Blog on the Run: Reloaded

Wednesday, November 27, 2013 5:11 pm

Happy Thanksgiving, coming Chinese crash edition

Filed under: I want my country back.,We're so screwed — Lex @ 5:11 pm
Tags: ,

Hooboy:

China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.

The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.

“The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.

“There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling,” she told The Daily Telegraph.

While the non-performing loan rate of the banks may look benign at just 1pc, this has become irrelevant as trusts, wealth-management funds, offshore vehicles and other forms of irregular lending make up over half of all new credit. “It means nothing if you can off-load any bad asset you want. A lot of the banking exposure to property is not booked as property,” she said.

Concerns are rising after a string of upsets in Quingdao, Ordos, Jilin and elsewhere, in so-called trust products, a $1.4 trillion (£0.9 trillion) segment of the shadow banking system. …

Fitch warned that wealth products worth $2 trillion of lending are in reality a “hidden second balance sheet” for banks, allowing them to circumvent loan curbs and dodge efforts by regulators to halt the excesses. …

Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis. “They have replicated the entire US commercial banking system in five years,” she said.

The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. “This is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial,” she said.

This makes a systemic Chinese crash on the order of what we had here in 2008-09 look likely. What the effects will be on the global economy I can’t say, but I imagine it can’t be good.

And this, folks, is why we need a transparent, well-regulated banking and investment system. Yet “too big to fail” and a huge, unregulated segment of the financial markets are still standard policy here in the U.S. If the system breaks again, the hyperrich won’t suffer, but you and I will. Big time.

Happy Thanksgiving.

(h/t: Fec)

 

 

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Monday, September 6, 2010 1:43 pm

China and U.S. Treasuries: From nuclear option to firecracker

For some time now, American investors’ fear has been that the Chinese owned so many T-bills that if they sold a bunch at once, interest rates (bond yields) would have to climb dramatically for those bills to find buyers, with horrible consequences for U.S. credit markets.

Thing is, as Charles Hugh Smith reports, the U.S. stock market is now so widely (and correctly) perceived as a rigged game that many American investors have gotten out of stocks and into Treasury bonds — so many that the leverage of the Chinese over U.S. finances has been significantly diluted:

But a funny thing happened to the “nuclear option” story: American investors have absorbed almost $4 trillion in U.S. Treasuries, making domestic owners the largest holders of Treasuries. China’s holdings, as vast as they are, are now a modest percentage of domestic owners–as little as 25%.

This domestic move out of equities and into Treasuries is a sea change with broad consequences. Hundreds of billions of dollars has been pulled out of U.S. equities and dumped into low-yield Treasuries. For context, recall that domestic U.S. assets (real estate, bonds, equities, and other marketable capital) is around $52 trillion.

So owning $4 trillion in Treasuries–more than all non-U.S. owners combined, including China, Japan and the Gulf Oil states–does not require that great a percentage of U.S. capital. Even if U.S. owners absorbed another $4 trillion, that would make Treasuries less than 20% of total capital.

There are limits to U.S. debt growth, however, and it is those limits which constitute “the nuclear option.” The U.S. could readily absorb the entire Chinese portfolio ($1.2 trillion), but what it cannot absorb is $1.4 trillion in annual deficits, year after year. In other words, if debt is a “nuclear” weapon, the U.S. will have to set the weapon off itself by borrowing more than it can support out of national income.

If the U.S. economy melts down due to over-borrowing, we have nobody to blame but ourselves.

Of course, the deficit hawks claim that that’s where we’re headed right now. The other side of that argument — and the correct side — is that we need to be running deficits in the short term to get people back to work (more people working and paying income taxes and buying stuff and paying sales taxes, and fewer receiving unemployment checks, also will help reduce the deficit), and we need to be directing that spending toward means of increasing our future productivity so as to generate the wealth needed to bring deficits back under control and pay down debt long-term.

