(Global) - '..excessive credit growth.'

'..through credit expansion (otherwise known as fractional reserve banking), create money out of thin air.'

<blockquote>'I remember in 2005 talking to a money manager who formerly had been in charge of a $200 Million dollar bond portfolio for a large mid-west bank. Somehow our conversation got onto the Federal Reserve and somehow I brought up the fact that banks, through credit expansion (otherwise known as fractional reserve banking), create money out of thin air.

This manager did not believe me when I explained the fractional reserve banking process – and she was incredulous.

I was so taken aback that it seemed surreal to me. I could not believe she – who worked at a high level in a bank – was so clueless as to not understand one of the basic underpinnings of how our centrally controlled banking system works.'

- Michael McKay, ..Austro-Libertarian.., October 18, 2013</blockquote>


'..Unprecedented concerted efforts by the Bernanke Fed, Draghi ECB, Kuroda BOJ, the Chinese and others have fomented a systemic mispricing of finance around the globe and throughout most asset classes.'

<blockquote>'I have argued that today’s Bubble is by far the most dangerous yet (the “granddaddy”). Unprecedented concerted efforts by the Bernanke Fed, Draghi ECB, Kuroda BOJ, the Chinese and others have fomented a systemic mispricing of finance around the globe and throughout most asset classes. This creates another key fragility that was not nearly as prevalent in previous Bubble periods.

The Fed and global central bankers collapsed short-term interest-rates, forcing savers out of “money” and into the risk markets (or, in the case of Chinese savers, to “shadow banking”). Initially, central bankers were hoping that a shot of monetary stimulus and some asset inflation would stoke “animal spirits” and spur economic recovery. Their plan just didn’t work. So we’re now well into the fifth year of unprecedented stimulus, with the initial shot becoming a long-term binge addiction. This has nurtured a most dangerous “Monetary Process,” whereby generally risk-averse finance has flowed for years (and in increasing quantities) into progressively more distended Bubble markets.

We saw an indication in June of how quickly sophisticated “hot money” and the unsuspecting small investor can clog up the exit in the event of even modest market losses. How long do central banks believe they can sustain levitated markets? Do they realize that the more these markets inflate the more prone they become to instability and dislocation?

..

..And they can pretend that they’ll retain effective tools for stabilizing the “system” the day this massive global Bubble begins to really unwind. If there is historic precedent for aggressive inflationism employed over an extended period without catastrophic consequences - that would be news to me.'

- Doug Noland, Fighting the Good Fight, October 25, 2013</blockquote>


'..excessive credit growth.'

<blockquote>'BRICs on Credit
Investors have been romancing emerging markets, exemplified by the dalliance with the BRIC economies (Brazil, Russia, India and China), a term coined by Goldman Sachs’ Jim O’Neill in 2001. Slowing economic growth in developed economies following the 2007/2008 global financial crisis resulted in a sharp slowdown in emerging economies. To restore growth, emerging markets switched to development models more reliant on credit. Double-digit annual credit growth drove economic activity in China, Brazil, India, Turkey and many economies in Asia, Latin America and Eastern Europe.

..

Cheap Money, Expensive Problems
Debt levels in emerging markets have risen significantly, with total credit growth since 2008 in the range 10-30% depending on the country. Credit growth has been especially strong in Asia. Total debt above 150-200% of GDP is now common. Credit intensity has also increased sharply. New credit needed to generate each extra dollar of GDP has doubled to around $4-8 for each dollar of GDP growth.

..

Trouble Abroad, Trouble At Home
Short-term foreign capital inflows have financed external accounts, masking underlying imbalances. The current account surplus of emerging market countries has fallen to 1% of combined GDP, from around 5% in 2006. The deterioration is greater, as large trade surpluses of China and energy exporters distort the overall result. The falls reflect slow growth in export markets, lower commodity prices, higher food and energy import costs and domestic consumption driven by excessive credit growth.


1994 Redux

..

In the 1994 ‘Great Bond Massacre’, holders of U.S. Treasury bonds suffered losses of around $600 billion. Trading losses led to the bankruptcy of Orange County in California, the effective closure of Kidder Peabody and failures of many investment funds. It triggered emerging market crisis in Mexico and Latin America. It precipitated the Asian monetary crisis, requiring International Monetary Fund (IMF) bailouts for Indonesia, South Korea and Thailand. Asia took over a decade to recover from the economic losses.

..

Blowback
At the annual central bankers meeting at Jackson Hole in August 2013, Western policy makers denied the role of developed economies in the problems now facing emerging markets, arguing that the policies had ‘benefitted’ emerging markets. But developed economies now face serious economic blowback.'

- Satyajit Das, Emerging Market Crisis—Redux?, October 21, 2013</blockquote>


Context

<blockquote>The ‘No Exit’ Meme Goes Mainstream, October 26, 2013

(Banking Reform) - 'Ten Real Problems, Fractional Reserve Lending..'

((Hapto)praxeology) - '..patterns of behavior or human action, such as money, the market, law, etc..'</blockquote>