Hi Thread,
many on this forum believe that Bernanke is a genius who, through his implementation of money printing, somehow saved our economy. This is Keynesian thinking. Since 2008, we have been in a tsunami of Keynesian stimulus, from TARP money on shovel ready projects, to massive welfare handouts on foodstamps, Obama phones, cash for clunkers, tax breaks, SS tax reductions, zero percent interest rates, and money printing on a scale never before seen in the history of the world. Genius? Or massive deliberate case of heroin overdosing?
I've argued that what we've effectively achieved is a delaying of the inevitable. In properly functioning markets, bad debt is wiped out, which paves the way for future growth. This typically results in short, sharp, painful corrections, followed by a return to healthy, trend growth. In our market, we chose a different path. We just transferred the bad debt to the government and created many other bubbles to hide the rotting economy underneath the carpet. The day of reckoning is drawing ever closer. Anything could the be the trigger. Maybe it's emerging markets.
So how are those emerging markets doing? Forget the ones that get all the press like Argentina, Brazil, Turkey and Greece. Think China. China thinks the US is really smart. So they emulated us in our Keynesian thinking. They unleashed...get ready for it...over $14 trillion in loans through approved and shadow bank lending into the economy to prop up demand, where it otherwise wouldn't exist. When even this stimulus didn't achieve their 7% + GDP targets, they just lie about the numbers. All of this is simply Modern Keynesian thinking at its finest.
My guess is that the coming China problems will make Japan's implosion of the 80's look like an economic flash in the pan by comparison. China will take the globe down with it. None of your retirement will be safe. Stocks will crater. Commodities will crater, except gold. Jobs? Well, yes, that will go down the toilet as well.
Welcome to the world that you created. Maybe there's a silver lining. Maybe after it all goes to hell in a hand basket, all of you armchair Keynesians will finally realize that THERE IS NO FREE LUNCH. Everyone needs to work for a living and we have to live within our means, even if it means no growth. All else is simply a path to disaster for everyone. We need to get off this idea that the Federal Reserve can save us. They cannot. Only we can save ourselves, by working and not asking our neighbors to support our living standards that exceed our ability to produce for ourselves.
Your voice of reason
-mindmeld
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China, the Death Star of Emerging Markets
By William Pesek Feb 6, 2014 2:58 AM PT
bloomberg.com
On any list of banking accidents waiting to happen, China is assured a place at the very top. But could a crash there take the entire global economy down with it?
Absolutely, says Charlene Chu, who until recently was Fitch's headline-generating analyst in Beijing. Chu has fearlessly trod into an area that China is trying desperately to keep off limits: its vast shadow-banking system. Now that she's working for a private firm that doesn't have to rely to governments for revenue, as do rating companies, Chu is free to speak completely openly. And is she ever.
"The banking sector has extended $14 trillion to $15 trillion in the span of five years," Chu, who is now with Autonomous Research, told the Telegraph. "There’s no way that we are not going to have massive problems in China." What's more, she added, China "could trigger global meltdown."
The travails of Greece continue to preoccupy the world, but its $249 billion economy is a rounding error compared to China's $8.2 trillion one. In December 2005, for example, China announced its output had unexpectedly grown by $285 billion. In other words, it had suddenly found an economy bigger than Singapore's that its statisticians hadn't known about.Today, simply put, a Chinese crash would make the 2008 collapse of Lehman Brothers seem like a mere market correction.
The kind of meltdown Chu suggests is possible would end Japan's revival, slam economies from South Korea to Vietnam, savage stock and commodity prices everywhere, force the Federal Reserve to end its tapering process and prompt emergency national-security briefings in Washington. So feel free to obsess over Turkey and Argentina, but the real "wild card" is the world's second-biggest economy.
That's how Bill Gross referred to China in the Bloomberg Television interview that produced his widely-quoted "mystery meat" analogy. "Nobody knows what’s there and there’s a little bit of bologna," Gross said of China's financial system on Feb. 4, "so we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.”
Gross's comment was an instant classic, sure to stand alongside hedge fund-manager Jim Chanos characterizing China as "on a treadmill to hell” with growth driven by the “heroin of property development.” But there's a disturbing element of truth in what Gross and Chanos say, truth that even the smartest China watchers anywhere -- Chu included -- can't quite get to the bottom of. China is doing all it can to keep the prying eyes of the media -- both foreign and domestic -- away from the nexus of Communist Party power brokers, shadow-banking activity and state-run enterprises that feeds corruption and stymies reform.
Much is made of how Chinese growth may slow to 7.4 percent this year, a downshift seen as evidence that President Xi Jinping is restructuring the economy. Yet if Xi were really turning China's model of excessive investment and exports upside down, growth would be closer to 5 percent than 7 percent. Because such a slowdown might foment social instability, China keeps its foot on the gas. The faster China grows, the less it's remaking the economy. The more growth remains in the 7 percent range, the more over-borrowing and over-lending is taking place. In other words, the shadow-banking system is still growing.
The problem here, and the thing that connects Chu's worries with those of Gross and Chanos, is that the longer China delays its reckoning the bigger and more painful it will be. As an economy, China is obviously too big to fail. But the real question is whether its opaque banking system ultimately proves too big to save.
China didn't avoid the 2008 global crisis so much as delay the pain. It insulated itself by opening the credit floodgates and allowing banks to take on untold mountains of foreign borrowings, largely in U.S. dollars. To some, China's mystery-meat scenario resembles Japan's credit explosion in the 1980s; to others, it looks like the crash that undid Indonesia, Korea and Thailand in 1997. But what if it's none of the above? We could witness a crash of a magnitude never before seen. If that's not case for indigestion, what is? |
