China & the US are in the same place: DEBT

Well we got trouble, right here in Money City….with a capital T and that rhymes with D and that spells Debt

debtclock

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Borrowing is just useful leverage when the sun shines. But when it rains, borrowers in all the sizes and colours – from the local authority via the margin-caller through to Sovereigns and corporate share purchasers – are in debt. The planet is replete with unsustainable borrowing, and the growth to repay it just isn’t there.

When the Shanghai only loses 0.1%, it’s a subject for celebration these days. But don’t be misled. This is what actually happened on China’s main exchange overnight: in the first session, the Shanghai dropped 30 points…after which (as usual) everyone broke for lunch while the PBOC flogged off some more bonds, and amazingly, at the pm opening all the losses were regained. And then lost again. And then regained.

Take a look at this UBS graph of the debt run up supporting the Shanghai during January this year. It is compared below to the annual gdp of some other countries:

chinadebtJan2016

China spent more propping up one bit of its service economy – you know, the one that’s going to save it one day – in 8% of the year than the entire economic output of each of the other variously oil rich and growing economies alongside it there.

This not only backs up Nöel Coward’s assertion that China is “very big”: it highlights why Larry Summers and many other intelligent commonsensicals say this support is “unsustainable”. It’s surreal.

The country is also in the grip of a runaway credit boom in the institutional sector. The problem has always been local government indebtedness, and once again it has shot up. Much of it has been bought by the country’s banks, as this equally alarming chart shows all too clearly:

chinabadloansJan2016

Over the last two years, Chinese unrecoverable debt has risen 115%.

Corruption is endemic in China, and every bent dealer and bankers is trying to bend  every rule in order to buy gold and get their money out and into another currency. Yesterday, Spanish police and Europol arrested five directors of Chinese bank ICBC following a money laundering investigation. Police sources allege the gang were trying to move as much as €40m into the eurozone financial system. These signs do not suggest a cultural economy in good shape.

The situation is the same in the US – fathoms of debt – but a lot of this is senior multinational executives using cheap Zirp and QE money to buy back shares while the market has been going backwards. Sadly, the recovery hasn’t happened to enable paying off the loans, and so now they’ve become the banks’ new sub-prime borrowers.

The US élite insists of course that I’m talking twaddle and the payroll numbers prove it. But employee numbers prove nothing: the only thing that talks in the US is the Munnneeee. And things are dire in Money City: In Q4 2015, corporate earnings declined 4% at the largest 500 publicly-traded companies – the steepest slump since 2009, according to Bank of America Merrill Lynch research. Sales at the 500 S&P quoted companies fell an average of 2.5% on the year as a whole.

All this debt, all this hope. See that wing, hear those prayers.

And in case you hadn’t noticed, Japan, the eurozone, and the UK are all in the same place.

26 thoughts on “China & the US are in the same place: DEBT

  1. Sorry, John, but you do not help your case by invoking the opinions of Larry Summers. He may have a brain the size of a planet – he certainly thinks he has – but in the real world he has been consistently wrong about everything.

    Liked by 1 person

  2. ” Larry Summers and many other intelligent commonsensicals”

    common sense, are you mad, This lunatic is semi responsible for most of the worlds current ill’s and wants desperately to banish all cash.
    He should be a lunatic asylum with a few insane jihadists in a bare concrete windowless cell

    Liked by 3 people

  3. Ah but Super Mario is getting his biggest bazooka ever out very soon he says. And this new bazooka will out bazooka all previous bazookas, he re-iterated he ready to do ‘whatever it takes’….

    Liked by 1 person

  4. Summers, along with Draghi and many other central bankers ( not Janet Yellen! ), takes the view that when an innovative and controversial policy has obviously failed, the solution must be to repeat it on an even grander scale.

    An old friend of mine, a well known monetary economist, has commented that it is fortunate for these people that they did not seek to solve the world’s problems by banging their heads against a wall. They would now have no choice but to advocate banging them much harder.

    Liked by 2 people

  5. Instead of continually throwing money at the banks why don’t we try what the Americans did just after the crash; throw money at the consumers. Give every tax payer a nice big tax rebate to be spent on UK goods or services. Of course it would be against EU rules but it would certainly give the economy a lift and is no dafter than most economic theories.

    Liked by 1 person

  6. @Stan: There was some talk that they should just helicopter money to public, many thought it was a great idea but, unfortunately the ‘Elites’ said “NO”. Apparently they just couldn’t stomach the thought that folk should just be given money so, the idea was shelved.
    Oh, there was a good article on this subject on Zerohedge some while back, you might still be able to find it if you search hard enough.

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  7. The problem with printing money & putting it on the equation unequally is that i you must print the same amount again to place on the other side of the equation just to get back to square one ii or tax what is already generated by QE onto the other side of the equation iii,the problem with the second is debt (much larger amounts)of those that have gained (???) will be unsustainable in the short term until the spending of those gaining kicks in & returns from investments return!

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  8. It would have been useful to throw QE at consumers in the UK at last crash. We’d all have been buying stuff like mad. The banks would have got the money back into their coffers and we’d all be in a happier place. Maybe. Some other countries in the EU seem to play fast and loose with EU laws so should we?

    You’ll note I’m ignorant of serious financial stuff although I reckon I could out do Call me Dave and Gideon.

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  9. I don’t agree that Japan, the UK & the Eurozone are in the same place. Japan is trailblazing the path and showing us the consequences of QE infinite & Nirp. The UK & Eurozone are following the path trailblazed by Japan, with full knowledge of the Japanese results. The US is close behind. This is insanity of the status quo in full display.

