Juggling Dynamite

Jim Chanos, of Kynikos Associates, discusses evidence of ‘Ponzi’ finance now coming apart in China as well as unwinding effects in the commodities sector. Here is a direct video link.

Doubts over China’s unexpectedly strong trade figures are mounting after Hong Kong reported its imports from the mainland. The numbers are far less than what China announced a few weeks back. Here is a direct video link.

The Chinese growth ‘miracle’ has come back down to earth weighed by the debt left from ‘stimulus’ efforts. See: The journey from luxury to thrift will test Beijing’s metal

“Total debts owed by the government, companies and households have ballooned to 240 per cent of gross domestic product, virtually double the level at the time of the global financial crisis…This year China is set to pay an interest bill of about $1.7tn, an amount not far short of India’s entire GDP last year ($1.87tn) but larger than the economies of South Korea, Mexico and Indonesia…

One answer to the question of why Beijing has fallen so rapidly into hock is that it had little choice but to do so; the liabilities represent the costs incurred from responding to the global crisis. The collapse of US demand in 2008 hammered China’s export sector, throwing roughly 30m people out of work in a matter of months and obliging Beijing to launch a stimulus programme that drew impetus from the ambitions of local governments to demonstrate their manifest destiny.”

Excellent article today from All The President’s Bankers’, author, Nomi Prins:

“The recent spike in global political-financial volatility that was temporarily soothed by ECB covered bond buying reveals another crack in the six-year-old throw-money-at-the-banks strategies of politicians and central bankers. The premise of using banks as credit portals to transport public funds from the government to citizens is as inefficient as it is not happening. The power elite may exude belabored moans about slow growth and rising inequality in speeches and press releases, but they continue to find ways to provide liquidity, sustenance and comfort to financial institutions, not to populations.

The very fact – that without excessive artificial stimulation or the promise of it – more hell breaks loose – is one that government heads neither admit, nor appear to discuss. But the truth is that the global financial system has already failed. Big banks have been propped up, and their capital bases rejuvenated, by various means of external intervention, not their own business models.”

For important historical perspective on similar mistakes that led to past financial panics as well as the steps that finally rebooted the system in the 1930’s, read the entire article: see: Why the financial and political system failed, and why stability matters:

“After the Crash of 1929, markets rallied, and then lost 90% of their value. Liquidity froze. Credit for the masses was as unavailable, as was real money. The combined will of President FDR and the key bankers of the day worked to bolster people’s confidence in the system that had crushed them – by reforming it, by making the biggest banks smaller, by separating bet-taking arms from those in which people could store, and borrow money from, safely. Political and financial leaderships collaboratively ushered in the reform measures of the Glass-Steagall Act. As I note in my most recent book, All the Presidents’ Bankers, this Act was not merely a piece of legislation passed in spirited bi-partisan fashion, but it was also a means to stabilize a system for participants at the top, middle and bottom of it. Stability itself was the political and financial goal.”

At little domestic footnote to all of this, as Canadians have foolishly rung up their household debt to financially suicidal levels the past 6 years since the 2008 recession, in the past year, four of the big 6 bank CEO’s–RBC, TD, BNS and CIBC– have opted to get while the going’s good and cash out to retirement in their 50’s.

The little people listening to the same banks for their investment advice of course…all told to hold and ‘stay the course’.