Now, while it’s good that China no longer has the capacity to blow up our economy — which has positive ramifications for everything from our relations with Iran and North Korea to the security of Taiwan — we also don’t want things to veer too far in the other direction:

… if China’s export market implodes and its trade surplus disappears, the central government will have trouble creating the jobs needed to maintain its power.

If China launches its “nuclear option,” the market might be roiled for a short period of time, but their share of the total Treasury markets is simply too small now to be “nuclear.”

Perhaps the real “nuclear option” here is the potential for the U.S. to restrict China’s imports to the U.S. market. Should China’s exports dry up, it will face domestic turmoil on a scale few can imagine.

Tiananmen Square showed us that the Chinese government has the will to deal ruthlessly with domestic turmoil. But that was primarily a political movement. But if tens or hundreds of millions of Chinese rise up because exports have fallen off so badly that they can no longer afford food, Beijing may find itself faced with a situation it cannot shoot its way out of … not solely against internal targets, anyway.

Thursday, January 14, 2010 9:57 pm

Odds and ends for 1/14

First, the important stuff: Links where you can contribute to Haiti earthquake relief:

Oxfam
American Red Cross
AmeriCares
Médecins Sans Frontières/Doctors Without Borders

As in most other major disasters, the main thing these organizations need right now is money.* Their experts will know how best to spend it, what’s needed where, etc. In other words, right at the moment, rounding up clothing or canned food or bandages or what-have-you, although certainly well-intentioned, is less helpful than giving these groups the resources to do what they know best how to do. As they identify particular needs, they’ll publicize them.

Anything you can give will help. And please give something. The suffering there is already horrendous, and it will quickly get even worse than most of us can possibly imagine.

*Unless you have a helicopter.

OK, then …

HUNGRY vampire squid: Goldman Sachs didn’t get just 100 cents on the dollar on its exposure to AIG, courtesy of the taxpayers. No, by reselling its AIG credit-default obligations while knowing the taxpayers were going to bail out AIG, but before that info became public, it effectively got more. About $1.2 billion more.

Which is a big part of the problem: Pat Robertson is far more important than you will ever be.

Remember, she reads every newspaper, too: Glenn Beck: Who’s your favorite Founding Father? Sarah Palin: All of ’em.

Which dinosaur?: A shark described as “dinosaur-sized” attacked and apparently ate a swimmer Tuesday off Cape Town, South Africa. But they didn’t say whether they meant this dinosaur or this one.

Lighter backpacks: Obviously, colleges are going to switch to electronic textbooks to save students money. That move now has a deadline in California: 2020, which seems a bit far off considering that almost two-thirds of the roughly 13,000 textbook titles published by the six largest U.S. publishers already are available electronically.

“If you are watching this video, then I have been murdered by the president of Guatemala hit men I hired myself”: A UN commission concludes that the “assassination” of a lawyer, alleged in a posthumous video to have been ordered by Guatemala’s president, actually was arranged by the lawyer himself in an attempt to destabilize the government. Dude, if you wanted him out, why not just run against him?

You know that scene in “Waterworld” where Kevin Costner drinks his own pee?: The astronauts are feeling his pain.

China vs. Google: Is it really China vs. the U.S.? And was this hack attack, if not a cyber-Pearl Harbor, at the least a dangerous breach of national security?

Senate health-care bill: “A teacher tax, not a Cadillac tax.”

Related: Who needs Republicans when the unions are just as willing to screw the middle class?

Um, ‘cuz they’re, I don’t know, WHORES?!?: Retiring Republican Rep. John Shadegg, asked whether he supports a public option: “Well, you could better defend a public option than you could defend compelling me to buy a product from the people that have created the problem. America’s health insurance industry has wanted this bill and the individual mandate from the get go. That’s their idea. Their idea is, ‘Look, our product is so lousy that lots of people don’t buy it. So we need the government to force people to buy our product.’ And stunningly, that’s what the Congress appears to be going along with. Why would they do that?”

