a reference point that is considered riskless. This creates a perplexing problem, because the QE -programs of the central banks have created a situation where we do not have any un-manipulated reference points telling us what the “riskless” rate of return actually is. So, there’s currently no way of telling the difference between assets that can be deemed safe and those which cannot, and thus no way to measure the risk of a financial asset with any reasonable certainty. True risk will be revealed only after the artificial central bank-induced liquidity recedes and the asset bubble bursts. When this happens, we are likely to see the balance sheets of numerous banks, corporations, governments and households deteriorating into insolvency. Alas, central banks have effectively created Black Swans, unknown and unanticipated large-scale events, that threaten to upend financial markets.

‘The Great Stagnation’

The massive market-meddling has left the global economy as both less dynamic (innovative) and more fragile. Bailouts of ailing banks and firms combined with extraordinarily loose monetary policy created an extended period of stagnated total factor productivity (TFP) growth, a “Great Stagnation”.

Figure. Regional and global growth rates of total factor productivity (TFP) in percentage points. Source: GnS Economics, Conference Board

The stagnation in productivity growth demonstrates that companies have not been able to increase the effectiveness of their production (productivity), the great and primary driver of durable improvements in standards of living. Thus it shows, effectively, the ‘zombification’ of the global economy.

When interest rates rise and the availability of credit diminishes, the “zombies”, that is, companies with over-levered balance sheets unable to cover interest costs, will begin failing. The bankruptcy of the global conglomerate of Steinhoff last year and the ailing finances of US corporate giant General Electric are the first signs of this. The fate of GE and Steinhoff will be shared by many when the crisis gets into gear. It is, for example, estimated that over 14% of companies in the S&P 1500 are zombies.

This diminution in the rate of productivity growth also shows that the world economy has not been able to grow organically, but has depended on continuous stimulus (which has made the problem worse). When this stimulus is withdrawn, the economy will collapse.

Into the depression

Currently, the global economy faces threats from three fronts.

  • The China slowdown threatens to remove critical support for the global export and import sectors, which will especially affect the Eurozone. Eventually, the slowdown in China will turn into a ‘hard landing’ (see Q-review 2/2017).
  • Retreating artificial global central bank liquidity threatens to bring down the global asset and credit markets (see Q-review 1/2018).
  • Rising interest rates and tightening monetary conditions threaten to bring down the global zombified corporate sector (see, e.g., Q-review 3/2017).

These will hit all sides of the global economy reversing growth of global trade, financial flows and income. There’s absolutely no other end to this than a global depression.

27 Comments on "The path to the Global Depression"

  1. makati1 on Tue, 18th Dec 2018 7:56 pm 

    Interesting, but, if you want to see how you can be watched, and can open this site, you will see what the Chinese can see. Open and zoom in on the faces of the walkers. Scary! Like looking out of a second story window.

    This was sent to me by a Chinese friend on FB.

  2. I AM THE MOB on Tue, 18th Dec 2018 9:27 pm 

    White People Political Compass

  3. I AM THE MOB on Tue, 18th Dec 2018 9:33 pm 

    Buzzfeed Reporter literally urges followers to kill straight white men.

  4. I AM THE MOB on Tue, 18th Dec 2018 11:23 pm 


    Hydrocarbon liquefaction: viability as a peak oil mitigation strategy (Hook 2014) The Royal Society

    To conclude, our analysis highlights a strong risk for CTL plants to become financial black holes and helps to explain why China has slowed down the development of its CTL program.

    So much for your underground coal fantasy you dip shit..

    Low iq European peckerwoods are so easy to defeat!

  5. Chrome Mags on Wed, 19th Dec 2018 12:25 am 

    The great stagnation was preceded by a sharp rise, but that was the result of liquidity infusion by massive central bank borrowing. The sharp rise was preceded by the huge downturn of 08/09. Which means it’s been quite some time since the economy was churning along fairly smoothly without financial intervention.

