<blockquote>‘..the “group” .. debt..’
- Frans Veldman (
Context)</blockquote>
'..confidence is waning in the capacity of policymakers to manage the unfolding global bust. Confidence is waning in the leveraged speculating community’s ability to provide attractive returns while accepting reasonable risk. In general, confidence in leverage has evaporated – which changes so many things. At the same time, confidence is waning in political processes around the globe..'<blockquote>'Inflationism was never going to work. And here we are after seven years of ongoing monetary stimulus and deficit spending – and the calls for more grow only louder. QE had no chance of success. Here we are in 2016 and inflated global securities and derivatives markets are more dangerous than ever. Inflating away debt problems was destined for failure. The world has added tens of Trillions of additional debt since 2008 and global Credit is more fragile than ever.
The precarious nature of “Terminal Phase” Credit Bubble excess is a fundamental CBB tenet. At this point, China is putting the historic U.S. mortgage finance Bubble to shame. The “Terminal Phase” sees underlying systemic risk expand exponentially. Not only does the quantity of Credit expand rapidly. The underlying quality of this Credit suffers progressive late-cycle deterioration. Think of 2006’s Trillion dollars of subprime mortgage derivatives. There’s just no escaping Credit Bubble reality: the more protracted the Terminal Phase, the more disastrous the consequences.
Total Chinese New Credit (aggregate “social financing”) expanded $525 billion in January. This was more than 50% above estimates. It was also a record for Chinese Credit expansion and, surely, one of the biggest months of Credit growth in the history of mankind. There are important seasonal and special factors at play. Nonetheless, January Credit data support/confirm the view that China’s financial system has succumbed to a precarious self-destruction phase. Such egregious Credit creation may help meet 2016 growth goals. It will do anything but bolster flagging confidence in policymaking and China’s financial system.
..
Chinese officials have apparently settled on a strategy: hold economic crisis at bay by stimulating rampant system Credit growth, while stabilizing the yuan currency with currency controls and heavy-handed market intervention. The flaw in this plan can be traced back to a loss of faith in China’s financial and economic model, along with waning confidence in Chinese policies. “Money” wants out of China - and the more “money” created the more finance available to seek the exits. Chinese officials are determined to make life more challenging for those betting again the yuan. At the end of the day, however, massive “Terminal Phase” excess will ensure a highly destabilizing currency devaluation.
Policymakers retain the capacity to incite short squeezes. I don’t recall much official protest while the speculating community was positioned leveraged long global risk markets. But to place bets against China, Europe or on “risk off” more generally, well, these days such acts provoke aggressive responses. In the past, this competitive advantage afforded to “risk on” proved instrumental in prolonging the global Bubble.
..
At this stage of the cycle, policy-induced squeezes and market volatility only work to further derail market stability. There is increased chatter of mounting losses at some of the prominent hedge fund complexes. The pressure to further de-risk/de-leverage has turned intense. The market, economic, policy and geopolitical backdrops are too uncertain. Correlations between markets are too disjointed and unpredictable to leverage various sectors, assets classes or global markets. I’m sticking with the analysis that leveraged currency “carry trade” liquidity evolved into a powerful source of global market and economic fuel over recent years.
It is as well my view that acute currency market volatility – certainly spurred by policy experimentation and confusion – is a serious detriment to saving this faltering Credit cycle. Global policies appear too gimmicky for my taste. In short, market participants still have a lot of confidence in official willingness and ability to punish those betting on – or hedging against – “risk off.” Much more importantly, confidence is waning in the capacity of policymakers to manage the unfolding global bust. Confidence is waning in the leveraged speculating community’s ability to provide attractive returns while accepting reasonable risk. In general, confidence in leverage has evaporated – which changes so many things. At the same time, confidence is waning in political processes around the globe. And confidence is beginning to wane in the ability to keep the peace.'
- Doug Noland,
Crisis Management, February 20, 2016</blockquote>
Context (Praxeology) - '..his or her subjective values .. to explain all economic phenomena as the results of what people do..'<blockquote>
(Global Credit) - Symptoms of Too Much Debt'..BIS .. a world in which debt levels are too high..' (2015)(Banking Reform - Monetary Reform) - '..The Theory of Money and Credit .. an invaluable guide for ending the business cycles of our own time.''China now is a lot like Japan was in the 1980s, says Shilling..'('The Age of Deleveraging (2012 - 2025)) - '..Few readers believe chronic deflation is in the wings..''..deflation is going to expose a lot of naked swimmers and wreak havoc on pensions for a very long time.''..I'm sticking with my forecast of $10 to $20 a barrel..''..the marginal cost for efficient U.S. shale-oil producers is about $10 to $20 a barrel in the Permian Basin..' - Get Ready for $10 Oil</blockquote>