Except it wasn’t hindsight, jackass: I could’ve told you this on Jan. 20 and saved everyone a lot of time: Harry Reid has just now figured out that Sen. Olympia Snowe, R-Maine, was never going to vote for health-care reform.

AIG tick-tock: Firedoglake, which has published valuable analysis on such issues as torture and the Scooter Libby case by means of creating documented timelines, applies the technique to the federal government’s bailout of AIG (and its use of AIG to indirectly bail out Goldman Sachs), working with a cache of e-mails obtained and posted online by The New York Times. FDL cautions that it ain’t complete, and I haven’t even begun reading it yet, but if you’re interested in the subject, this is sure to be a valuable resource.

Speaking of torture: The brother of the Crown Prince of the United Arab Emirates is caught on videotape torturing and attempting to murder a guy he thought had screwed him in a business deal, but the court let him off anyway after he claimed he was too whacked on medication to know what he was doing. I’ll just say he must have been pretty damn whacked to run over a guy repeatedly without actually quite managing to, you know, kill him.

SCOTUS vs. the U.S.: As I suggested on Monday, the Supreme Court isn’t going to sign off on anything that could be a basis for its having to allow itself to be televised someday. Jackasses. Go ahead and keep talking about how this court’s majority is so strict-constructionist and all, but speak up: I’m going to have trouble hearing you over my own laughter.

Allegany County, Maryland, needs more alligators: Andy says so, and he’s there so he should know.

The Internet — the greatest collection of knowledge in history: How can I make my chicken taste just like the junk they serve at school?

Rupert Murdoch: plagiarist.

Teddy Pendergrass: RIP.

Tuesday, December 29, 2009 11:50 pm

Odds and ends for 12/29

Gettin’ back at ’em: Wall Street’s 10 Greatest Lies of 2009 and 10 Ways to Screw Over the Corporate Jackals Who’ve Been Screwing You. For informational purposes only; no endorsement implied. IANAL. Void where prohibited. Etc.

Waykewl pitchers: Time’s “The Year in Pictures 2009,” National Geographic’s “Top Ten Space Pictures of 2009.”

Denzel in the house: Denzel Washington came to the Davidson-Penn game last night to watch his son’s team lose to the Wildcats. (Malcolm Washington converted a 3-point play for the Quakers’ final points of the game.)

Connecting the dots: Fecund Stench does an excellent, if scary, job of it.

I’m sure the Right-Wing Noise Machine will apologize to the Dixie Chicks right after it excoriates Ted Nugent.

Following in the footsteps of the other death merchants: Like the tobacco industry before them, the health-care industry, not satisfied to mess things up at the national level, is now also messing things up at the state level.

Attention, deficit hawks: Despite what you may have learned in Right-Wing Math Class, a $900 billion health-care program that’s paid for is NOT as big a problem as a $9 trillion unfunded liability.

Chase and Citibank are dropping out of the FDIC 4K program. Uh, what does that mean, you ask? Basically, they’ve found a way to do more gambling with your money.

Two Panthers are going to the Pro Bowl, RB DeAngelo Williams and DE Julius Peppers. RB Jonathan Stewart’s final stats may outshine Williams’s. Peppers, on the other hand, is tied for 305th in the league in tackles through Week 16, with 39; ranks tenth overall, and sixth among defensive ends (fifth among DEs in the NFC), in sacks; tied for 177th in passes defended (eighth among DEs), with five. In his defense, he is tied for third in the league with five forced fumbles and is among only four DEs in the league who have returned an interception for a touchdown.

Carbon gap: All the blather about a carbon/environment/clean-energy bill is overshadowing an ominous fact: China is going to eat our lunch in this arena … if we let it.

Quote of the day, from Bruce Schneier: “Only two things have made flying safer [since 9/11]: the reinforcement of cockpit doors, and the fact that passengers know now to resist hijackers.” So let’s 1) stop wasting hundreds of millions of dollars a year on equipment and people that don’t do what they’re supposed to do and 2) stop making flying commercial any more of a miserable experience than it absolutely has to be. Thank you.

