The Chinese Debt Bomb Is Set to Explode
Tuesday, October 23, 2018 16:25
% of readers think this story is Fact. Add your two cents.
“The No.1 Reason You Should Be Worried About the Market”
by Brian Maher
“It finally feels like autumn here in Baltimore. The air has taken on a seasonal chill… and passersby on Charles Street are bundled against the cooler weather. In the park by our Mount Vernon office, summer’s lush green has faded to sickly olive-yellow. A time to be born and a time to die, as Ecclesiastes reminds us. Meantime, to the north, a heavy October frost has settled upon Wall Street…
The Dow Jones was down another 126 points today. The damage could have been far worse – the index was down over 500 points at one point. A late afternoon rally salvaged the day. The Dow has nonetheless given back some 1,700 points since its Oct. 3 peak. The S&P has shed roughly 200. The index is suffering its worst month in nearly three years, in fact. The Nasdaq has lost over 700 points this month.
But is it not earnings season? And have not this year’s tax cuts fattened corporate coffers? This year’s quarterly earnings seasons have been tonic for the stock market. Many observers expected this earnings season would bring needed warmth to thaw things out… as the rising sun chases morning frost from a pumpkin patch. But the market’s overall response has been… cool.
140 S&P companies have reported third-quarter earnings to this point. And as MarketWatch tells us, roughly 75% have surpassed Wall Street’s net profit estimates. I am unimpressed, counters the market. As notes CNBC’s Bob Pisani: “The market has a problem: Many stocks are no longer rising on good earnings or guidance. Companies that are seeing a boost to their fourth-quarter earnings estimates are not being rewarded with higher stock prices.”
Zero Hedge informs us that markets have not reacted so negatively to positive earnings since August 2000 – “just as the dot-com bubble was bursting.”
Let us hope history does not repeat… or even rhyme. “U.S. corporate earnings season has started with more of a whimper than a bang,” affirms Nick Colas, co-founder of DataTrek Research.
Case brilliantly in point: Today’s rout was in part triggered by an earnings announcement from Caterpillar – an earnings report that actually surpassed expectations. Wall Street projected earnings of $13.3 billion. Actual earnings were $13.5 billion. In fact, Caterpillar’s earnings represent a 46% increase over last year’s third quarter. Caterpillar was nonetheless down nearly 8% on the day. It is now fallen over 30% from its all-time high this January.
“Excuse me?” comes your response. “Earnings surpassed expectations and the stock goes to pieces?” But it is not so much where you are, says Wall Street – but where you are going. “It is now clear that we are past peak earnings momentum,” observes the aforesaid Colas. Many consider Caterpillar an economic bellwether. As goes Caterpillar, that is, so goes the world. And the company claims the trade war is tugging on the bottom line: “Manufacturing costs were higher due to increased material and freight costs. Material costs were higher primarily due to increases in steel prices and tariffs.”
Perhaps Caterpillar provides a broad hint of coming rough house with China. Third-quarter Chinese growth expanded at its softest pace since the financial crisis in 2009. The Chinese stock market is also some 30% off its 52-week high – deep into bear market terrain. But the worst is “yet to come,” warns Kevin Lai, economist at Daiwa Capital Markets.
China is the world’s second-largest economy. The Chinese economic transmission is connected to the driveshaft of global trade, which is connected to the axle of growth, which is connected to the wheels of progress. If the Chinese economic transmission is slipping… how does the whole bucket of bolts keep going?
Let us not forget that an economically insecure China is also a geopolitically insecure China. The United States Navy has just paraded two warships through the Taiwan Strait, China’s maritime sandbox. The Chinese navy was toweringly unamused. Who knows if someone gets an itchy trigger finger one of these days?
Meantime, 85% of fund managers surveyed by Bank of America Merrill Lynch believe global growth is in its late stages. This month the IMF has also lowered both its 2018 and 2019 global growth forecasts.
Returning to the domestic scenes, the Federal Reserve expects the U.S. economy to grow 3.1% this year… 2.5% in 2019… and 2.0% in 2020.
Is this the model of economic health? Yet the Fed intends to steam ahead with additional interest rate hikes and designs against its balance sheet. And so we find Jerome Powell at the helm of his Titanic, proceeding in the night at flank speed… dismissing reports of ice ahead.
Below, Jim Rickards shows you why the Chinese “debt bomb” is set to explode, and how it could even result in a shooting war with the U.S. Read on.”
○
“The Chinese Debt Bomb Is Set to Explode”
By Jim Rickards
“Warnings about China’s debt burdens and a potential debt crisis there are nothing new. China has a higher debt-to-GDP ratio than the U.S., and China’s central bank has printed more money since the 2008 financial crisis than the Federal Reserve. Much Chinese debt is denominated in dollars, which get harder to repay as the yuan weakens. Plus, other debt is owed by one state-owned enterprise to another in a daisy chain of bad debts that everyone pretends can be repaid (they can’t).
Still more debt is in the form of wealth management products, or WMPs. The WMPs are high-yield securities deceptively sold as bank deposits (they’re not) and invested in real estate projects that cannot repay the loan.
Much of China’s “growth” (about 25% of the total) has consisted of wasted infrastructure investment in ghost cities and white elephant transportation infrastructure. That investment was financed with debt that now cannot be repaid. This was fine for creating short-term jobs and providing business to cement, glass and steel vendors, but it was not a sustainable model since the infrastructure either was not used at all or did not generate sufficient revenue. All of this is bad enough, but things may have just gotten a lot worse.
