'..Beijing .. clearly failed to learn the lessons from their study of the Japanese Bubble fiasco. And it is today worth remembering that the Japanese government belatedly moved to rein in Bubble excess in response to increasingly deleterious impacts to equality and social stability. While they recognized Bubble risk, they were blind to the degree of financial and economic fragility that had accumulated over the cycle.
President Xi and his communist central committee surely recognize the enormous risk to social stability posed by ongoing Bubble excess. Is there any country in the world experiencing a more inequitable distribution of wealth than China?
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I heard this week analysis that Chinese reform efforts are a positive development, ensuring long-term growth and stability. I recall similar commentary regarding the tightening of U.S. subprime mortgage Credit back in late-2007. Arguably long-term constructive, but not before unwieldy end-of-cycle excess followed shortly by a collapsing Bubble.''It’s central to my thesis that China has been a hotbed of “hot money” inflows. In an era of unprecedented global leveraged speculation, I believe China evolved into the King of Levered Carry Trades. How could the enterprising global leveraged speculating community not have gravitated to China’s enticing yields, especially with a currency essentially pegged to the U.S. dollar. Better yet, China’s major developers and “AMCs” offered high yields coupled with implicit Beijing backing. Resulting market distortions and excess dwarf even those from the U.S. mortgage finance Bubble period.
I believe Beijing today recognizes the Bubble got completely away from them. They clearly failed to learn the lessons from their study of the Japanese Bubble fiasco. And it is today worth remembering that the Japanese government belatedly moved to rein in Bubble excess in response to increasingly deleterious impacts to equality and social stability. While they recognized Bubble risk, they were blind to the degree of financial and economic fragility that had accumulated over the cycle.
President Xi and his communist central committee surely recognize the enormous risk to social stability posed by ongoing Bubble excess. Is there any country in the world experiencing a more inequitable distribution of wealth than China?
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If I had to venture a guess, I would say Xi and friends have had about enough of the current global financial structure. Seeing trouble on the horizon, they’re going to attempt to get their house in order. Beijing is coming down hard on speculation – in stocks, apartments and bonds. They’ll assume state-directed bank lending and deficit spending can ensure adequate Credit growth to meet growth objectives. But if they recognized the degree of underlying fragility, they would have moved years earlier.
I heard this week analysis that Chinese reform efforts are a positive development, ensuring long-term growth and stability. I recall similar commentary regarding the tightening of U.S. subprime mortgage Credit back in late-2007. Arguably long-term constructive, but not before unwieldy end-of-cycle excess followed shortly by a collapsing Bubble.
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How gigantic is the Chinese levered “Carry Trade”? How much “hot money” has flooded into Chinese stocks and bonds over recent years? China has provided the marginal source of global Credit. I suspect leveraged speculation in Chinese bonds has been integral to global liquidity excess. This week was important. Collapsing bond prices for a group of companies with over $1 TN in combined liabilities. Chinese high-yield bonds trading as if almost the entire sector was going bust. Renminbi vulnerability revealed. Contagion jumping to Asia and EM more generally. Confirmation that China’s Bubble has been pierced, with dire ramifications for Bubbles across the globe.
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The Fed missed another opportunity this week to get the process started. Treasuries (10-yr yields down 5 bps this week to 1.22%) are essentially signaling it’s over before things even get started. Powell’s post-meeting press conference was considered dovish and (like Chinese policymaking) confusing. The Fed’s in a real pickle here. Powell is struggling to justify ongoing historic monetary inflation in the face of the most intense inflationary shock in decades. Our Fed Chair has the Republicans breathing down his neck, along with an increasingly divided (and vocal) FOMC. Public confidence is in the greatest jeopardy since the seventies. It’s an especially precarious position, especially considering the unfolding global backdrop.'
- Doug Noland,
The King of Carry Trades, July 31, 2021
Context (Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..''World faces wave of epic debt defaults, fears central bank veteran''..global central bankers .. history's most reckless monetary mismanagement .. Harsh geopolitical fallout is unavoidable..''For too long China needed to rein in Credit growth.''..to envisage a global crisis beyond the scope of 2008/09..''..I think a worldwide debt default is likely in the next 10–12 years.''..assets Bubbles, replete with history's greatest redistribution of wealth.''..over time, debt stops stimulating growth..' - '..The mother of all bubbles exists and it is in the debt markets..''With another $2.7 TN of QE in 2017, central bankers pushed the envelope too far .. There will be a very steep price to pay.'(Global - 2018) - '..manifestations of Monetary Disorder..''A global crisis in the current backdrop would make 2008 seem like a walk in the park.''..valuations like 1929, 2000, and today .. Very deep market losses are likely, even in the absence of a recession.''..the Bubble .. it is decidedly global .. So long as confidence holds at the "core" and speculation runs unabated..''..a replay of the reckless U.S. mortgage Credit episode, only on a much grander global scale.''Current policy and market structures ensure instability and persistent hardship.'2021: The Year of Acute Monetary Disorder and Fragility'..the Chinese economy suffers from epic maladjustment..'(Banking Reform) - '..a developing Solvency Problem.'(Banking Reform) - 'History’s greatest Bubble is nearing the end of the line..'(Banking Reform) - 'I have serious doubts contemporary finance will pass this test .. for centuries, post-Bubble post-mortem would invariably fault the instability of “fractional reserve banking.”..''In 1965, CEOs in the US earned 20 times more than the average worker but by 2015 it had risen to 300 times..''..here we are in 2020 with Bubbles everywhere..''Now it’s a global Bubble..''..New Paradigm thinking these days rivals that of the early-2000 peak. Today’s faith in central banking is unrivaled..'Extraordinary Monetary Disorder - 'I have that same uncomfortable feeling I had in 2007 – just a lot worse..''..It has the feel that a decade of egregious monetary inflation and speculative Bubbles is about to get Some Comeuppance.''..The crazier things get the more unsustainable Bubble prices become.''We’re witnessing Bubbles and Craziness in historic proportions.''Financial and economic Systems have evolved to become acutely unstable.''Two Interest Rate Theorems' - 'Disinflationary effects of technology, aging demographics and excessive debt' - '..the bursting of China’s historic Bubble..''..And to put it very bluntly, “frustration” is inadequate to describe the result of underfunded pensions..''..the “middle class” suffering disproportionately from inflation and Bubbles..''..a complete breakdown in discipline - in central banking, in Washington borrowing and spending..''..global Credit Bubbles have become highly synchronized..''..the West’s 25-year bet on China has failed.' - How the West got China wrong - '..China uses business to confront its enemies. It seeks to punish firms directly, as when Mercedes-Benz..'