Over US$100 Trillion Additional Credit Needed to Support Global Growth

By on January 19, 2011 in News 28

WEF DavosThe World Economic Forum reports that:

Credit levels will need to double over the next 10 years, growing by US$ 103 trillion, to support consensus-projected economic growth. “This doubling of credit could be achieved without increasing the risk of major crisis, finds “More Credit with Fewer Crises: Responsibly Meeting the World’s Growing Demand for Credit,” a report released by the World Economic Forum in collaboration with McKinsey & Company. The study develops a detailed global credit model using historical credit volumes and forecasting potential credit demand to 2020 across 79 countries, representing 99% of world credit volume. The study applies a sustainability methodology to the projected credit demand, using newly developed metrics to answer the following two questions: Will credit growth be sufficient to meet demand? Is there a risk of future credit crises and, if so, where?”

That is, we have to hand out $10+ trillion dollars every year until 2020 in order to sustain global economic growth. United States GDP is around $14 trillion dollars, so we’d be creating more than half a United States each year in available credit. Better get those printing presses warmed up!

, , ,

  • Liam_McGonagle

    Of course the solution has to be shoving more $ into finance. Couldn’t possibly be improved social equity.

    Buy a fucking clue, Basel. You’ve got more than enough cash to afford it. The world knows it.

  • Liam_McGonagle

    Of course the solution has to be shoving more $ into finance. Couldn’t possibly be improved social equity.

    Buy a fucking clue, Basel. You’ve got more than enough cash to afford it. The world knows it.

  • Anonymous

    Inflation Inflation Inflation!!!!!! Onto infinity!

  • cosmicserpent

    Inflation Inflation Inflation!!!!!! Onto infinity!

  • Andrew

    Money is a human invention.

  • Andrew

    Money is a human invention.

  • http://twitter.com/irisphant iris

    I fell like I swallowed an elephant and have a dozen more on my plate.

  • http://twitter.com/irisphant iris

    I fell like I swallowed an elephant and have a dozen more on my plate.

  • Anonymous

    Credit responsibly, in a collaboration with McKinsey & Co. report issued by the World Economic Forum to meet world’s growing demand

  • denimesasx

    Credit responsibly, in a collaboration with McKinsey & Co. report issued by the World Economic Forum to meet world’s growing demand

  • Jordan

    I like how some seem to think we can just print money and that’s just the solution to all of our problems.

  • Jordan

    I like how some seem to think we can just print money and that’s just the solution to all of our problems.

  • jf

    I had to admit that It’s a little disconcerting that so few people have apparently taken interest in this thread. However, that all said, I disagree with the assertion of the OP, in that it means we’re gonna have to produce like a 71.5%+ increase in our annual GDP in order to meet the world’s projected credit demands for more or less the following list of reasons. This view point takes an understandably American stance; albeit incorrectly as we’re referring finances in a global scale here. Which brings me to our first three points of conjecture; this is a globally-scoped 10 credit projection, not an American-centric one focused on our printing of currency (although this 2nd round and potential subsequent rounds of devaluation could vastly modify my overall debating point).

    That is to say, as we all hopefully learned in 2008, that the investment bankers are pretty good at finding new creative accounting practices that allows them to generate more credit, and thus theoretically more money. However, as we also learned in 2008 even the biggest of our common monsters sometimes make ‘mistakes’ in that they were basically all insolvent due to their ability to generate credit from nothing,

    Point here being, I’m fairly positive this report has us coming out ‘Okay’ so long as we draw on our global savings glut[0] by up to $3.8T if we want to maintain our ability to meet our credit requirements. There’s some noteworthy speculation dated from 2007 “[about] there being no growth in global savings to support the global-savings-glut thesis.”[1]

    What I find more telling/concerning, is their idea that they’re gonna somehow double the worlds credit in a risk-free man as indicated in the following quote FTA “This doubling of credit could be achieved without increasing the risk of major crisis [...]” which pretty indicates to me that we never really left the bubble-zone, but more restarted the game, with each new iterations game looking shakier than the last; and it looks like the bubble this time will be likely named ‘global savings glut’.

    Finally, it’s probably north-worthy that China has already started taking steps to reduce its credit footprint, having announced a 10% decrease in lending targets among other plans [2]. and that Soveign Bank has been labeled the the WEF as the most likely to fold in 2011[3], so if you’re investing in anything soveign related, well it had better be a pretty damn good ROI..

    0. http://en.wikipedia.org/wiki/Global_saving_glut
    1. http://blogs.cfr.org/setser/2007/09/26/global-savings-growth/
    2 http://business.globaltimes.cn/china-economy/2011-01/614052.html.
    3. http://www3.weforum.org/docs/WEF_GlobalRisks_Report_2011.pdf

  • jf

    I had to admit that It’s a little disconcerting that so few people have apparently taken interest in this thread. However, that all said, I disagree with the assertion of the OP, in that it means we’re gonna have to produce like a 71.5%+ increase in our annual GDP in order to meet the world’s projected credit demands for more or less the following list of reasons. This view point takes an understandably American stance; albeit incorrectly as we’re referring finances in a global scale here. Which brings me to our first three points of conjecture; this is a globally-scoped 10 credit projection, not an American-centric one focused on our printing of currency (although this 2nd round and potential subsequent rounds of devaluation could vastly modify my overall debating point).

    That is to say, as we all hopefully learned in 2008, that the investment bankers are pretty good at finding new creative accounting practices that allows them to generate more credit, and thus theoretically more money. However, as we also learned in 2008 even the biggest of our common monsters sometimes make ‘mistakes’ in that they were basically all insolvent due to their ability to generate credit from nothing,

    Point here being, I’m fairly positive this report has us coming out ‘Okay’ so long as we draw on our global savings glut[0] by up to $3.8T if we want to maintain our ability to meet our credit requirements. There’s some noteworthy speculation dated from 2007 “[about] there being no growth in global savings to support the global-savings-glut thesis.”[1]

    What I find more telling/concerning, is their idea that they’re gonna somehow double the worlds credit in a risk-free man as indicated in the following quote FTA “This doubling of credit could be achieved without increasing the risk of major crisis [...]” which pretty indicates to me that we never really left the bubble-zone, but more restarted the game, with each new iterations game looking shakier than the last; and it looks like the bubble this time will be likely named ‘global savings glut’.

    Finally, it’s probably north-worthy that China has already started taking steps to reduce its credit footprint, having announced a 10% decrease in lending targets among other plans [2]. and that Soveign Bank has been labeled the the WEF as the most likely to fold in 2011[3], so if you’re investing in anything soveign related, well it had better be a pretty damn good ROI..

    0. http://en.wikipedia.org/wiki/Global_saving_glut
    1. http://blogs.cfr.org/setser/2007/09/26/global-savings-growth/
    2 http://business.globaltimes.cn/china-economy/2011-01/614052.html.
    3. http://www3.weforum.org/docs/WEF_GlobalRisks_Report_2011.pdf

    • Liam_McGonagle

      All the juking and jiving aside, this article’s bottom line is:

      “We, the Big Banks of the World, have absolutely no intention of depriving our favourite debt-fueled gambling machines of one red cent in order to finance desperately needed real-economy enterprise. You’all had better increase your own debt. Good luck on that.”

      The reason no one is taking any time on this thing is that the bottom line is so hopelessly transparent. This report is just a big fuck you to anyone outside the upper echelons of the Big Banks. End of Story.

      • jf

        Yeah, I more or less got the same impression; what I find particularly frustrating is that everyone just accepts everything is immutable and moves on; and it sorta becomes self-fulfilling in that respect. I just can’t help but wonder what it will take exactly for people to say ‘okay this is enough’. I mean even in Iran we see people stand up for their beliefs, it seems something entirely lacking in our culture anymore. I don’t know, I don’t claim to have an answer, but I’m not willing to accept some things either.

