Thursday, August 25, 2016

China Is Caught In A  

'Dead Money Trap' 

As Their Central Bank Pleads For Fiscal Stimulus
Ambrose Evans-Pritchard article highlights how China is at mounting risk of a Japanese-style "liquidity trap" as monetary policy loses traction & the economy approaches credit exhaustion, forcing a shift towards Keynesian fiscal stimulus .. "Officials at the Chinese People’s Bank (PBOC) have begun to call for a fundamental change in strategy, warning that interest rate cuts have become an increasingly blunt tool .. The financial system is clearly out of kilter. The outstanding stock of mortgages has jumped by 30% over the last year alone to $2.5 trillion, crowding out the credit market. Net new loans to businesses contracted in June for the first time in eleven years .. The Chinese authorities have to walk a tightrope since capital outflows crept up to $42bn in July, the highest since the panic earlier this year. Capital Economics estimates that the central bank had to sell $29bn of foreign bonds to support yuan last month."
LINK HERE to the article

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