    It wouldn’t be too far fetched to say that the plateau of conventional oil production in 05 presaged not only the increase in non-conventional oil, but also a new normal of the world economy requiring massive debt to eek out The Great Stagnation. That doesn’t bode well for what happens after the debt bubble bursts.

    The question is; will that be the last step down, i.e. collapse, or will that be the second major step down to later be followed by a 3rd? The world economy is like a boxer that has taken a 10 count in 08/09, gotten up only to be held up with the help of CB’s, and now finds himself weak kneed, leaning against the ropes. How much more can he take?

  6. Cloggie on Wed, 19th Dec 2018 1:52 am 

    Hydrocarbon liquefaction

    Why are you changing the subject, you fool? I was talking about gasification of North Sea coal (as a European back-up strategy), not liquefaction.

    The UK government correctly turned development down, for environmental reasons and because they don’t have to resort to UCG, not yet, hopefully never:

    The only reason why I bring up UCG is to defeat the constant yammering of peak oil self-defeatists (closet nihilists really), who claim that industrial civilization is going to collapse because it runs out of energy. THAT is baloney.

    Having said that, it is very well possible that severe economic recessions will result from too much debt and high cost of energy transition. So be it. There are great (white nationalist) advantages connected to a deep depression, because it would set free political energies that are kept under the lid now, especially in America.

    I care little for economic affluence, too much is bad and corrupts. Tests with mice have shown that those put on a minimal diet live twice as long as those who have access to unlimited food supplies. Won’t be much different with humans. I care about DNA, not Black Friday or Porsche’s.

    Bring it on, the economic depression. Very effective in limiting CO2 too.

  7. Here we go again on Wed, 19th Dec 2018 3:36 am 

    My view is this, regardless of PO, China came full throttle to Capitalism just a few decades ago with a one party (corporate) system. It became intergraded into the global economy and it world has gone gangbusters in it’s rush for so called economic growth at ANY means. Yes. Many folks have became wealthy (including those on paper).
    Just saying, what can go wrong? The West messed up in 2008, expectvits China’s turn in 2020. Hold onto your seat, a lot of mud hitting the fan real soon, that’s all folks.

  8. Cloggie on Wed, 19th Dec 2018 4:35 am 

    “Europe falling apart”-latest:

    EU and Italy reach agreement on Italian budget:

    Deficit: 2.0%

  9. Davy on Wed, 19th Dec 2018 4:37 am 

    Besides the step down collapse process overall we will likely see local and regional step downs. We will also likely see triage within the whole system with vital components being saved. This means things like safety nets, businesses, networks, and population centers will be judged by their usefulness. At some point we will be naked and our real selves exposed. Places and entities that require large subsidies to survive and do not yield a return will wither away. Power centers and areas of vital production of goods, food, resources, water, and military bases will likely remain robust at the expense of other less vital parts of the system. We may even see a lucky Byzantium or two develop that manage to wall themselves off from the chaos. Let’s face it luck plays a part because some places will be spared and others will not the indifference of systematic collapse. This is a huge world and a small world in regards to different levels of abstraction. It is a complex world full of complicated systems. We can figure out the complicated parts but the complex part is beyond a full understanding because it is self-organizing and mutating.

    My doom meter has gone down for the immediate collapse I used to be worried about back in 05-14. This may or may not be wise but it has been an academic study. Back then peak oil and central bank easing and repression appeared to me to be an end game. It appeared a quick end game because of the nature of the risk. As time has gone by we have become more aware of the brittle resilience and vast sustainability of the global system when operational. It is quite robust but dangerously exposed to multiple minimums of limiting factors. Of course there is the quick collapse that is possible at any time and has been possible since we modernized post WWII. We now have weapons of mass destruction and dangerously exposed critical systems of support.

    I currently see an undulating plateau of growth that is significantly made up of malinvestment supported by central bank financialization. Repressed rates and liquidity have allowed unprofitable state and corporate entities to continue. We are also seeing broad decline with wealth transfer within populations and failing states. Safety nets and pensions are moving in the direction of being unfunded. Yet, we are still seeing profitable and robust growth. Renewables are exciting. Computer advancements and other technology is still strong. Eventually central banks will have to step up with a haircut to general affluence because systematic debt will eventually be rationalized with reality. The rationalization comes with actual returns over time. An asset has a life it is not all digital. This systematic haircut will increase economic abandonment, dysfunctional networks, and irrational policy. Systematic chaos will increasingly force stability. One needs to add to this the powerful forces of destabilizing climate and ecological destruction with ecosystems and species extinction.

