A Trillion Dollars Ain't What it Used to Be

There is a report floating around arguing that with the collapse of the consumer credit market, there is newly room for more than a trillion dollars in additional U.S. government debt on global markets without causing rates to get squirrely.

That strikes me as an awfully simplistic view of things. First, there is a reason why consumer credit has gone south, and that plays back into debt needs at the sovereign level, from stimulus to housing bailouts. In other words, a trillion isn't what it once was.

Second, the U.S. isn't the only sovereign racing to bring debt to market in support of wild-eyed stimulus programs. Let's not kid ourselves that whatever unoccupied credit market space there is globally gets taken over, squatter-style, by the U.S. as the first and most aggressive arrival.

Finally, and perhaps most importantly, I remain convinced that global debt markets have shrunk materially in a more secular way. In part that's a function of structural changes in syndication, but it's also about trust, security, returns and wealth destruction. Just because debt markets globally used to be size X, in other words, doesn't mean they still are -- because they aren't.

A quick chart of global debt markets to backstop these musings:

Comments

[Robert Nabloid:]

"In other words, a trillion isn't what it once was."

US Dollars aren't what they once were.

I can just imagine some game of poker at the Fed... "I call your trillion and raise you a quadrillion!"

2008 Dec 23 06:48 PM

[Moon Kil Woong:]

Shhh Robert Nabloid, don't let them know about the big numbers. It's too tempting for them to handle.

Good graph and posting Paul Kedrosky. It is true, I expect government spending projects by most countries early 2009. I say spending not stimulus because the governments that do them tend not to spend the money efficiently and often end up sucking money out of the real economy to pay for them. So they appear to be spending but if people believe they 1) won't produce tangible goods and services, 2) won't produce long term employment, 3) will be offset by taxes and/or inflation in the long run 4) will be slow to implement and inefficiently run then the public's sentiment towards them will more than offset any apparent benefit.

Sadly, politicians need tokenism. For them it makes the world go round and the votes come in. It's the modern day rain dance. I make big money fall from the sky as Bernake said was the solution to any economic slowdown. Really... can't we get a better Fed today rather than waiting until the end of January? We need a Christmas present.

Sorry for being grim. I mean to wish everyone a happy holiday.

2008 Dec 23 09:50 PM

[Alan von Al...:]

Uh, yeah, happy holiday. I think Obama can play with $2T before he runs into the French Ceiling of 50% GDP government outlays, which is the only metric that matters.

If credit markets limited the size of governments, we wouldn't have one.

Bankers are animated by the ghost of Lord Revelstoke of Barings, who famously remarked in 1911, "I confess that personally I have a horror of all industrial companies and that I should not think of placing my hard-earned gains into such as venture."

That's why most private sector investment comes from retained earnings (profits) and retail shareholders (savers). Governments are incapable of either, That's why bankers feel sanguine about lending to them.

2008 Dec 24 03:14 AM