CORONOMICS Munich 22 September 2020 - institutional assets AWARDS
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CORONOMICS
Munich · 22 September 2020
DR. DANIEL STELTER ·
CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for Germany
CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for Germany
Financial Crisis reduced growth worldwide
4
Italian Tragedy – but even Germany not great
5
Central Banks aggressive Source: JP Morgan
Lowest interest rates in 5,000 Years Source: BofA
Cheap money feeds zombies
Zombie share and policy rates Zombie duration and policy rates
6 0.0 2.50 0.0
2.5 2.25 2.5
4
5.0 2.00 5.0
2 7.5 1.75 7.5
10.0 1.50 10.0
0
12.5 1.25 12.5
-2 15.0 1.00 15.0
1985 1990 1995 2000 2005 2010 2015 1985 1990 1995 2000 2005 2010 2015
Zombie share (lhs)1 Policy rate (rhs)2 Zombie duration (lhs)3 Policy rate (rhs)4
1. Mean of country zombie shares; narrower definition; 2. Mean of country (nominal) policy rates;
Source: BIS 3. Mean of zombie firm duration in years; narrower definition; 4. Mean of (nominal) policy rates
Zombies in Europe
Share of capital sunk in “zombie” firms 2013 (%)
Italy
Spain
Belgium
Portugal
Luxembourg
Germany
Sweden
South Korea
Austria
UK
Finland
France
Slovenia
0 5 10 15 20
Source: The Telegraph
Auch in USA Zombies auf dem Vormarsch
USA: Anteil von Zombie-Unternehmen
Anteil (in %) der börsennotierten
Unternehmen, die mehr als 10 Jahre
alt sind und deren Zinsdeckungsgrad
drei Jahre in Folge unter 1 liegt
Quelle: DB Global Research 10Productivity growth slows down
Annual labor productivity growth
5-year
rolling
average
(%)
USA
Germany
UK
Japan
South Korea
Brasil
Mexico
output per hour worked
Source: Conference Board, November 2016Peak youth
Young children and old people as % of the population
16
14
12
10
8
6
4 Under 5
65+
2
0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Source: BofAIMF warned in autumn 2019
» After slowing sharply in the last three quarters of 2018, the pace of
global economic activity remains weak. Momentum in manufacturing
activity, in particular, has weakened substantially, to levels not
seen since the global financial crisis. Rising trade and geopolitical
tensions have increased uncertainty about the future of the global
trading system and international cooperation more generally, taking a
toll on business confidence, investment decisions, and global trade. A
notable shift toward increased monetary policy accommodation—
through both action and communication—has cushioned the impact of
these tensions on financial market sentiment and activity, while a
generally resilient service sector has supported employment growth.
That said, the outlook remains precarious.«
13IMF warned in autumn 2019
» (…) we need urgent co-ordinated political action to restore
confidence, boost inclusive growth and raise living standards; global
trade is stagnating and is dragging down economic activity in
almost all major economies; and policy uncertainty is undermining
investment and future jobs and incomes. Moreover, risks of even
weaker growth remain high, including from an escalation of trade
conflicts, geopolitical tensions, the possibility of a sharper-than-
expected slowdown in China, and climate change.«
14CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for GermanyCorrelation is not causation… still...
Central banks balance sheet (USD)
US 2,400 14,000 G3
stocks central
2,200 13,000 bank
G3 central bank balance sheet
balance
2,000 US stocks 12,000 sheet
1,800 11,000
1,600 10,000
1,400 9,000
1,200 8,000
1,000 7,000
800 6,000
600 5,000
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: bto analysisThird bubble in 25 years?
Central
Asset prices vs. GDP – growth rates
Bankers’
(index; December 31, 1997 = 100)
bubble
400
Housing
350
bubble
300
250 Dot-com
bubble
200 Recession
US nominal GDP
150
Net worth of US households
100
0
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: BloombergOur monetary order supports inflation
Number of years to double the global median price level
250
1571
200
150 1698
1363 1917
1805
100
50 1248
1942 1973
1952 1995 2011
1979 1987
0
1 2 3 4 5 6 7 8 9 10 11 12 13
Source: Deutsche Bank; bto analysisExample UK
(% of GDP)
125
100
75 100%
Unproductive loans
50
35%
Unproductive loans1
25
25% 25%
Loans to productive sector2
0
1990 Today
Source: bto analysis
1. Construction sector and mortgages
2. Excl. construction sectorCentral Banks „asymmetrical reaction“
Fed Funds rate vs. 10-year treasury (%)
20
Black Monday
Fed Funds rate
S&L crisis
US 10-year treasury
15
Japanese bubble
Tequila crisis
10 Asia crisis
Dotcom bubble GFC
5 ???