    Does anyone know how long this can go on and where it will strike? We have awakened in many ways with good science but with a heavy amount of science denial too in regards to solutions. We can in some ways contrast growth historically for some clues. This is all we have known at least since industrialization that reflects globalization and 7BIL people. The various depressions and recessions offer some examples too but these were bumps in the growth process. With growth we can see constructive change that is both formative and also destructive. Yet, this was growth. In decline we will see some coagulation from destructive change. We will see triage with hemorrhaging. Will we see a reversion to old ways that got us here? Will there be creative salvage yielding a hybrid of new and old that may actually be more robust and offer a lifeboat of sorts for some. Maybe if this decline is shallow enough formative healing growth can return in a state of general decline. Collapse becomes simple in some ways when we refer to nature. The degree and duration of a shock will influence survivability. As overshoot proceeds to a bottleneck then survivability goes critical as connections break down.

    I don’t think we are there yet but I do see a paradigm shift in the process. We are at peak everything ready to head down. Now is the time when our decisions should be wise because they have so much effect on how the decline will be. It is no different than a farmer who goes into a drought prepared over one who has made poor decisions. Both cannot escape that effects but one has taken steps to adapt and mitigate and the other has disregarded preparation.

  10. Davy on Wed, 19th Dec 2018 4:41 am 

    “Why are you changing the subject, you fool? I was talking about gasification of North Sea coal (as a European back-up strategy), not liquefaction.”

    Neder, I saw that too but MOB has a point. If this technology had feet it would be somewhere by now. Your examples given in the past are nothingburger not whoppers.

  11. Davy on Wed, 19th Dec 2018 4:43 am 

    “Europe falling apart”-latest: EU and Italy reach agreement on Italian budget:”

    LOL, you never reach a real deal in Europe it is more a fudge with turning a blind eye. The Italians have the EU by the short and curlies. You are going down with the rest of us neder.

  12. Davy on Wed, 19th Dec 2018 4:57 am 

    “AI & The Future Of War: “Hey Alexa, Launch Our Nukes!”

    “The major effect/result of all these capabilities coming together will be an innovation warfare has never seen before: the minimization of human decision-making in the vast majority of processes traditionally required to wage war,” observed retired Marine General John Allen and AI entrepreneur Amir Hussain. “In this coming age of hyperwar, we will see humans providing broad, high-level inputs while machines do the planning, executing, and adapting to the reality of the mission and take on the burden of thousands of individual decisions with no additional input.” That “minimization of human decision-making” will have profound implications for the future of combat. Ordinarily, national leaders seek to control the pace and direction of battle to ensure the best possible outcome, even if that means halting the fighting to avoid greater losses or prevent humanitarian disaster. Machines, even very smart machines, are unlikely to be capable of assessing the social and political context of combat, so activating them might well lead to situations of uncontrolled escalation.”

  13. Davy on Wed, 19th Dec 2018 5:03 am 

    “Inflation Targeting Madness: Russia Raises Rates Again”

    With Putin actively pursuing a de-dollarization policy, the central bank through interest rate arbitrage discouraged de-dollarization of the Russian economy. Now, sanctions, a stronger dollar and lower oil prices putting upward pressure on the ruble. Nabuillina is combating incipient inflation from a higher ruble by raising rates before the real recovery gained traction. Wage Growth has fallen all year, disposable income is still flat, so consumer spending growth is sluggish. These are all signs of a recovery stifled by too high a cost of domestic capital. And U.S. sanctions are making it difficult for Russian small businesses to get access to relatively cheap funds. It’s one thing when your adversaries are screwing you over, it’s another when your central bank is doing the same thing. What she’s responding to now is continued weakness in the Russian Treasury’s ability to raise funds through bond auctions. Again, something that is not the Bank of Russia’s problem. Because of U.S. pressure and uncertainty demand for Russian sovereign debt is lower than it should be. It has nothing to do with an overheating economy that needs growth slowed down.

