Monday, June 24, 2013

24/6/2013: The Great (Credit) Wall of China

China is now in the anteroom of the 'This Time is Different' sauna... hot seat awaiting:

Keep in mind, in China total credit increased from USD9 trillion in 2008 to USD23 trillion now. Credit to GDP ratio went up ca 95% and now stands at 221% of GDP. In the US, in 2002-2007 period, credit/GDP ratio grew by 40 percentage points. And we have no real idea just how deep the real rabbit hole goes:

Here's the contagion trigger: once China gets seated on the hot bench in the TTisD sauna, Chinese purchases of US and euro area bonds will evaporate. With this, yields will be going up even if current QE is retained by the Fed. And what the cost? BIS estimated last 1 trillion. And with yields rising across the board, 15-35 percent of GDP can go up in smoke in France, Italy, the UK and Japan.

Meanwhile, the euro area banks are sitting on a massive pile of dodgy assets ( backed by funding secured against... right... the aforementioned government bonds.

In this blog parlance, the Impossible Monetary Dilemma will then hit the Great Wall of China. And there are no airbags...

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