0
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Source: IncremetumExploding debt
Global Debt (Trillion US-$)
Households
166 169
Non-financial corporations 156
148
138
Government 42 43
39
111 116 38
105 36
97
33 33
32 65 66
31 56 61
64 52
42 43
18 41
37
25 59 60
50 54 56
32 36 40
21 29
2000 2007 2008 2009 2011 2013 2014 2015 2016 1. HY 2017
Total debt/
198 207 213 226 224 227 232 234 237 236 GDP (%)
Source: bto analysisSomehow financial stability deteriorated… Years with a financial crisis since 1600. Internet search. Source: Deutsche Bank 22
Debt drives asset values and inequality
Capital/income ratio 1980 – 2010 (%)
700
600 676
500 575 601 1980
Wealth
522
400
434 2010
412 410
300
321 322 355
309
200 253
100
0
France UK Germany Italy USA Japan
Debt government, private households, non-financial corporations (% of GDP)
500
400 456 1980
2009
Debt
300
321 322 308
265 290
200 241
100 160 160 136 151
109
0
France UK Germany Italy USA Japan
Source: Bank of International Settlement, Working Papers No 352 (2011); Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database,
http://topincomes.g-mond.parisschoolofeconomics.eu/ , 06/06/2014Piketty doesn`t understand the leverage effect
PIKETTY: STELTER:
»Debt is »Debt is not
neutral.« neutral, but
drives wealth.«
• Gross asset: e.g., 500 • Gross asset: e.g., 500
• Debt: e.g., 200 • Debt: e.g., 200
• Net asset: = 300 • Net asset < 300
Government debt a result of wrong Public and private debt influence the gross
distribution of wealth between the and the net value of all assets
private and the public sector. Private
debt not included in analysis. No
mentioning in index of the book.Leverage effect: example 1 Asset: e.g. a stock. Price: 100, yearly return: 10 2 100% equity financing: yield 10% 3 Bank credit available for 5% 4 Bank credit: 50, equity: 50 5 Interest expense: 2.5, return on equity: 7.5 = yield: 15% 6 Bank Credit: 80, equity: 20 7 Interest expense: 4.0, return on equity: 6.0 = yield: 30% And: You can buy stocks for 500 instead of 100! Total return: 30
Debt with less impact
GDP generating capacity of global debt: all major economies
2007
2017
-37.3%
1.0 1.0
-42.6% 0.83
0.8 0.8
0.68
-17.4% -14.6% -14.6%
-20.5% -11.1%
-14.3%
0.6 0.6
-18.2% 0.52
0.46 0.48 0.48
0.44 0.45
0.40 0.41 0.41 0.42
0.38 0.39
0.4 0.35 0.4 0.36
0.33
0.27
0.2 0.2
0.0 0.0
Euro zone UK Japan USA China G (20) Emerging All reporting Advanced
aggregate markets countries economies
(aggregate) (aggregate) (aggregate)
Source: HoisingtonCredit quality gets worse and worse… Proportion of cov-lite loans Source: Deutsche Bank, S&P 27
2,500
3,000
1,000
1,500
0
BUSD
2,000
Source: SocGEn
Dec. 1998
July 1999
Feb. 2000
Sept. 2000
April 2001
Nov. 2001
June 2002
Jan. 2003
Aug. 2003
March 2004
Oct. 2004
May 2005
Dec. 2005
July 2006
US corporate debt at all time high
Feb. 2007
Sept. 2007
April 2008
Nov. 2008
June 2009
Jan. 2010
Aug. 2010
March 2011
Oct. 2011
May 2012
Dec. 2012
July 2013
Feb. 2014
Sept. 2014
Net debt
April 2015
Nov. 2015
June 2016
EBITDABBB a problem in the next recession? Share of market value in Bloomberg Barclays USD IG (%) Source: Deutsche Bank
Buy-Backs main driver of stock returns in the US US companies have been the biggest net buyers of stocks over the last decade through buybacks Cumulative net purchase of US stocks (in $ billions) Source: Deutsche Bank 30
Big worries in front of the next recession Out of Space: Central banks have no room to cut rates like they did in the last slump Source: Bloomberg data 31
CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for GermanyThe Mother of all Recessions The Eurozone economy endured its worst downturn on record in March Source: IHS MARKIT 33
CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for Germany“All-in” of States and Central Banks I Largest bailouts in history in 2020 USD ($bn) vs. G7 public and private debt to GDP Source: Deutsche Bank, Haver, IMF. Dotted line shows our forecast for 2020. 35
“All-in” of States and Central Banks II Extraordinary central bank stimulus has eased financial stresses Source: Citi ©FT 36
No wonder, stock markets are up Too much money chasing too few assets in 2021? Source: Nordea and Macrobond 37
CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for GermanyA debt driven Boom
Kredite an HH und Nicht-Finanzunternehmen (Mrd. €) Realzinssatz und Inflation 1999 – 2007
D Jährlicher Inflationsrate (%)
5 4
Wohnbau, Immobilien, Bau R2 = 0,9649
4
Greece
Konsum und Dienstleistungen 3 Ireland
3 Spain
Industrie und Agrar Portugal Italy
France
2 Austria
2 Netherlands
Belgium
1
Germany
Finland
0 1
1992 1995 1998 2001 2004 2007 2010 2013 1,0 1,5 2,0 2,5 3,0
D Realzinssatz
Realzinsrate und Kreditwachstum 1999 – 2007 Kreditwachstum und Handelssaldo 1999–2007
D Jährliche Kreditwachstumsrate (%)
D Jährliche Handelssaldo (%)
25 1,0
R2 = 0,7754 Germany Austria R2 = 0,7786
20 0,5 Netherlands
Ireland
Greece Finland
15 Spain
0,0
Italy Portugal
Portugal Belgium
10 Austria -0,5
France Belgium Italy Ireland
5 Netherlands Finland -1,0 Spain
France
Greece
Germany
0 -1,5
1,0 1,5 2,0 2,5 3,0 -1 0 1 2 3 4 5 6 7 8 9 10 11
D Realzinsrate (%) D Jährliches Kredit-/BIP-Wachstum (%)
Source: IMFConvergence? – Less than before the Euro (I)
Treiber BIP-Wachstum
4
Länder mit hoher Produktivität Länder mit niedriger Produktivität
3
2
1
0
-1
-2
1990-1999 2000-2007 2008-2016 1990-1999 2000-2007 2008-2016
Labor Kapital TFP Durchschnittliches Wachstum
Quelle: IMFConvergence? – Less than before the Euro (II) Intra- and Extra-EA Trade in Goods Intra-EA 12 Trade in Goods Sum of exports and imports in % of GDP Sum of intra-EA 12 exports and imports in % of total trade Sources: OECD Monthly Statistics on International Trade; AMECO
Fighting a debt crisis with more debt
» The Euro Zone must go
towards more solidarity
and integration: a common
budget, a common
borrowing capability,
and fiscal convergence. «
The „Reconstruction Fund“ and debt on
EU level buys time but does not solve the
problem.Dabei geht das nicht – sagt der IWF!
Anteil der aufgefangenen Fiskalische Transfers
externen Schocks Kapitalmärkte und private Verluste
Kreditmärkte
100
80
60
40
20
0
-20
EU EMU Switzerland USA Germany Source: IMFThe fairness question with transfers Private Wealth/GDP Source: James Davies, Rodrigo Lluberas und Anthony Shorrocks, Global wealth databook 2019 44
Countries with “M” have more in common… Source: JP Morgan 45
Keine leichte Lösung
Abbau fauler Ausgleich Wett-
Schulden bewerbsfähigkeit
1. Interne Abwertung
2. Transferunion
3. Höheres Wirtschaftswachstum ? ?
4. Schuldenrestrukturierung und Wachstum
5. Höhere Inflation ? ?
6. Pleiten und EuroaustritteCORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for GermanyHow to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
48How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
49How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
50How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
51How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
52How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
53Debt restructuring already in the Bible and Mesopotamia
Debt restructuring in the Bible: Debt restructuring in
"The Jubilee Year" ancient Mesopotamia
In the Biblical Book of Leviticus, a Jubilee year is mentioned to In ancient Mesopotamia, debt was commonplace;
occur every fiftieth year, in which slaves and prisoners would individual debts were recorded on clay tablets.