        I guess my responses to comments have largely been a misguided attempt at further the public debate to productively release some anger on the subjects,

        • http://twitter.com/irisphant iris

          No way, I’m still chewing on this subject which made me quite speechless. I’m thankful to this site for bringing this report to my attention and showing me how utterly clueless I am. I sure spread the link as far and wide as I could.

          I’ve recently read Wolf under Wolves, Hans Fallada, written in 1935 about the Depression of 1929 in Berlin. I can see parallels to our times, and I can imagine inflation heading to the death of the currency we know. On this side of the ocean and the other.

        • Liam_McGonagle

          Well, it takes a village, and all that type of Kumbayaa.

          But seriously, the solution is pretty simply: Property tax on large securities holdings. Maybe set up a fund to specifically loan out to the smaller regional financial institutions that still seem to be in the business of credit to the real economy.

          I have faith that the tide will grow, and momentum will be gained, eventually. So while that momentum is building I’m trying to develop a catalogue of policy options and experiment with various investigative/pedagalogical approaches to speed up that process.

          http://dystopiadiaries.blogspot.com/p/policy-directions.html

    • Cocomaan

      Great response jf. Thank you for linking to Bernank’s “savings glut” talk.

      I agree that the report is taking a much more global stance, assuming bullish growth in the US and much more growth in developing markets. However, I just wonder what this $100t will be leveraged against. That savings? That’d be a 25:1 leverage over the next 10 years.

      Regardless, the effects of QE2 remain to be seen. This may completely blow both our opinions out of the water.

      • jf

        Actually, no thank you for the inspiration in the first place. For anyone looking for the speech, Cocomaan is referencing, it can be found directly here, http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/ or indirectly via the from the wiki link IIRC.

        in all earnest; I haven’t the foggiest what voodoo they’re gonna work to leverage $100T, it doesn’t seem like they learned much of anything from the last rounds of bail-outs (and who could blame them?), so I’m expecting some bubble created around the global-savings-glut-thesis/forex; probably involving a nuance that has yet to be regulated. Or probably more likely, that we’re both partially correct; in that they’ll augment the risks of one with the other.

        regarding, qe2; agreed, but which leads me to my next point; i’ve more or less lost what little faith i had in the market and I question anyone who is playing anything long-term that does not consist of tangible assets of some sort.

        But I’m also absurdly cynical in my investment outlook and honestly have begun placing more money into forex accounts just to diversify the currencies at hand because im both cynical and paranoid. In other words, I wouldn’t listen to me, no one else does ;].

  • Jason

    the truth of the matter is that we are NOT in an economic crisis, we are in a VALUE crisis, we have no values and no direction as a nation or a world, look at how many businesses create and create more and more nearly useless products and services that AVOID actual convenience at all costs, because the more inconvenient their services are, the more money they make from a culture that is always pressed for time, which begs another question, why are we still working 40 hour weeks? all of our technology is supposed to be making life easier! Instead we focus on making more and more STUFF that doesn’t really help anything, and we all try to do it FASTER and CHEAPER than the other guy, so we can make more MONEY, so we can pay RENT, and here’s the catch, BUY OUR TIME BACK (is this not totally stupid to anyone else?) I think rent is also pretty stupid, how can you charge someone else for living in and caring for a property just because you’ve got a piece of paper that says you own it? I’m not fighting utilities, those are operating costs, but rent itself is extortion in most [not all] cases.

    Until we as a world, as a human race, re-orient ourselves on ACTUAL value itself and not simply its representation, until we eliminate policy and start to actually deal with each other on a case by case basis, we cannot and will not recover.

  • Jason

    the truth of the matter is that we are NOT in an economic crisis, we are in a VALUE crisis, we have no values and no direction as a nation or a world, look at how many businesses create and create more and more nearly useless products and services that AVOID actual convenience at all costs, because the more inconvenient their services are, the more money they make from a culture that is always pressed for time, which begs another question, why are we still working 40 hour weeks? all of our technology is supposed to be making life easier! Instead we focus on making more and more STUFF that doesn’t really help anything, and we all try to do it FASTER and CHEAPER than the other guy, so we can make more MONEY, so we can pay RENT, and here’s the catch, BUY OUR TIME BACK (is this not totally stupid to anyone else?) I think rent is also pretty stupid, how can you charge someone else for living in and caring for a property just because you’ve got a piece of paper that says you own it? I’m not fighting utilities, those are operating costs, but rent itself is extortion in most [not all] cases.

