Amidst the record highs or immensely levitating stock markets, mostly predicated reflation chatter, lost in the mainstream conversation has been the elephant in the room: global economies have operated under lifeline support.
There is no bigger proof than present developments in China
From Bloomberg:
China added more credit last month than the equivalent of Swedish or Polish economic output, revving up growth and supporting prices but also fueling concerns about the sustainability of such a spree.
Aggregate financing, the broadest measure of new credit, climbed to a record 3.74 trillion yuan ($545 billion) in January, exceeding the median estimate of 3 trillion yuan in a Bloomberg survey
New yuan loans rose to a one-year high of 2.03 trillion yuan, less than the 2.44 trillion yuan estimate
The credit surge highlights the challenges facing Chinese policy makers as they seek to balance ensuring steady growth with curbing excess leverage in the financial system. The PBOC recently moved to tighten monetary policy by raising the interest rates it charges in open-market operations and on funds lent via its Standing Lending Facility.
In the last 12 months, total social financing totaled USD $2.7 trillion that was partly backed by USD $1.8 trillion of bank credit. (charts from Yardeni Blog)
And this hardly includes a comprehensive take on shadow banking activities.
Yet the Bloomberg notes: “The main categories of shadow finance all increased significantly. Bankers acceptances -- a bank-backed guarantee for future payment -- soared to 613.1 billion yuan from 158.9 billion yuan the prior month.”
All those previous talks about tightening have really not transpired.
Being hooked or extremely dependent on credit, the Chinese economy can hardly afford to take the pains of withdrawal.
This reveals to us the dangers of policy-induced credit expansions. Like drugs, once applied it can hardly be controlled. Political path dependency on credit expansion becomes the main channel for transmission mechanism to the economy.
The PBOC has been again reported to “tighten”. But unless there should be a meaningful turnaround, such measures are likely superficial.
Of course, credit inflation does not exist in a vacuum. It has effects. YYYUUGGEE effects.
The staggering record credit inflation, despite the overcapacity, has boosted not only China’s PPI and CPI but also filtered into stocks and commodities.
This shows that money has to flow somewhere. As been stated here, China’s bubbles have only been in a rotation, it has recently shifted from real estate back to commodities.
In general, asset bubbles have spread to cover a much bigger or wider scale of her economy
Previous sizzling hot Chinese property prices have supposedly weakened due to the crackdown by the national government
From Shanghai Daily (February 15)
CHINA’S property sales have fallen since the government began tightening, and analysts expect more to be done in 2017 to deflate the bubble.
The China Index Academy, a real estate research institute, said property sales in China dropped 36.7 percent month on month in January, in terms of floor space.
On a yearly basis, sales fell by 27.3 percent in January, with Beijing and Shenzhen declining by nearly 50 percent, according to the China Index Academy.
From January 1, banks in Beijing raised mortgage rates for first-time home buyers. On January 19, Shenzhen tied new home prices to the average price of houses on sale in the neighborhood. On February 6, Chongqing also tightened its policy.
And this comes at a time when housing price statistics seem as being controlled.
From Business Insider (January 20)
At least two major Chinese private providers of home price data have stopped publishing the figures, at a time when economists are split whether the red-hot property market will remain a driver of the economy in 2017.
The China Index Academy, a unit of U.S.-listed Fang Holdings , has stopped distributing monthly housing price index data for 100 cities that it usually issued at the start of the month.
The academy told Reuters on Friday it had suspended distribution indefinitely, without giving a reason for the suspension.
"I don't know who exactly is making the order, and it's not mandatory," said a source with knowledge of the matter, who declined to be identified as the topic is a sensitive one.
Home price data from private providers tends to show sharper increases than official data from the National Bureau of Statistics (NBS), which publishes monthly and annual percentage changes in 70 major cities.
And this whopping credit inflation triggered rally in commodities has now been rationalized as the Trump reflation.
Further, think of how these should impact the yuan
At the end of the day, whatever one sees in the market today, such hasn’t been about organic growth but about the seemingly endless life support system provided by central bankers to sustain and keep the world from a massive debt debacle.
Yet the other side of this has been to worsen the underlying conditions. Record stocks is a symptom of the pathology of redistribution.
All these will hit a wall…sometime soon.
And of course what happens in China won’t stay in China.
