Winston
Lorenzo von Matterhorn
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One small excerpt from just one of the many articles you will find (now even emerging into the previously totally clueless mainstream financial media "rah-rah boys" territory) about the reality of the "Great Chinese Miracle":
So now we get to ground zero of the global Ponzi. That is the monumental pile of construction and debt that is otherwise known on Wall Street as the miracle of red capitalism. In truth, however, China is not an economic miracle at all; its just a case of the above abandoned Athens (2004 Olympics) stadium writ large.
The McKinsey graph on China tells it all. For the moment, forget about leverage ratios, debt carrying capacity and all the other fancy economic metrics. Does it seem likely that a country which is still run by a communist dictatorship and which was on the verge of mass starvation and utter impoverishment only 35 years ago could have prudently increased its outstanding total debt (public and private) from $2 trillion to $28 trillion or by 14X in the short span of 14 years? And especially when half of this period encompassed what is held to be the greatest global financial crisis of modern times.
And dont forget that most of this staggering sum of debt was issued by a banking system (and its shadow banking affiliates) which is bereft of any and every known mechanism of financial discipline and market constraints on risk and credit extension. In effect, it is simply a vast pyramidal appendage of the Chinese state in which credit is conjured from thin air by the trillions, and then cascaded in plans and quotas down through regions, counties, cities and towns.
When it reaches its end destination it finances the building of anything that local politicians, bureaucrats and red capitalists can dream up. That includes factories, roads, ports, subways, bridges, airports, malls, apartments and all the rest of the construction projects being undertaken on Beijings Noahs ark.
Undoubtedly, the plentitude of ghost cities, malls, apartment buildings and factories that are everywhere now evident in China do not look much different than Greeces Olympic stadiums did circa 2006-that is, gleaming but silent. It will take another decade for the weeds to spring up and the rust and decay to become visible.
So it might be a good time to get a grip on the China Ponzi. There is virtually not a single honest price in the entire $28 trillion tower of debt shown below. When loans to coal mine operators got in trouble, for example, the so-called bankers at the big state banks simply invited their clients in the side door where they paid back the bank with a trust loan at 18% interest-which loan was then resold to bank customers at 12%.
Hence, no NPLs and no need for new loss provisions. Indeed, Chinas big state banks book billions of profits each quarternotwithstanding the absurd extent of the nations credit pyramid.
Likewise, how did the local party cadres use the loans that cascaded down the system to their town? Why they established non-governmental development agenciesthousands of them- that paid hugely inflated prices for city lands in order to build empty luxury apartments and zoos that are bereft of both people and animals. Meanwhile, local governments run huge GDP enhancing budgets that are funded by the false revenue of hyper-bloated land sales.
The skunk in the woodpile is self evident even in the simplified chart below. At least prior to the 2008 crisis, it could be said that part of the China boom was being financed by the Fed and other DM central banks which enabled their domestic consumers to borrow themselves silly, thereby fueling the China export boom. Thats pretty much over in terms of growth owing to the tepid recoveries and outright economic stagnation in the US, Europe and Japan.
But never mind. The aging black-haired men who learned their economics from the Maos Little Red Book had a solution. They would lift GDP and jobs by their own bootstraps, dispensing virtually unlimited credit to build public pyramids, otherwise known as infrastructure, at rates not seen since the Egyptian pharaohs.
Thus, since the eve of the crisis in 2007, Chinas GDP has doubled, expanding by $5 trillion in 7 years. But as shown below, it took a $21 trillion expansion of debt outstanding to accomplish that outcome.
Thats right. The China Ponzi took on $4 of debt for every new dollar of freshly constructed GDP. And constructed is exactly the correct term because all of this new debt funded a orgy of construction-much of which is for public facilities that will never produce enough user revenues to service the debt or which are essentially owned by local governments which have no tax revenue.
So now we get to ground zero of the global Ponzi. That is the monumental pile of construction and debt that is otherwise known on Wall Street as the miracle of red capitalism. In truth, however, China is not an economic miracle at all; its just a case of the above abandoned Athens (2004 Olympics) stadium writ large.
The McKinsey graph on China tells it all. For the moment, forget about leverage ratios, debt carrying capacity and all the other fancy economic metrics. Does it seem likely that a country which is still run by a communist dictatorship and which was on the verge of mass starvation and utter impoverishment only 35 years ago could have prudently increased its outstanding total debt (public and private) from $2 trillion to $28 trillion or by 14X in the short span of 14 years? And especially when half of this period encompassed what is held to be the greatest global financial crisis of modern times.
And dont forget that most of this staggering sum of debt was issued by a banking system (and its shadow banking affiliates) which is bereft of any and every known mechanism of financial discipline and market constraints on risk and credit extension. In effect, it is simply a vast pyramidal appendage of the Chinese state in which credit is conjured from thin air by the trillions, and then cascaded in plans and quotas down through regions, counties, cities and towns.
When it reaches its end destination it finances the building of anything that local politicians, bureaucrats and red capitalists can dream up. That includes factories, roads, ports, subways, bridges, airports, malls, apartments and all the rest of the construction projects being undertaken on Beijings Noahs ark.
Undoubtedly, the plentitude of ghost cities, malls, apartment buildings and factories that are everywhere now evident in China do not look much different than Greeces Olympic stadiums did circa 2006-that is, gleaming but silent. It will take another decade for the weeds to spring up and the rust and decay to become visible.
So it might be a good time to get a grip on the China Ponzi. There is virtually not a single honest price in the entire $28 trillion tower of debt shown below. When loans to coal mine operators got in trouble, for example, the so-called bankers at the big state banks simply invited their clients in the side door where they paid back the bank with a trust loan at 18% interest-which loan was then resold to bank customers at 12%.
Hence, no NPLs and no need for new loss provisions. Indeed, Chinas big state banks book billions of profits each quarternotwithstanding the absurd extent of the nations credit pyramid.
Likewise, how did the local party cadres use the loans that cascaded down the system to their town? Why they established non-governmental development agenciesthousands of them- that paid hugely inflated prices for city lands in order to build empty luxury apartments and zoos that are bereft of both people and animals. Meanwhile, local governments run huge GDP enhancing budgets that are funded by the false revenue of hyper-bloated land sales.
The skunk in the woodpile is self evident even in the simplified chart below. At least prior to the 2008 crisis, it could be said that part of the China boom was being financed by the Fed and other DM central banks which enabled their domestic consumers to borrow themselves silly, thereby fueling the China export boom. Thats pretty much over in terms of growth owing to the tepid recoveries and outright economic stagnation in the US, Europe and Japan.
But never mind. The aging black-haired men who learned their economics from the Maos Little Red Book had a solution. They would lift GDP and jobs by their own bootstraps, dispensing virtually unlimited credit to build public pyramids, otherwise known as infrastructure, at rates not seen since the Egyptian pharaohs.
Thus, since the eve of the crisis in 2007, Chinas GDP has doubled, expanding by $5 trillion in 7 years. But as shown below, it took a $21 trillion expansion of debt outstanding to accomplish that outcome.
Thats right. The China Ponzi took on $4 of debt for every new dollar of freshly constructed GDP. And constructed is exactly the correct term because all of this new debt funded a orgy of construction-much of which is for public facilities that will never produce enough user revenues to service the debt or which are essentially owned by local governments which have no tax revenue.