be freed and debts would be forgiven Periodically, upon the ascendancy of a new
monarch, debts would be forgiven: in other words,
» And ye shall hallow the fiftieth year, and proclaim liberty
the slate would be wiped clean
throughout all the land unto all the inhabitants thereof: it shall be
a jubile unto you; and ye shall return every man unto his
possession, and ye shall return every man unto his family. A jubile
shall that fiftieth year be unto you: ye shall not sow, neither reap
that which groweth of itself in it, nor gather the grapes in it of thy
vine undressed. For it is the jubile; it shall be holy unto you: ye
shall eat the increase thereof out of the field. In the year of this
jubile ye shall return every man unto his possession.«
Leviticus 25:10–13
Source: WikipediaMacron’s advisors think big
Dealing with
legacy debt in
the Euro area
»While public debt has increased over the past twenty years, so has
household wealth – particularly when it comes to real-estate – with
large distributional consequences. An avenue could therefore consist of
a highly indebted country decreeing that it becomes part-owner of all
lands on which dwellings are built, up to a given fraction of their
value (establishing a leasehold in effect on part of the land). The
payment for the right of occupancy by the homeowner would generate
an annual revenue stream for the state. Homeowners could chose to
defer annual payments, the total amount of which would become due
only upon the sale or inheritance of the home.«
Source: France Strategie, http://www.strategie.gouv.fr/english-articles/dealing-legacy-debt-euro-area, October 2017 55France is the biggest debtor
Schuldenstände der verschiedenen Sektoren in % des BIP
Private Private
Country State Companies Households Sector Total Total
Germany 61.0 59 54 114 175
Austria 71.1 90 49 139 210
Italy 137.3 69 41 111 248
Spain 97.9 95 57 152 250
Portugal 120.5 100 65 164 285
Netherlands 49.3 163 101 264 313
Belgium 102.2 150 61 212 314
France 100.4 155 61 216 317
Source: Bank für Internationalen Zahlungsausgleich, Stand Q3/2019 · erstellt mit Datawrapper 56How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
57How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
58Helicopters on the way Source: I, Igge, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=2436263 59
The idea of helicopter money is gaining popularity
» Let us suppose that one day a helicopter flies over this Milton Friedman
The Optimum
community and drops an additional $1000 in bills
Quantity of Money,
from the sky, which is, of course hastily collected by Chapter 1
members of the community …« 1969
» Today I will argue for a different approach and suggest Ben Bernanke
that the Bank of Japan cooperate temporarily with the Speech before the
government to create an environment of combined Japan Society of
monetary and fiscal ease to end deflation and help Monetary Economics
Tokyo, May 31, 2003
restart economic growth in Japan.«
» … in some extreme circumstances – those in which there is Adair Turner
a simultaneous and significant fall in both the price level Financial Services Authority
and real output – it is unambiguously clear that OMF would Chairman, Lecture at the
be the best policy, and in some circumstances may be the Cass Business School
London, February 6, 2013
only policy available to prevent continual deflation.«
60Deleveraging is deflationary
Deflationary
risk levers
• Deleveraging need
• Austerity programs
• Excess capacity
• Potential global slowdown
Source: bto analysis 61Deleveraging is deflationary, printing money is inflationary
Deflationary
risk levers
• Deleveraging need
• Austerity programs
• Excess capacity
Inflationary
• Potential global slowdown
risk levers
• Inflate away high debt levels
• Liquidity glut
• High commodity prices
• Internal EMU imbalances
Source: bto analysis 62M*V = P*Y: Watch out for the velocity of money!
