'Meanwhile, China’s Credit mechanism is in disarray. Over the past two years in particular, stimulus measures stoked China’s consumer borrowing and spending boom. This upsurge was integral in sustaining China’s Bubble economy in the face of mounting manufacturing overcapacity and associated corporate Credit issues. It comes at a steep cost. In particular, China’s apartment Bubble went to even more precarious extremes.''China has an escalating consumer price inflation problem, one manifestation of intensifying Monetary Disorder. It’s a fundamental Credit Bubble Analytical Postulate that inflationary fuel will gravitate to areas already demonstrating the strongest inflationary biases. As we’ve been witnessing globally, dump stimulus into a backdrop of powerful securities market inflationary psychology and the upshot will be more intense speculation, acute asset price inflation and increasingly destabilizing market Bubbles. China, facing its own particular Inflationary Dynamics, has now embarked on a course that never ends well: aggressive fiscal and monetary stimulus in an environment of rising consumer inflation and general monetary and economic instability.
China’s CPI Food Index posted a 20.6% y-o-y increase in January, the highest rate since March 2008. For many of its citizens, food purchases make up a significant percentage of monthly expenditures (some estimates as high as 30%). While the doubling of pork prices is inflating price aggregates, even vegetable prices were up a notable 17% y-o-y. And this was before the escalation of the coronavirus outbreak. Beijing has acknowledged the risk to social stability from the coronavirus. Policymakers, as well, face a challenge in trying to stimulate a faltering maladjusted economy without exacerbating the hardship inflicted upon much of its population from surging consumer prices. Stimulus measures are working well for global market participants. For Chinese citizens, the jury is out.
Meanwhile, China’s Credit mechanism is in disarray. Over the past two years in particular, stimulus measures stoked China’s consumer borrowing and spending boom. This upsurge was integral in sustaining China’s Bubble economy in the face of mounting manufacturing overcapacity and associated corporate Credit issues. It comes at a steep cost. In particular, China’s apartment Bubble went to even more precarious extremes.
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China will inevitably face its first housing and mortgage finance bust, a painful bursting Bubble episode made much worse by Beijing repeatedly resorting to stimulus measures. It’s difficult to overstate ramifications for China’s economy, financial system and social stability.
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China’s protracted Bubble aroused delusions of grandeur - within the communist party as well as throughout its population. It’s incredible to ponder what’s at stake. Beijing is in no way willing to cede its global ambitions. An assertive American administration only strengthens their resolve. Communist leadership will reject any challenge to its control and dominance. Meanwhile, a bursting Bubble throws everything into disarray.
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I view the equities Bubble as an offshoot of the greater Bubble that continues to inflate in global debt, securities Credit and derivatives markets. On the one hand, it is extraordinary to see equities markets essentially dismiss such consequential developments in China. It does, however, present important support for the Bubble Thesis. Equities rallied to record highs just months before the LTCM/Russia collapse in 1998. Stocks rallied to record highs in 2007 even as the mortgage finance Bubble faltered.'
- Doug Noland,
One Extraordinary Year, February 15, 2020
Context'..Bubbles remain the overriding risk – and further inflation only intensifies historic Bubble risk..'Extraordinary Monetary Disorder - 'I have that same uncomfortable feeling I had in 2007 – just a lot worse..''..BIS chastises central banks .. More fundamentally, monetary policy cannot be the engine of growth.''..monetary knowledge .. of currency reform under difficult conditions you have to go to Carl Menger.'(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'