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Redbook continues to report falling retail sales down 2.6% for the month as the year ago gain slipped to .6%.  Wholesale inventories dropped .1% in December matching expectations.  Sales fell .3% as the inventory to sales ratio was unchanged at 1.32, a level normally associated with recessions.

Economist Steve Keen, one of the few who actually gets it right, recently published an interesting piece looking at private sector debt and GDP from 1960 until 2015 for North America, the Eurozone and Asia’s leading economies, essentially the who’s who of global economic power. What he found was that private debt to GDP or Gross Domestic Product ratios go hand in hand until financial crisis strikes.

Private Debt Growth 2.9.16

With Japan being the proverbial Canary in the coal mine during the 90’s.  That since the 1960’s private sector debt growth has slowed markedly, China being the one real exception.  The implication being is that as goes debt growth so goes economic growth.  Put another way, from 1955-1975 credit grew at an 8.7% annualized rate in the US of A.  From 1975-2008 credit grew at an 8% annualized rate.  Post crisis and credit growth plunged to just 1.5% per year since 2008, more or less matching our rate of economic growth.

Private Debt to GDP 2.9.16

Japan’s experience with a bursting credit bubble is similar.  From 1965 through 1990 the eve of its financial and economic crisis economic growth averaged 5.4% per year.  Post 1990 bust and economic growth has averaged just .4% per year.  I’ll note that Japan suffers from demographic issues as well, namely a shrinking and ageing population.  Yet their crisis response has been borrow and spend, their official government debt to GDP ratio is the highest of the developed nations at 225% and climbing.  All the while slashing interest rates, they are now negative.  Yet Japan remains in a deflationary spiral reinforced by negative demographic trends.  Post 2008-2009 crisis and we have more or less followed in their footsteps and achieved similar results.


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