Increase in money supply is offset by low velocity of money
25 2500 Money velocity 1
Monetary base(B$)2
20 2000
15 1500
1 Velocityis a ratio of nominal GDP to
the monetary base as measure of the
10 1000 money supply. It can be thought of as
the rate of turnover in the money
supply--that is, the number of times
one dollar is used to purchase final
5 500
goods and services included in GDP
2 Monetary base: money supply directly
0 0 controlled by the central bank
Note: M = money supply, V = velocity,
1980 2010 P = Price level, Y = GDP
Source: Thomson Datastream; Federal Reserve 63Alterung setzt mit voller Kraft ein
Erwerbsbevölkerung in den Industrieländern vor Schrumpfung
1,5 % 75
Entwicklung der Bevölkerung im erwerbsfähigen Alter (%)
Quote der Altersabhängigkeit 70
1,0 %
65
0,5 % 60
55
0,0 %
50
-0,5 % 45
Quelle: Twitter @SoberLook 64How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
65How to deal with too much debt?
Austerity?
Growing out of the problem?
Back to Mesopotamia?
Inflation?
66CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for GermanyJoint restructuring the euro zone debt overhang
Pooling of debt of 75% of GDP Refinancing with „Eurobonds“
160% 160%
Eurozone
redemption Features:
fund
130% 130%
► Jointly guaranteed to obtain
AAA rating and low rates
► Repayment over 100+ years
80%
► Interest free for some years
75%
► Debt does not count to
Accompanying country debt.
measures
• Structural and fiscal
...
reforms Funding by the ECB –
Italy
Spain
Portugal
France
Germany
• Limits on new very long period of time.
indebtedness Mutual understanding that
• Measures to reduce debt will be grandfathered
Roll-in of government debt private debt LT
of 75% of GDP per country
< 60% of GDP
Remaining debt on
country-level > Manageable
Source: Eurostat; bto analysisJust retire the QE debt?
» Instead of selling the debt back
into the market, the BoE can retire
the debt. At a stroke, £325bn of UK
» After buying government debt disappears. If the
£325B of debt US follows suit, about $1.5T of US
from the market, government debt will be retired.«
the public sector
(the Treasury) is
paying interest to » The main obstacle to retiring the debt lies with
itself (the BoE) on the markets and credit rating agencies. They
debt that it owes may see this as a slide towards Weimar Republic
to itself.« economics: monetary financing of government
debt by printing money. Consequently, both the
BoE and the Treasury cannot be seen to advocate
retiring QE-acquired debt at this stage.«
69CORONOMICS – the new economic order
Weak recovery from the financial crisis
Fragile financial system
Mother of all recessions
Central Banks go “all-in”
Eurozone fundamentally ill
How to deal with too much debt?
A bold proposal for the Euro
Coronomics for GermanyDie schwarze Null ist ...
• keine echte Leistung, da sie Mario Draghi, der EZB und damit vor allem
der nach wie vor ungelösten Eurokrise zu verdanken ist (Zinsersparnis!).
• eine große Dummheit, weil sie die Ersparnisse der Deutschen in das
Ausland treibt, wo sie deutlich schlechter angelegt sind.
• eine Lüge, weil in Wirklichkeit die Staatsschulden explodiert sind, weil die
Politiker immer mehr Leistungsversprechen für die Zukunft abgegeben
haben (in Gesetze gegossen!), für die aber keine Rückstellungen gebildet
wurden. Würde der Staat wie ein Unternehmen bilanzieren, würde man
das sofort an steigenden Lasten sehen.Implizite Schulden von fast 100 Prozent des BIP
825
Das EU-Nachhaltigkeitsranking 2016 Nachhaltigkeitslücke 765 788
(in Prozent des BIP, Basisjahr 2015) Explizite Schulden 22
Implizite Schulden
603 79
100
549
458
432 106
381 390 83
311 356
331 337
249 254 256 266 272 64 108 803
38
199 89 665 710
107 109 135 147
161 179 85 64 65
40 43 177 466 497
62 86 87 96 369 351
39 51 44 273 291
343 301
39 53
26 75 71 214 169 170 229 259
132 129 155 164 153
10 87 36 22 83 61 90 128
18
29 16 40 -25
-48
Malta
Zypern
Bulgarien
Slowenien
Ungarn
Deutschland
Frankreich
Estland
UK
Kroatien
Slowakei
Griechenland
Dänemark
Belgien
Lettland
EU28
Schweden
Niederlande
Finnland
Luxemburg
Tschechien
Irland
Polen
Litauen
Österreich
Rumänien
Spanien
Italien
Portugal
Quelle: Stiftung MarktwirtschaftThank you for
your attention.
www.think-beyondtheobvious.com
DR. DANIEL STELTER ·Jetzt neu: der
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