Monday, October 17, 2016

The Perils Of A Resurgent China Credit Boom
"The downside of ongoing massive QE and negative rates has of late become a market concern, and with concern comes heightened vulnerability. This ensures keen focus on the other major source of 2016 market support: The Resurgent China Boom. Here as well, the downside of egregious inflationism has become increasingly conspicuous. China’s Credit Bubble is completely out of control – and it’s become deeply systemic. We’re numb to how dangerous circumstances have become .. When markets are in a bullish mood, faith comes easy that enlightened central bankers have mastered QE infinity. Similarly, astute Chinese authorities have become exceptionally proficient at financial and economic tinkering. Reality is a different story. Whether it is global central bankers or Chinese communist leadership, once monetary inflation really gets heated up there will be no cataclysm-free resolution. There remains a complacent view that patient central bankers will successfully wean the world off this torrent of cheap liquidity. Beijing will cautiously take its time in resolving structural Credit and economic issues. The harsh reality is that all these central planners badly missed their timing. At this point, the consequence of patience and caution is deeper maladjustment .. I would argue that a tremendous amount of global strife unfolds when the Chinese Credit boom succumbs. Chinese banks now lead the list of the world’s largest financial institutions. The performance of China’s economy now has major global ramifications .. There is great instability in China, masked by historic Credit expansion. It’s important to appreciate that China is new to this Capitalism thing. They’re completely inexperienced when it comes to mortgage finance Bubbles – and that goes for apartment owners, bankers and regulators. They are novices with massive corporate debt booms. They are newcomers in the face of a $30 TN banking system. They have outdone even the U.S. in mismanaging 'shadow banking'. The Chinese have followed the 'developed world' lead in repo, derivatives and 'sophisticated' structured finance."
- Doug Noland
LINK HERE to the essay

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