  14. Davy on Wed, 19th Dec 2018 5:09 am 

    “Qatar Ambitions Soar After OPEC Exit With $20 Billion US Expansion”

    “After Qatar’s historic and unprecedented early December announcement that the small, gas-rich Gulf state will exit OPEC effective Jan. 1 following nearly 60 years of membership, Qatar Petroleum CEO Saad Sherida al-Kaabi announced over the weekend that the state-owned oil and gas company plans to invest more than $20bn in the US oil and gas sector. As reported by Reuters on Sunday, al-Kaabi’s main concern appears to be over its long term plans in the United States, specifically its majority stake of the Golden Pass LNG terminal in Texas.”

    “And separately, QP will make its second foray in Mexican oil and gas, announcing it entered into an agreement with Eni to buy a 35% stake in three oilfields offshore Mexico, which include the Amoca, Mizton and Tecoalli offshore sites. Al-Kaabi said this “strengthens” Qatar Petroleum’s “international footprint” and “expands its presence in Mexico.”

    “And as we explained previously this is no mere hyperbole or empty boasting as Qatar is already the world’s largest LNG producer, with some 77 million tons per annum of liquefaction capacity, though that lead is not being challenged by Australia as it finally completes its massive LNG project expansion boom. Yet, going forward, Qatar will far outpace any of its LNG exporting rivals, both Australia, Russia and even the U.S. as the country enters its so-called second phase of LNG project development. Last year, in a surprise statement, Qatar announced that it would boost LNG production to 100 mtpa within the next five or six years – a remarkable decision given LNG development in other parts of the world that will all be vying for the same market share.”

  15. Davy on Wed, 19th Dec 2018 5:29 am 

    “The World’s Most Controversial Coal Mine Is Preparing to Break Ground”

    “The world’s most contentious coal project is edging closer toward development, potentially unlocking one of the biggest untapped resources even as a debate rages around the fuel’s future. Indian billionaire Gautam Adani’s Carmichael is located in Australia’s huge Galilee Basin, which covers around 250,000 square kilometers—about the size of the U.K. If the region is fully developed, it has potential to more than double Australia’s thermal coal exports, according to government estimates.”

  16. I AM THE MOB on Wed, 19th Dec 2018 5:54 am 


    Your underground fantasies are laughable..Its never going to make up for the entire worlds declining fossil fuel production..Let alone be economical to produce..The soviet union collapse in two years from an oil shortage..and the same thing will happen to the global economy when it hits in a few years..

    You are going to feel dumb you wasted so much time squealing about immigrants and falling for the elites red herrings..

    You are the elites greatest dick licker!

  17. twocats on Wed, 19th Dec 2018 8:22 am 

    davy – I agree that collapse (meaning the end of industrial civilization) seems less and less likely. and even global downturns like we had in 2008 are being avoided at all costs.

    But a 2008-like GFC, step-down, mini-collapse is (and has been for years) an almost absolute certainty and appears to be very very close now.

    take the fed (please). If they raise interest rates we are in serious trouble. if they cut rates then… “WTF I thought the economy was growing!?!?” could easily be the response, essentially creating a recession by self-fulfilling prophecy.

    So i’d be willing to bet Clogg’s withered left-nut that the Fed will hold the line with a “wait and see” attitude.

    which is more or less an abdication of global leadership – saying to the other CBs – someone needs to supply liquidity but it can’t be us. If no one else steps up – conditions will deteriorate. They may deteriorate anyway as the article talks about – the FED put made all assets riskless. with the FED put gone – risk has been reintroduced, but it’s not definable – it’s just a free-floating monster that can take on any shape or form, infect any asset class, and by extension, the entire 100% 1.0 correlated financial world.

    have a merry christmas.

