Abet Chichi2

[Tuff-Stuff]

AutomaticEarth<>Debt Rattle August 6 2017

Posted by Raúl Ilargi Meijer at 8:26 am

• The Bursting of the China Credit Bubble (Crescat)

• The Swamp Is So Undrainable It Will End Up Making Mincemeat Of Trump (Stockman)

• How The Trump Administration Broke The State Department (FP)

• Have Smartphones Destroyed a Generation? (Atl.)

• Amazon Isn’t The No. 1 Villain In Retail Sector’s Demise (Katsenelson)

• On The Beach (John Pilger)

• Merkel Is Kowtowing To The German Car Industry (Spiegel)

• North Korea Sanctions Bring Nuclear Issue To ‘Critical Phase’, Says China (G.)

• What If Every Government Paid Off Its National Debt? (Connelly)

• Are Greek Capital Controls Easing? (K.)

• More People Live Inside This Circle Than Outside It (WEF)

• Is Global Ocean Circulation Collapsing? (Forbes)

A tour de force PDF by private firm Crescat on China and its potential influence on the world of finance. It echoes a longtime theme of mine: China’s shadow banking sector could bring it all down.

• The Bursting of the China Credit Bubble (Crescat)

History has proven that credit bubbles always burst. China by far is the biggest credit bubble in the world today. We layout the proof herein. There are many indicators signaling that the bursting of the China credit bubble is imminent, which we also enumerate. The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world. The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to GDP in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia.

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion. Post the 2008 global financial crisis, the world’s central bankers have kept interest rates low and delivered just the right amount of quantitative easing in aggregate to levitate global debt, equity, and real estate valuations to the highest they have ever been relative to income.

Across all sectors of the world economy: household, corporate, government, and financial, the world’s aggregate debt relative to its collective GDP (gross world product) is the highest it has ever been. Central banks have pumped up the valuation of equities too. The S&P 500 has a cyclically adjusted P/E of almost 30 versus a median of 16, exceeded only in 1929 and the 2000 tech bubble. The US markets are also in a valuation bubble because US-owned financial assets have never been more richly valued relative to income as we show below. The picture is equally frothy if we include real estate, also at record valuations to income. China’s capital outflow spillover from its credit bubble has driven up real estate valuations around the world.

Read more … Briefs or use link to access FULL articles:
https://www.theautomaticearth.com/2017/08/debt-rattle-august-6-2017/