The massive expansion of the
Chinese money supply has gone largely unnoticed particularly when one realizes
that all this money must be absorbed in China itself with only modest
absorption outside. And where possible
this flood of capital is been used to buy US dollar assets obviously drawing
down against the US dollar reserve.
At the same time the Chinese
is also expanding the global money supply through its global buying spree. Thus we have a greater China emerging with
real tangible influence and access everywhere.
We have also learned that while the West rarely holds its nose when engaging
rogues, the Chinese never do.
In the meantime China is on
course to capitalizing their middle class and that will be equal to that of the
West, so this expansion seen in that perspective actually can be beneficial. The hang over still promises to be nasty.
China Is On
A Debt Binge And A Buying Spree Unlike Anything The World Has Ever Seen Before
By Michael Snyder, on November 26th, 2013
When
it comes to reckless money creation, it turns out that China is the king.
Over the past five years, Chinese bank assets have grown from about 9 trillion
dollars to more than 24
trillion dollars. This has been fueled by the greatest
private debt binge that the world has ever seen. According to a
recent World Bank report,
the level of private domestic debt in China has grown from about 9 trillion
dollars in 2008 to more than 23 trillion dollars today.
In other words, in just five years the amount of money that has been loaned out
by banks in China is roughly equivalent to the amount of debt that the U.S.
government has accumulated since the end of the Reagan administration.
And Chinese bank assets now absolutely dwarf the assets of the U.S. Federal
Reserve, the European Central Bank, the Bank of Japan and the Bank of
England combined. You can see an amazing chart which shows
this right here.
A lot of this "hot money" has been flowing out of China and into
U.S. companies, U.S. stocks and U.S. real estate. Unfortunately for
China (and for the rest of us), there are lots of signs that the gigantic debt
bubble in China is about to burst, and when that does happen the entire world
is going to feel the pain.
It
was Zero Hedge that
initially broke this story. Over the past several years, most of the
focus has been on the reckless money printing that the Federal Reserve has been doing,
but the truth is that China has been far more reckless...
You
read that right: in the past five years the total assets on US bank books have
risen by a paltry $2.1 trillion while over the same period, Chinese bank assets
have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147
trillion or an epic $24 trillion - some two and a half times the GDP of
China!
Putting
the rate of change in perspective, while the Fed was actively pumping $85
billion per month into US banks for a total of $1 trillion each year, in
just the trailing 12 months ended September 30, Chinese bank assets grew by
a mind-blowing $3.6 trillion!
I
was curious to see what all of this debt creation was doing to the money supply
in China. So I looked it up, and I discovered that M2 in China has
grown by about 1000% since 1999...
So
what has China been doing with all of that money?
Well,
they have been on a buying spree unlike anything the world has ever seen
before. For example, according to Reuters China has
essentially bought the entire oil industry of Ecuador...
China's
aggressive quest for foreign oil has reached a new milestone, according to
records reviewed by Reuters: near monopoly control of crude exports from an
OPEC nation, Ecuador.
Last
November, Marco Calvopiña, the general manager of Ecuador's state oil company
PetroEcuador, was dispatched to China to help secure $2 billion in financing
for his government. Negotiations, which included committing to sell millions of
barrels of Ecuador's oil to Chinese state-run firms through 2020, dragged on
for days.
And
the Chinese have been doing lots of shopping in the United States as
well. The following is an excerpt from a recent CNBC article entitled
"Chinese buying up California housing"...
At
a brand new housing development in Irvine, Calif., some of America's largest
home builders are back at work after a crippling housing crash. Lennar, Pulte,
K Hovnanian, Ryland to name a few. It's a rebirth for U.S. construction, but
the customers are largely Chinese.
"They
see the market here still has room for appreciation," said Irvine-area
real estate agent Kinney Yong, of RE/MAX Premier Realty. "What's driving
them over here is that they have this cash, and they want to park it somewhere
or invest somewhere."
Apparently
a lot of these buyers have so much cash that they are
willing to outbid anyone if they like the house...
The
homes range from the mid-$700,000s to well over $1 million. Cash is king, and
there is a seemingly limitless amount.
"The
price doesn't matter, 800,000, 1 million, 1.5. If they like it they will
purchase it," said Helen Zhang of Tarbell Realtors.
So
when you hear that housing prices are "going up", you might want to
double check the numbers. Much of this is being caused by foreign buyers
that are gobbling up properties in certain "hot" markets.