It turns out that local governments and provinces have issued $6 trillion of off-the-books debt that was not accounted for in previous financial analyses. To put that in perspective, $6 trillion is equal to almost 30% of the entire U.S. national debt, and that’s just the newly discovered part, not counting all the other debt China already has.
China’s leadership did begin a deleveraging campaign last year to get the situation under control. Its Communist dictator-for-life Xi Jinping started a debt clean-up and deleveraging program. But the economy began a dramatic slowdown as soon as the credit spigot was turned off.
China’s leaders panicked at the slowdown and started the credit flow again with lower interest rates, higher bank leverage and more debt-financed, government-directed infrastructure spending. Of course, all this did was postpone the day of reckoning and make the debt crisis worse when it does arrive. China’s debt is so sketchy that it cannot be rolled over or refinanced except by the Chinese government itself. In turn, that means exposing the bad debt for what it is, which risks a financial and liquidity crisis. The economy has slowed so much that markets are collapsing. With every passing day, a full Chinese financial collapse draws closer.
The bottom line is, the Chinese debt bomb is getting ready to explode. This situation cannot be separated from the currency wars and trade wars. My readers are familiar with my thesis that the world responds to a situation of too much debt and not enough growth with first currency wars, then trade wars.
Currency wars begin in a condition of too much debt and not enough growth. Countries steal growth from their trading partners by cheapening their currencies to promote exports, discourage imports, import inflation and increase their GDP. This works in the short run but always fails in the long run because of retaliation when trading partners respond to devaluation by devaluing their own currencies.
The currency wars are eventually followed by trade wars in which countries try to improve GDP by raising tariffs on imports from trading partners. Trade wars fail for the same reasons as currency wars — retaliation. Tariffs are met with counter-tariffs until world trade contracts and the entire world is worse off. Trade wars are not limited to tariffs and reduced trade. As with any war, there is a lot of collateral damage.
But that is not always the end of the escalation… Finally come shooting wars, which actually do improve growth through war manufacturing and post-war rebuilding but at a very high cost in death, destruction and war debt. This pattern occurred in the 1920s and 1930s and seems to be happening again.
The currency wars began in 2010. The trade wars began in 2018, and the shooting wars may not be far behind. From the South China Sea to the Persian Gulf, tensions are already simmering.
The China-U.S. trade war is not a short-term bit of posturing. It is serious, dangerous and will get worse before it gets better. Let’s hope that the historical segue into shooting wars does not occur this time. But the risk of an accident between U.S. and Chinese naval forces remains a real risk in the waters off China’s east coast. Two U.S. ships just sailed through the Taiwan Strait, which were shadowed by Chinese naval vessels. It’s not difficult to envision some type of incident at some point, which could rapidly escalate. It may not, but the possibility exists.
But a trade war does not have to lead to a shooting war to be devastating. A financial crisis resulting from currency wars and trade wars is a distinct possibility. Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, 2007 and 2008. That’s about once every five years for the past 30 years. There has not been a financial crisis for 10 years so the world seems overdue. It’s also the case that each crisis is bigger than the one before and requires more intervention by the central banks. In the next crisis, possibly soon, the central banks themselves will need to be bailed out, probably by the IMF.
Knowing this economic history is useful, but can investors actually see the next crisis coming in time to react? The answer is “yes” if you’re looking in the right places and listening to the right voices. Right now, the voices warning of financial collapse are no longer from the fringe – they’re from the heart of the global power elite.
Global financial elites like financial guru Mohamed El-Erian, have also warned about the potential for another financial crisis if currency war and trade war issues are not soon resolved. Warnings are also coming from other elite economists such as Larry Summers, Nouriel Roubini and from institutions such as the BIS and major central banks. But also from the most elite warning of all.
The IMF, which sits at the top of the global financial pyramid, is now warning of a “financial meltdown” that could come at any time. This time, the Fed and other central banks are not in a position to deal with a recession or panic should one arise in the near future.
Again, these are not fringe player or bloggers. They are the global financial elite. If they’re concerned about financial stability, maybe you should be concerned also. Preparation means 10% percent of your investable assets in gold or silver and another 30% in cash. That allocation will preserve wealth and provide dry powder for bottom-fishing in the crisis to come.”
Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2018/10/the-chinese-debt-bomb-is-set-to-explode.html
Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.
Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.
"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.
Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.
"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.
Please Help Support BeforeitsNews by trying our Natural Health Products below!
Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST
Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!
HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.
Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.
MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser! Cleans out toxic buildup with oxygen!
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover - Reduces Smart Meter radiation by 96%! (See Video).
MOST RECENT
HELP KEEP NEWS FREE
DONATE
HERE
| Online: | |
| Visits: | 1,601,189,949 |
| Stories: | 8,143,587 |
Wanted: Citizen Reporters,
Whistler Blowers, Insiders
Whistler Blowers, Insiders
"Not by might, nor by power, but by my spirit, saith the Lord of hosts." Zechariah 4:6
Today's Top Stories
Featured
Top Global
Top Alternative
some say china has 40 trillion of undisclosed debt–but what happens when a major euro land bank locks up as in germany any day now? my bet is euro land goes down first and then china…euro land came to trump and they wanted him to back stop their banks–he said you had your chance in 2008 and changed nothing–brussells still the self serving jackass- he told them to go to hell ! got gold?