Zero Hedge
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

Another "Worst Since Lehman" Moment: 70% Of The "Developed" World Has Inflation Less Than 0.5%

Things are going from bad to worse not only for the "Chinese growth is stable at 7%" but the "US is decoupling from the rest of the world" false narratives. But while we have been pounding the table on both for years, only last week did the Fed finally admit US growth was slowing down rapidly (and will slow down much more once the 0.3% Atlanta Fed GDP forecast becomes mainstream), but it is China that will be the wild card.

Overnight Bank of America finally acknowledged just this "wildcard" and not only cut its outlook on Chinese stocks to "neutral", but had this to say:

Our recurrent theme is that most of the world is “old, indebted and unequal”. In our view this is a recipe for debt deflation and weak nominal earnings/economic growth. Proactive central banks figure this out early and fight the inevitable slowdown by implementing QE and weaker currencies. They grab the other guy’s pizza slice. Their asset markets soar. As Figure 5 shows, 70% of the world’s developed markets have inflation below 0.5% – almost as high as the depths of the 2008 financial crisis. So the USD8.6tn in central bank balance sheet expansion (from the Fed, ECB, BOE, BoJ, and PBoC, which amounts to 130% growth over Dec-07 to now) has been unable to get inflation going. Remember: most of the planet is Old, Indebted and Unequal – a recipe for slow nominal growth. That failure to ignite inflation is unlikely to stop central banks from trying QE/QE variants. Asset prices should be well supported by their (fruitless) endeavor wherever it is undertaken, like Japan and Europe currently. Emerging markets are not much better – as Figure 6 shows, about 70% have deflation in their PPIs. According to McKinsey, overall debt has increased by USD57tn in mid-2014 from USD142tn in 2007. China’s total debt has nearly quadrupled, rising to USD28tn by mid-2014, from USD7tn in 2007, fueled by real estate and shadow banking. Debt plus d

eflation is equal to debt deflation.

Needless to say, as the two charts below confirm, this is merely the latest "worst since Lehman moment." It is only fitting that the global market trades at all time highs to commemorate this.