  18. Davy on Wed, 19th Dec 2018 8:26 am 

    “Jarring” FedEx Outlook Cut Suggests “Severe Global Recession”

    “FedEx shares are plunging after what Morgan Stanley called a “jarring” cut to its annual forecasts, suggesting global growth is slowing far more than most expect – in fact, the bank hinted at the possibility of a “severe recession” unfolding – and prompting expectations of an “uber-dovish hike” by the Fed. Needless to say, with little in terms of warning, Morgan Stanley was shocked by the magnitude and severity of the cut, and suggested that this implies a “severe global recession” is unfolding: “We recognize that global growth has slowed but we are very surprised by the magnitude of the headwind, which is what might be seen in a severe recession,” Shanker wrote. “We believe global growth concerns are also likely to get worse before they get better next year, which could mean more of a drag on FY20 EPS.”

  19. Dredd on Wed, 19th Dec 2018 8:51 am 

    Where will the tard wars move to when they can no longer chug Ripple (How To Identify The Despotic Minority – 7) ?

  20. Cloggie on Wed, 19th Dec 2018 11:59 am 

    “Trump is a raging neocon” latest:

    “Netanyahu Had ‘Tense’ Call With Trump Over U.S. Plan to Leave Syria, White House Officials Say”

    Mobster made himself a fool yet again.

    US to completely withdraw from Syria, leaving the country as a client state of Russia and Iran and giving the nod to the Turks to deal with the Kurds.

  21. Cloggie on Wed, 19th Dec 2018 1:16 pm 

    LOL, you never reach a real deal in Europe it is more a fudge with turning a blind eye. The Italians have the EU by the short and curlies. You are going down with the rest of us neder.

    Davy apparently missed the existence of the euro, European parliament, space agency, Airbus, common deep energy and climate policy and now Italy finally caves in to EU demands to tighten the belt.

    Davy just sees what he wants to see.

  22. Outcast_Searcher on Wed, 19th Dec 2018 5:05 pm 

    Gee. Another negative outlook from an almost-always-wrong permadoom outfit. I’m so SHOCKED to see that here.

  23. makati1 on Wed, 19th Dec 2018 5:50 pm 

    Outcast, there is not much to be positive about theses days. Capitalism is dying along with the West. Pollution is blatant. BAU is killing the ecosystem, your health, and the future.

    Those 10% at the top with the money and power will not give it up. Greed and insanity rule there.

    Those 50% at the bottom cannot do anything about it even if they understood what is happening.

    The rest have no clue because they have been distracted (lied to) by the 10% for so long they have no idea what reality is. This is especially obvious in the US. Just read the headlines.

    I asked a commenter here a while back to reference just ONE positive in the news and I got no reply.

  24. makati1 on Wed, 19th Dec 2018 6:57 pm 

    “On any given night in the United States 553,000 people experience homelessness, according to the 2018 Annual Homeless Assessment Report (AHAR) published by the Department of Housing and Urban Development (HUD) and sent to Congress on Monday….

    The report shows that homelessness is on the rise for the second year in a row….Some 36,000 of those experiencing homelessness on any given night in 2018 were unaccompanied youth …White people accounted for 54 percent of the homeless overall….

    The statistics on rising homelessness are all the more significant when one considers that they have not only persisted, but worsened in the midst of the supposedly “booming” US economy.”

    Slip slidin’…

  25. I AM THE MOB on Wed, 19th Dec 2018 7:09 pm 


    DER SPIEGEL published just under 60 articles by reporter and editor Claas Relotius. He has now admitted that, in several instances, he either invented stories or distorted facts.

    You were duped you low iq doofus!

  26. Cloggie on Thu, 20th Dec 2018 3:19 pm 

    Germany lowered its overall debt quote with 2.3% this year:

    It expects to achieve a debt quote of below 60% gdp, that is the socalled EU Maastricht criteria.


  27. Cloggie on Thu, 20th Dec 2018 3:53 pm 

    Can’t get it more clearer than this:

    Glimpses from the heart of ZOG and Deep State.

    Rothschildt the owner, Clinton the servant.

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