It is not about trade war. It is global debt saturation.

The G20 deal should not divert our attention from the reality of:

  • Disinflationary pressures
  • Rising spreads
  • Global slowdown

Countries wanted to “copy the Fed” and the US deficit spend.

The trap: Markets are a relative game.

Now the US 10-year bond is the safest asset. And it is draining liquidity off any other risky asset.

Markets extend losses, and US 10Y yield falls to 2.98%. The opposite of what consensus expected, because consensus ignored monetary factors.

While global debt soared above 300% of GDP and the vast majority in countries worldwide increased fiscal -and trade deficits in many cases- estimates of global growth started to come down. Global debt rose almost 5% and global growth estimates fell 10% in the January to November period. Debt saturation. More debt, less growth.

As excess liquidity injections are taken out of the market the wall of debt faces the wall of worry and the world flies to the safest assets.

Not only we are witnessing the draining of excessive liquidity from markets. In 2019, 185 countries will increase deficits.

Net financing needs rise +Liquidity growth moderates = Multiple and asset valuation expansion ends.

As Amit Noam Tal (@amital13) says:

The Treasury Department’s cash position is now 340 billion USD, by the end of the year, it should stand at 441 billion USD. This means that 70 billion dollars will be taken out of the market in the coming month from the market. The shortage of dollars is expected to worsen.

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

3 thoughts on “It is not about trade war. It is global debt saturation.

  1. I like your approach and thinking in explaining the macroeconomic factors influencing global monetary flows.

    The key question I have is when does the debt saturation potentially become lethal to world currencies? I cannot help but think of dominoes stacked up and tipping all together. If any falter happens, would all be at risk?

  2. I know that probably this is a simple question for you, but myself, I am not so sure.
    If 70 billion dollars will be taken out of the market in the coming month from the market; were will these go, static saving accounts, perhaps?

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