Did the Economy Just Stumble Off a Cliff?

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by Charles Hugh Smith, Of Two Minds:

The signs are everywhere for those willing to look: something has changed beneath the surface of complacent faith in permanent growth.

This is more intuitive than quantitative, but my gut feeling is that the economy just stumbled off a cliff. Neither the cliff edge nor the fatal misstep are visible yet; both remain in the shadows of the intangible foundation of the economy: trust, animal spirits, faith in authorities’ management, etc.

Since credit expansion is the lifeblood of the global economy, let’s look at credit expansion. Courtesy of Market Daily Briefing, here is a chart of total credit in the U.S. and a chart of the percentage increase of credit.

Notice the difference between credit expansion in 1990 – 2008 and the expansion of 2009 – 2017. Credit expanded by a monumental $40+ trillion in 1990 – 2008 without any monetary easing (QE) or zero-interest rate policy (ZIRP). The expansion of 2009 – 2017 required 8 long years of massive monetary/fiscal stimulus and ZIRP.

This chart of credit change ({5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}) reveal just how lackluster the current expansion of credit has been, despite unprecedented trillions of stimulus pumped into the financial sector.

Here are two other snapshots of debt: margin debt and private credit. Both have hit new highs.

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