Curious - the bubble of China
Bubbles are not unique to the United States. There is evidence that China may be building up one of her own.
From
The Diplomat:
Are Chinese Banks Hiding �The Mother of All Debt Bombs�?
Financial collapses may have different immediate triggers, but they all originate from the same cause: an explosion of credit. This iron law of financial calamity should make us very worried about the consequences of easy credit in China in recent years. From the beginning of 2009 to the end of June this year, Chinese banks have issued roughly 35 trillion yuan ($5.4 trillion) in new loans, equal to 73 percent of China's GDP in 2011. About two-thirds of these loans were made in 2009 and 2010, as part of Beijing's stimulus package. Unlike deficit-financed stimulus packages in the West, China's colossal stimulus package of 2009 was funded mainly by bank credit (at least 60 percent, to be exact), not government borrowing.
Flooding the economy with trillions of yuan in new loans did accomplish the principal objective of the Chinese government � maintaining high economic growth in the midst of a global recession. While Beijing earned plaudits around the world for its decisiveness and economic success, excessive loose credit was fueling a property bubble, funding the profligacy of state-owned enterprises, and underwriting ill-conceived infrastructure investments by local governments. The result was predictable: years of painstaking efforts to strengthen the Chinese banking system were undone by a spate of careless lending as new bad loans began to build up inside the financial sector.
A bit more -- some numbers:
However, Professor Victor Shih of Northwestern University has estimated that the real amount of local government debt was between 15.4 and 20.1 trillion yuan, or between 40 and 50% of China�s GDP. Of this amount, he further estimated, the local government financing vehicles (LGFVs), which are financial entities established by local governments to invest in infrastructure and other projects, owed between 9.7 and 14.4 trillion yuan at the end of 2010.
Yikes -- China is rotting from the inside. A simple Google search for
empty Chinese cities turns up 39 Million hits with links like
this and
this and
this.
This is going to be big and I really hope it doesn't suck us into their pain.
Posted by DaveH at September 8, 2012 2:11 PM