Thursday, August 14, 2008
Credit (M4) vs GDP
Click on the picture to enlarge. This is the chart that keeps me awake at night. That peak on the left is the 1929 crash. The interesting part is that the deleverage didn't start until 1934. The market crash in fact drove M4 relative to GDP UP. The real depression happened when M4 started going down.
In other words: it hasn't even started. When M4 starts really going down, then the shit will really hit the fan. Banks lose money, can't recapitalize, legislation will limit credit availability and levels, M4 goes down. Housing can't float due to credit tightening, we go below mean, banks lose a lot more money.
M4 deleveraging is a self feeding macro beast. It could be 2 years out. Pray.