Another quote of the day, from Osama bin Laden, which we really ought to look at again before rushing off to start new wars in Yemen and Somalia: “All that we have to do is to send two mujahidin to the furthest point east to raise a piece of cloth on which is written al-Qaida, in order to make the generals race there to cause America to suffer human, economic, and political losses without their achieving for it anything of note other than some benefits for their private companies.”

John Dugan owes us trillions, and if he can’t pay, I say we have the Mafia (who pay sales taxes, if nothing else) break his legs.

Pat Buchanan: Still crazy.

Speaking of crazy: It’s time to stop giving Rep. Peter King, R-N.Y., air time. He handles it worse than I handled Jell-O shots, which is pretty bad.

I wouldn’t call it a “fix,” but it’d definitely be an improvement: NYU online-journalism guru Jay Rosen suggests the Sunday talk shows start fact-checking their guests. Unlike Jay, however, I wouldn’t wait ’til Wednesday to post the corrections. That ought to be happening in real time, online and with live screen crawls.

Speaking of fixes, if we want to fix the terrorism problem, we have to start with the engineers. They’re dangerous, I tell you. Including my brother.

Mashup du jour: This is genius.

Attention, police: You can’t Taser people just because they don’t do what you want them to do anymore. Not that all that many of you were doing that to begin with, just as almost none of you hit people over the head with your batons just for the hell of it. But those few of you who have been doing this are now on legal notice that you need to stop.

Elections have consequences, and the biggest consequence of the 2008 election so far is that the people who worked hardest to elect Barack Obama president have been serially and collectively screwed.

Reasons to freak out: Number of Americans who’ve died this year for lack of health insurance: about 45,000. Number who’ve died from salmonella: about 600. Number who’ve died from terrorism, including all those at Fort Hood: 16. Let’s keep this in mind before we soil ourselves, shall we?

Parker Griffith didn’t just take a congressional seat with him, he also took some of the Alabama Democratic Party’s voter-registration data. His primary is June 1, so get your popcorn early.

And I’ll bet you thought the story of Orly Taitz and the birthers couldn’t get any weirder: BZZZT! Wrong!

OK, maybe the world really WILL end in 2012, because it sure can’t keep going like this: DougJ at Balloon Juice for the win: “Let’s be frank: at this point, there is no real difference between Michelle Malkin and the Washington Post editorial page, none between Marc Ambinder and Matt Drudge, none between the Republican Congressional delegation and RedState. We have Jim DeMint holding up the confirmation of the head of the TSA while simultaneously acting as the point man for Republican criticism of the TSA … and he’s getting a lot of traction in the very liberal media. Maybe there is no value in saying this over and over again, but our public dialog really, really sucks.”

And, finally, just because it’s cool and you deserve a reward for reading this far:

Monday, August 31, 2009 8:21 pm

Q: What’s the matter with bubbles?

Filed under: We're so screwed — Lex @ 8:21 pm
Tags: ,

A: Eventually, they all pop. Which hasn’t prevented China from going ahead and blowing one up anyway. I noted before that that appears to be the case. But now? They’re flat-out admitting it and daring anyone (read: the SEC) to do anything about it:

In a phenomenal demonstration of frankness and true economic assessment, the head of the China Investment Council, Lou Jiwei, who controls China’s $298 billion sovereign wealth fund, admits the ponzi nature of today’s markets:

Both China and America are addressing bubbles by creating more bubbles and we’re just taking advantage of that. So we can’t lose.

Indeed, they can’t lose thanks to the criminal silence on behalf of Mr. Jiwei’s US financial counterparties. It doesn’t get any simpler than that folks. Keep in mind Madoff was thrown in jail for a few hundred years for much less: what’s $55 billion when you are dealing with a $20 trillion+ global equity market Ponzi scheme. And yet both China and the US continue their struggle to perpetuate a Ponzi, with the full implicit backing of all financial, regulatory and legal authorities. The system is now officially broken, even ignoring the conspiratorial ramblings of fringe bloggers. …

One wonders at what point the US authorities will have the guts to at least admit what China is now openly saying is one big pyramid scheme. And as for the Fed’s prudent approach to fighting bubbles – well, that is now completely discredited, as the only goal for the US Federal Reserve is to make sure that Wall Street’s “VIP club” manages to cash out before all the stupid money and other retail investors, presumably before all hell breaks loose, and the latest bubble pops once more. Good luck to all.

Any ideas on just where we’re supposed to put our money so that it doesn’t just disappear when the next balloon pops?

Friday, August 21, 2009 8:45 pm

I, for one, think it may be premature to welcome our new Chinese financial overlords

Filed under: We're so screwed — Lex @ 8:45 pm
Tags: ,

… because they’ve been blowing bubbles over there, too:

To make up for the estimated 20% decline in Chinese exports, and in order to “maintain” the artifical minimum 8% growth of the economy, the Chinese bank has to redirect consumption to internal sources of demand, which can only be achieved by providing virtually free credit. The problem with that is that practically all of mainland China has taken the free cash and invested it in the stock market. The eventual collapse of this fake liquidity transfer will be one for the ages.

Is it just me, or does having the phrases “collapse” and “one for the ages” in the same sentence make you want to hug your gold bars a little more tightly, too?

Relatedly — and you’ll have to bear with me for a minute to see how — both U.S. and Eurozone trade balances appear to be improving only because imports are collapsing, not because exports are rising. Why? The Chinese bubble:

Yet the real wild card is China, where estimates for export decline approach the 20% mark, after a prior year increase of 20%. This is a huge hit to the Chinese economy and is the primary reason for the $1.1 trillion in increased lending, whose primary purpose is to spur replacement demand with traditional export partners reeling.

In essence what is going on, is that the brief pick up in German and US GDPs on the trade balance side, are being facilitated exclusively by the credit bubble in China. By dint of China being able to recognize GDP at production instead of expenditures (like normal Western countries), China is now trying to back fill into the trade void left from the collapse of Western economies by promoting the same kind of irresponsible lending (and borrowing) that led the US economy to its current sorry state. This will eventually end very, very badly.

Indeed, I shall be shocked should anything different happen.

Tuesday, September 23, 2008 8:25 pm

When your banker calls in the loan

Filed under: Uncategorized — Lex @ 8:25 pm
Tags: , ,

China holds a big chunk of U.S. debt, and I’ve long wondered what might happen if it ever decided to call it in.

Now we may know. From China’s Xinhua news agency:

BEIJING, Sept. 22 (Xinhua) — Chinese President Hu Jintao and his U.S. counterpart George W. Bush discussed bilateral relations and the financial upheavals in the United States in a phone conversation on Monday morning Beijing time….

Bush briefed Hu on the latest development of the U.S. financial market, saying his government was well aware of the scope of the problem, and had taken and would continue to take necessary measures to stabilize the domestic and world financial markets….

[Hu] said China is ready to work with the U.S. side to intensify dialogue, exchanges and cooperation, and properly handle issues concerning mutual interests and of major concern, particularly the Taiwan question, in a bid to push forward the sustained and steady development of the Sino-U.S. constructive and cooperative ties.

Don’t we have a treaty obligation to defend Taiwan from military attack? If so, what does this development mean for that?

(h/t: Just World News)

UPDATE: Uh-oh.

Monday, May 19, 2008 7:36 pm

No good deed really does go unpunished

Filed under: Sad — Lex @ 7:36 pm
Tags: , ,

In China, 158 relief workers have been killed in landslides.

Relief work is noble, but it also can be dangerous, and not just because of natural hazards.

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