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China bans journalists from writing about its $24 trillion debt bubble the biggest in history

Posted on 24 December 2013 with 5 comments from readers

The Financial Times reports that China has banned journalists from writing pessimistic articles about its economy, the latest in a desperate effort to prevent the $24 trillion Chinese debt mountain from imploding as local interest rates skyrocket.

Blame the Fed for its reduction of QE money printing last week. The three-month Chinese Shibor interest rate is up 80 points to 5.5 per cent over the past month. This is a credit squeeze as hot money is pouring out of China.

Wealth management

Most vulnerable are China’s so-called ‘wealth management products’ that are highly leveraged to juice gains. Fitch Ratings says this ‘hidden second balance sheet’ totals around $2 trillion. Indeed the sums of money involved in the Chinese credit expansion are huge.

Credit has been expanding at 20-30 per cent per annum for the past five years since the global financial crisis. That’s way ahead of 7.5-8 per cent official GDP growth

Total credit has ballooned from $9 trillion to $24 trillion in five years, and is now equal in size to the US and Japanese banking systems added together, the biggest bubble in history. It is obvious to many observers that much of the GDP expansion of the past five years is simply monetary inflation and an illusion created under a cloud of acrid smog.

The problem with any debt bubble is that all seems perfectly well until the bubble suddenly goes pop. China is now coming closer and closer to that point. The rich have gotten as much as they can out of the country before this happens in a movement of money unlike anything since the Russian oligarchs in the late 1990s. London’s two top real estate owners are Chinese, for example.

Chinese gold rush

Chinese older ladies, the famous aunties, are converting their money into gold in a rush that has taken advantage of falling gold prices this year. Really they are buying gold after the inflation has happened and not before, but should still have the last laugh if China’s paper money collapses as it has so many times in the past.

But as with the subprime crisis in 2008 the final ‘black swan’ event is most likely to be a bank collapse or failure of a financial institution, like Lehman Brothers or Northern Rock. And it is impossible to predict with any certainty when that might happen.

However, there are rumours that some of the wealth management concerns are already bankrupt on paper. Half of their liabilities have to be refinanced every three months. Could there be a Chinese-style TARP rescue plan very soon? That looks inevitable but what will the damage be to financial markets in the meantime?

Posted on 24 December 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Gold & Silver, Hedge Funds, Investment Gurus, Sovereign Wealth Funds, US Dollar, US Stocks

5 Comments posted by readers:

Comment by alan - 26 December 2013

looks like the whole world is just printing and using worthless paper but does anyone really think that the govts around the world will let gold and silver replace paper, money and its usefulness for lifes essentials are another form of control

Comment by Zhang Lan - 26 December 2013

In your dreams! If this is what passes for analytical journalism, then the best arb trade would be to go long Kleenex and ‘clean up’

Blame the Other Guy – its far more comforting than facing hard reality

Comment by Jango - 26 December 2013

We are on the verge of the 3rd horseman of the Apocalypse coming when a loaf of bread will cost a day’s wages. You can find out how to protect yourself at http://www.itshisstory.com

Comment by Mike Lawrence - 27 December 2013

An excellent report on the Future of the Chinese Economy is accessible at:
http://www.globalsecuritieswatch.org/special_report_on_the_future_of_chinese_economy.pdf

Comment by Ben Manly - 06 January 2014

In ref to Mike Lawrence’s message about the report from GSW. I downloaded those reports and I went through them. The reports do not seem to be very professional and they clearly have a very anti-China twist, just from the overall sentiment of the report – not providing a holistic picture of what is positive and negative about China’s development – and simply depicting a caricature type of economic picture of China – makes those reports suspicious. For example in the reports we see images of empty shopping malls, empty subways, empty cities etc. I can tell you that subways in the large Chinese cities are packed with passengers. There could be subway stations in suburbs outside the cities and in off-peak times that may be empty at that time, or subway stations newly built in new parts of the outskirts of the cities where the traffic is less. The same goes for shopping malls, likely several of them may have been a band investment, but among thousands of development sites some will be poorly planned and fail. There are also many more developments that are very successful too, why does the report not mention those? And for ghost cities etc. the same goes, it can be some of them have failed, but these are a minority. With the speed of growth in such an economy it is normal that several failures will exist – especially when a society is trying to commercialize at the speed of China – yet those reports fail to depict the successful side of the economy. Do not take too seriously the reports from GSW.

I have seen many empty suburbs and deserted public spaces in the US or other parts of the so called ‘developed’ world as well. Even downtown cities in American cities are deserted often in certain time during the day. In Europe the aging urban fabric, often historic and thus requiring protection / restoration etc is not sustainable especially when economies do not grow. The same will occur in the US in the future.

I am a foreigner / European and I have been living in China for the past 10 years. I can clearly tell that the views of many westerners about China are not clear and most likely westerners without an intimate understanding of the situation here tend to formulate generalized views about China. Thus you fail to clearly see the reality and thus you can not project possible outcomes of futures. Your views about what will happen to China in the future, and some other Asian economies, is seen from your own angle and with references to your own Western history of how things transpired according to socioeconomic experiences from the West.

China is not uniform as a country. The differences between Beijing and Shanghai versus for example remote undeveloped parts of China are enormous. Thus this country will need to keep developing for another 50 years at least and will still have needs to develop even longer. There are hundreds of millions of poor Chinese though the perception of being poor in China is different than the one in the West at present.

Also China is not a nation, it is a civilization primarily but I will not comment more on this as it requires a lot more to say.

The editor or editors of the Arabian Money – and I have to say I do read some of your reports – may provide a better service to us the readers if you are more factual about your statements. This will add to your credibility.

Finally a Western reading audience should also read Chinese or Asian analysts and commentators.

The foreign press is constantly writing about China crashing, they have been writing this for many years now, the fact is none of these articles is worth your time. Yes, China can slow and will slow down, it may even crash from time to time, same as in the west and other parts of the world. This will not be the first or the last time. Growth will continue, progress will continue. We are in a tremendous shift of growth in Asia with China, India, SouthEast Asia etc requiring a lot of investment and we will see massive social changes, hopefully towards the better.

The US and Europe have crashed many times in the past and still they are providing one of the best living conditions around. So even if China slows it will not be the end of the world, it is actually much better that China slows down and enters into a more sustainable path, that will be better for all.

BJM

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