BIS warns China is imploding
China facing full-blown banking crisis, world’s top financial watchdog warns
By Daily Coin
First up is the Telegraph and Ambrose Evans-Pritchard and right out the gate we find “full-blown banking crisis“. Nothing says “stay away” like full-blown banking crisis in the FIRST SENTENCE of an article.
Later in the piece he discusses how China’s debt climbed by 107% over eight years. How much debt has the U.S. added to the books since Obama has occupied the White House? You say $1+ trillion a year, every year? hmmmm When Obama first entered the White House the U.S. debt, not counting unfunded liabilities like Social Security and Medicaid, was approximately $10.6 trillion, today it stands close to $20 trillion. Meaning, that in fewer than eight years Obama has created the same disaster as China – almost to the dollar. Did I miss something or is this just how our world currently operates at this particular juncture in history? Blame who ever you wish, the whole system has to change and is going to change wether anyone likes it or not. The top two economies in the world running these types of debts can not be sustained. People, the world over, are beginning to understand what is happening and how these criminal enterprises, formerly called “governments”, are not only stealing todays wealth but tomorrows wealth as well.
China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog.
A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late.
The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.
Studies of earlier banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring. The credit to GDP gap measures deviations from normal patterns within any one country and therefore strips out cultural differences.
It is based on work the US economist Hyman Minsky and has proved to be the best single gauge of banking risk, although the final denouement can often take longer than assumed. Indicators for what would happen to debt service costs if interest rates rose 250 basis points are also well over the safety line.
China’s total credit reached 255pc of GDP at the end of last year, a jump of 107 percentage points over eight years. This is an extremely high level for a developing economy and is still rising fast .
Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP, and it is this that is keeping global regulators awake at night.
The BIS said there are ample reasons to worry about the health of world’s financial system. Zero interest rates and bond purchases by central banks have left markets acutely sensitive to the slightest shift in monetary policy, or even a hint of a shift.
“There has been a distinctly mixed feel to the recent rally – more stick than carrot, more push than pull,” said Claudio Borio, the BIS’s chief economist. “This explains the nagging question of whether market prices fully reflect the risks ahead.”
Bond yields in the major economies normally track the growth rate of nominal GDP, but they are now far lower. Roughly $10 trillion is trading at negative rates, and this has spread into corporate debt. This historical anomaly is underpinning richly-valued stock markets at time when profit growth has collapsed.
Then we find another shot being taken at China’s economy and, in a backdoor way, the renminbi from the fine folks at Bloomberg. Basically the same material, same numbers, same everything, different audience. It appears the memo made found it’s way to two of the largest online financial/economic audiences just in time! If this were actually a problem then way has the BIS allowed the build up of credit to GDP to continually grow since 1995? Why didn’t the “masters of the universe” step in and offer guidance and assistance beginning in 1996 instead of waiting until the last possible moment to bring to the world’s attention? Either this is by design or the “masters of the universe” are dumber than a rock.
A warning indicator for banking stress rose to a record in China in the first quarter, underscoring risks to the nation and the world from a rapid build-up of Chinese corporate debt.
China’s credit-to-gross domestic product “gap” stood at 30.1 percent, the highest for the nation in data stretching back to 1995, according to the Basel-based Bank for International Settlements. Readings above 10 percent signal elevated risks of banking strains, according to the BIS, which released the latest data on Sunday.
The gap is the difference between the credit-to-GDP ratio and its long-term trend. A blow-out in the number can signal that credit growth is excessive and a financial bust may be looming.
While the BIS is making noise about China’s GDP, government bonds and debt, it is failing to look at the U.S. and European Union, both of which are in far worse condition than China. So, let’s make the other nation the bad guy and point out all their flaws while completely overlooking the one’s at home. The U.S. and European Union would love to have GDP at or above 6% annually instead of the 2% or less that has been the norm for the past several years. These are obvious hit pieces with direction coming from the overlords to get the word out about how bad it is in China. It seems the message is very clear, you may want to stay away from those yuan/renminbi’s coming online in a couple of weeks as the economy they are tied to is about to fall off a cliff.
Via Daily Coin