    Until we as a world, as a human race, re-orient ourselves on ACTUAL value itself and not simply its representation, until we eliminate policy and start to actually deal with each other on a case by case basis, we cannot and will not recover.

  • Liam_McGonagle

    All the juking and jiving aside, this article’s bottom line is:

    “We, the Big Banks of the World, have absolutely no intention of depriving our favourite debt-fueled gambling machines of one red cent in order to finance desperately needed real-economy enterprise. You’all had better increase your own debt. Good luck on that.”

    The reason no one is taking any time on this thing is that the bottom line is so hopelessly transparent. This report is just a big fuck you to anyone outside the upper echelons of the Big Banks. End of Story.

  • Cocomaan

    Great response jf. Thank you for linking to Bernank’s “savings glut” talk.

    I agree that the report is taking a much more global stance, assuming bullish growth in the US and much more growth in developing markets. However, I just wonder what this $100t will be leveraged against. That savings? That’d be a 25:1 leverage over the next 10 years.

    Regardless, the effects of QE2 remain to be seen. This may completely blow both our opinions out of the water.

  • jf

    Actually, no thank you for the inspiration in the first place. For anyone looking for the speech, Cocomaan is referencing, it can be found directly here, http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/ or indirectly via the from the wiki link IIRC.

    in all earnest; I haven’t the foggiest what voodoo they’re gonna work to leverage $100T, it doesn’t seem like they learned much of anything from the last rounds of bail-outs (and who could blame them?), so I’m expecting some bubble created around the global-savings-glut-thesis/forex; probably involving a nuance that has yet to be regulated. Or probably more likely, that we’re both partially correct; in that they’ll augment the risks of one with the other.

    regarding, qe2; agreed, but which leads me to my next point; i’ve more or less lost what little faith i had in the market and I question anyone who is playing anything long-term that does not consist of tangible assets of some sort.

    But I’m also absurdly cynical in my investment outlook and honestly have begun placing more money into forex accounts just to diversify the currencies at hand because im both cynical and paranoid. In other words, I wouldn’t listen to me, no one else does ;].

  • jf

    Yeah, I more or less got the same impression; what I find particularly frustrating is that everyone just accepts everything is immutable and moves on; and it sorta becomes self-fulfilling in that respect. I just can’t help but wonder what it will take exactly for people to say ‘okay this is enough’. I mean even in Iran we see people stand up for their beliefs, it seems something entirely lacking in our culture anymore. I don’t know, I don’t claim to have an answer, but I’m not willing to accept some things either.

    I guess my responses to comments have largely been a misguided attempt at further the public debate to productively release some anger on the subjects,

  • http://twitter.com/irisphant iris

    No way, I’m still chewing on this subject which made me quite speechless. I’m thankful to this site for bringing this report to my attention and showing me how utterly clueless I am. I sure spread the link as far and wide as I could.

    I’ve recently read Wolf under Wolves, Hans Fallada, written in 1935 about the Depression of 1929 in Berlin. I can see parallels to our times, and I can imagine inflation heading to the death of the currency we know. On this side of the ocean and the other.

  • Liam_McGonagle

    Well, it takes a village, and all that type of Kumbayaa.

    But seriously, the solution is pretty simply: Property tax on large securities holdings. Maybe set up a fund to specifically loan out to the smaller regional financial institutions that still seem to be in the business of credit to the real economy.

    I have faith that the tide will grow, and momentum will be gained, eventually. So while that momentum is building I’m trying to develop a catalogue of policy options and experiment with various investigative/pedagalogical approaches to speed up that process.

    http://dystopiadiaries.blogspot.com/p/policy-directions.html