    Liked by 1 person

  10. Dear folks
    I detest Summers as much as anyone, but when it comes to the events since 2010 has he been right or wrong? He has been right.
    I said at Day 1 of Zirp it was the exact opposite of what should have been done. Lower rates make zero difference to borrowing if people are too insecure/worried to borrow. But higher SAVINGS rates make we Silvers spend because we don’t need credit.
    The Boomers in the West could’ve driven a recovery that would be in full swing by now. But of course, that wouldn’t have saved the banks. So the obvious option was doomed. As a result, we Silvers are now skint, most Sovereigns are skint, and zero real investment has been made in infrastructure either social or commercial.
    NOTHING & NOBODY “matters” more than the bankers.
    But the point of this post – and it would be nice if at least one threader addressed it – is this simple:
    Rising debt plus shrinking income = unhappiness and, eventually, bankruptcy.
    The final result will be – as it always had to be – debt forgiveness.
    We are a stupid, stupid, stupid, stupid, stupid species.
    “It’s the species, stupid”.

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  11. Meanwhile, back in Brussels OurMateDave says ” ‘I’ve told the wife and kids I’ll stay until Sunday’ as, according to the DT EU summit – Cameron battles to save reforms as Greece threatens to veto entire EU deal over migrants. Such joy … ( ͡° ͜ʖ ͡°) ( ͡⊙ ͜ʖ ͡⊙) ( ͡◉ ͜ʖ ͡◉)

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  12. ‘The final result will be – as it always had to be – debt forgiveness.’
    Nope, I think you are wrong there, war will come first. They can’t accept debt forgiveness in the same way they cannot accept helicoptering money to the public.

    Liked by 1 person

  13. The problem with debt forgiveness in this computerised world is how,if debt is deemed un-payable then many of the tools used are activated,since only a small amount of money is actually printed is it some/all of the paper stuff,the bubble means that this paper money inflates asset prices,(& therefore borrowing against it)were do you draw the line,were do you set the new standard & against what if anything,i think QE helicopter money will in time be brought in & hyper inflation set of & your £1 trilion pound tin of beans will be on your shelf once we can get someone to harvest the beans & if they don’t perish before we can find some one to marinate them in blood & tin them!

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  14. “I detest Summers as much as anyone, but when it comes to the events since 2010 has he been right or wrong? He has been right.”

    No, he has been wrong. He believes that QE was a good idea, just needed to be done in bigger size. The truth is that QE has turned a mess into a quagmire.

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  15. a helicopter drop can be the last gasp. it will spark the crack up boom. Inflation will roar and shelves will empty … not to be refilled because no one will be able to afford to refill them. Debauching currency and printing to pay debt creates a giant whirlpool that sucks everything and body in… no getting out.. the more you print the faster and bigger it gets… that is why in a free market bankrupt companies are liquidated.. the systemic collapse happened when these zombies were fed printed money instead of liquidation and firesales.. that was the correct medicine .. Now the same thing has to happen Bigtime.

    Liked by 2 people

  16. I am of the same opinion as our genial Host, at some point there should be debt forgiveness.

    Ever since it was decided to save the Banks (using QE) the die was cast. Spending debt to buy your way out of debt was never going to work. Then use the new debt to prevent any real economic activity and sucking more money out of the economy added to austerity to drive down demand further. Throw in globalisation to drive down wages then demand in every market for added grist to the mill. A perfect storm was brewing.

    Beyond the eyes of mere mortals, the elite were thinking of more ingenious ways to create money out of nothing. The FX market, driven by cheap money has exploded, sucking more money out of economic activity. Leveraged loans and Exchange Traded Funds grew exponentially to fund highly leveraged merger and acquisition activity and stock buybacks. CoCo bonds, derivatives and CDS are all fermenting nicely. All financial activity is now designed to create wealth without any true economic activity (as in making stuff and selling stuff). Let’s not even discuss the effect Chinese markets might have when the full picture of their none performing loans (what a lovely nice term) becomes apparent. I understand that UK banks have the largest global exposure to China.

    The global financial system is fecked. The global debt is in hundreds of trillions and can never be repaid. We either have a global war to reset the baseline or dream up a way to invoke global debt forgiveness. In my opinion the powers that be will opt for option one, WW3 as giving money away will be far too difficult for the elite to accept (that and the fact they have the bunkers and escape plans to avoid the nasty stuff).

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  17. Ricoh,

    The theory behind helicopter money is it will be to kick start demand in the economy. More people buy stuff more people make stuff, more economic activity and GDP grows. You could also helicopter money into infrastructure investment as more people building infrastructure stuff will spend more money (the reverse of what austerity is to achieve).

    But the banks won’t allow any helicopter spending because they want bailing out first. They are too big to fail…..

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  18. again… helicopter money , to pay down debt or otherwise will kick start rampant inflation which will impoverish everyone. it will be used only to crash the system by those that want to control it. An intentional crash.

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  19. Debt should never be forgiven.
    Let those that extended credit foolishly go bust.
    Let those that took credit foolishly go bust.
    Let those that committed fraud go to prison.

    The bottom line is we need a new financial system where the extension of credit is 100% backed by capital of some form(s). Marked to market every day.

    Anything else is counterfeiting.

    Like

  20. I don’t recall the level of debt per citizen offhand, but the gov. and personal together amounts to something like £150,000 per adult. So the simplest thing to do is form a new ‘citizens’ bank and use it to issue everyone who has been a citizen for 18 years or more credit, interest free of £15,000 a year. If they have debts and an income they can draw it at once to pay down some of their debts, if not they can live on it without restraint from working. After 10 years enough new money will have been created to lift the £80 billion annual interest bill from around our necks.

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