We
see this happening on the east coast as well. In fact, a Chinese firm
recently purchased one of the most
important landmarks in New York City...
Chinese
conglomerate Fosun International Ltd. (0656.HK) will buy office building One
Chase Manhattan Plaza for $725 million, adding to a growing list of property
purchases by Chinese buyers in New York city.
The
Hong Kong-listed firm said it will buy the property from JP Morgan Chase Bank,
according to a release on the Hong Kong Stock Exchange website.
Chinese
firms, in particular local developers, have looked overseas to diversify their
property holdings as the economy at home slows. Chinese individuals also have
been investing in property abroad amid tight policy measures in the mainland
residential market.
Earlier
this month, Chinese state-owned developer Greenland Holdings Group agreed to
buy a 70% stake in an apartment project next to the Barclays Center in
Brooklyn, N.Y., in what is the largest commercial-real-estate development in
the U.S. to get direct backing from a Chinese firm.
Just
think about what the Smithfield Foods acquisition alone will mean.
Smithfield Foods is the largest pork producer and processor in the world.
It has facilities in 26 U.S. states and it employs tens of thousands of
Americans. It directly owns 460 farms and has contracts with
approximately 2,100 others. But now a Chinese company has bought it
for $4.7 billion,
and that means that the Chinese will now be the most important employer in
dozens of rural communities all over America.
For
many more examples of how the Chinese are gobbling up companies, real estate
and natural resources all over the United States, please see my previous
article entitled "Meet Your New
Boss: Buying Large Employers Will Enable China To Dominate 1000s Of U.S.
Communities".
But
more than anything else, the Chinese seem particularly interested in acquiring
real money.
And
by that, I mean gold and silver.
In
recent years, the Chinese have been buying up thousands of tons of gold at
very depressed prices. Meanwhile, the western world has been unloading
gold at a staggering pace. By the time this is all over, the western
world is going to end up bitterly regretting this massive transfer of real
wealth.
Unfortunately
for the Chinese, it appears that the unsustainable credit bubble that they have
created is starting to burst. According toBloomberg, the amount of bad
loans that the five largest banks in China wrote off during the first half of
this year was three times larger than last year...
China’s
biggest banks are already affected, tripling the amount of bad loans they wrote
off in the first half of this year and cleaning up their books ahead of what
may be a fresh wave of defaults. Industrial & Commercial Bank of China Ltd.
and its four largest competitors expunged 22.1 billion yuan of debt that
couldn’t be collected through June, up from 7.65 billion yuan a year earlier,
regulatory filings show.
And
Goldman Sachs is projecting that China may be facing 3 trillion dollars in
credit losses as this bubble implodes...
Interest
owed by borrowers rose to an estimated 12.5 percent of China’s economy from 7
percent in 2008, Fitch Ratings estimated in September. By the end of 2017, it
may climb to as much as 22 percent and “ultimately overwhelm borrowers.”
Meanwhile,
China’s total credit will be pushed to almost 250 percent of gross domestic
product by then, almost double the 130 percent of 2008, according to Fitch.
The
nation might face credit losses of as much as $3 trillion as defaults ensue
from the expansion of the past four years, particularly by non-bank lenders
such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs
Group Inc. estimated in August.
The
Chinese are trying to get this debt spiral under control by tightening the
money supply. That may sound wise, but the truth is that it is going to
create a substantial credit crunch and
the entire globe will end up sharing in the pain...
Yields
on Chinese government debt have soared to their highest levels in nearly nine
years amid Beijing's relentless drive to tighten the monetary spigots in
the world's second-largest economy.
The
higher yields on government debt have pushed up borrowing costs broadly, creating
obstacles for companies and government agencies looking to tap bond
markets. Several Chinese development banks, which have mandates to encourage
growth through targeted investments, have had to either scale back
borrowing plans or postpone bond sales.
This
could ultimately be a much bigger story than whether or not the Fed decides to
"taper" or not.
It
has been the Chinese that have been the greatest source of fresh liquidity
since the last financial crisis, and now it appears that source of liquidity is
tightening up.
So
as the flow of "hot money" out of China starts to slow down, what is
that going to mean for the rest of the planet?
And
when you consider this in conjunction with the fact that China has just
announced that it is going to stop stockpiling U.S. dollars,
it becomes clear that we have reached a major turning point in the financial
world.
2014
is shaping up to be a very interesting year, and nobody is quite sure what is
going to happen next.
1 comment:
God save America
Post a Comment