Here it comes

China’s debt bubble about to hit the wall.

[quote]China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.
The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.
The debt snowball is getting bigger and bigger, without contributing to real activity.

Wei Yao, Societe Generale
“The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.
“There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling,” she told the Telegraph.
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While the non-performing loan rate of the banks may look benign at just 1pc, this has become irrelevant as trusts, wealth-management funds, offshore vehicles and other forms of irregular lending make up over half of all new credit. “It means nothing if you can off-load any bad asset you want. A lot of the banking exposure to property is not booked as property,” she said.

Read more: theage.com.au/business/china … z2WbSQRbwu[/quote]

If not contained very bad news for us all. Add in a very strong yuan exchange rate and things look dire.

I think bad news for us all is hardly the case. Some places are dong better, and some doing worse.

For some Taiwanese companies this would be painful as China is nominally the largest export market, but it’s complex due to non transparency of trading relationships.

Well, if China has a major credit bubble going, the money and the trade is only part of it. Use the PAP to create calm, and then nationalize what savings remain, easy to sort if you are willing to shoot anyone protesting. (They have shown themselves to be willing to do that in the past.)

Patriotism is the last refuge of the scoundrel, that one I fear more.

Here’s a little more from AWJ:

The rate Chinese banks offer to lend to each other, a benchmark rate known as the Shanghai interbank offered rate, has surged in recent weeks, underscoring a broader liquidity squeeze for the economic giant.

The three-month SHIBOR rate was at 5.329% Tuesday, according to the National Interbank Funding Center. But it reached as high at 6.9% on Friday. That benchmark rate spike reflects growing concerns in the Chinese economy, as The Wall Street Journal reports:

“The Chinese interbank funding market has seen rates soar since early this month amid slowing foreign-capital inflows and banks’ needs to fulfill investor obligations, among other factors. The squeeze is pushing up banks’ funding costs and could impede a key source of funds for growth even as the economy slows.”

But it also puts the People’s Bank of China in a tough spot, forcing the central bank to decide whether or not to play puppet-master with the flow of credit. The Journal reports:

“The concern about a credit crunch comes at a time when Chinese officials also are trying to combat the opposite: a credit binge that dates from the stimulus spending of 2009. The two are linked, analysts say. By trying to rein in the long-term credit surge, the PBOC may have produced a short-term credit crunch. But any big intervention by the PBOC—which, unlike the central banks in the West, isn’t independent of the nation’s political leaders—would risk sending a signal that China’s top leaders would rather sacrifice their goal of keeping a lid on credit growth in favor of pumping up domestic economic growth.”

China’s big banks, which have felt the pressure first-hand from the rate hike, are pushing the central bank to infuse cash into the financial system. But the spike in rates may also serve as an early warning of something bigger. As Matt Phillips of Quartz pointed out on Twitter, when the London interbank offered rate (or Libor) last spiked, the U.S. financial crisis followed close behind:

twitter.com/MatthewPhillips/sta … 4552539136

Read more on Libor’s rate-rigging scandal.

– Ben Eisen

It’s always a sign of severe stress in the system when banks won’t lend to each other (except at exorbitant rates) that’s what brought down lehmans if I remember correctly and the US govt then stepped in with the bailout.

I was reading a little today about how Western governments were selling gold in the 90s. Why were they selling gold when if they held on to it for the next 10 years they would have cashed in wholly? It makes you wonder. Here is another interesting fact as soon as Bush became President of the US gold changed from forward pricing to spot pricing. How is that possible? Why would you change so quickly?

Back in the 1990s Gold was seen as something shiny but not really a major investment class. The 1970s gold bubble and bust was still in public memory.

I think it has more to do with buy low and sell high, especially the potential for securitizing the gold market. A little on gold:

When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things.
First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory.
Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon “fix” between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply.