Juggling Dynamite

Jim Chanos updates on the credit and real estate bubble in China and why this presents a major risk to the global economy: ” Things can take a long time to build up but when they go, they can go all at once.”

“[China] has been a very bad place to keep your money…The Chinese economy has quadrupled in nominal terms in the last 10 years,” he says. “Western investors in the Chinese stock market have basically made nothing in that 10-year period. That’s a staggering indictment of the form of capitalism that exists in China.” And if the bubble bursts Western investors stand to lose whatever investment they might have made. Chanos explained his concerns about China.”

Here is a direct video link.

As banks continue to report strong (although slowing) earnings, a large portion of the “growth” has come thanks to an accounting maneuver that reduces reserves and takes that notional capital back into revenue. The reality is that the current fractional banking system is woefully under-capitalized all over the world. Much higher reserves are needed to restore stability to the system and push risk back on to bankers and their investors and off of the public–customers and taxpayers.

“SitkaPacific Capital Management’s Mike Shedlock, who is also the author of the Global Economic Analysis blog, says the Cyprus fiasco is an example of what can happen in a banking system that really can’t guarantee everything it’s promised. He argues these are issues that exist in the U.S. banking system too.

“The whole idea of insurance when you have lent out 50x more money than you have, is fraudulent,” he says.

Shedlock points to New Zealand, which does not promise to insure depositors, as a better system.

Depositors may be forced to figure out if the banks they put their money in are solvent. Shedlock says the current system creates “moral hazard.”

Here is a direct video link.

Yale University’s Stephen Roach, formerly of Morgan Stanley, talks about why American consumers are not doing as well as everybody seems to think. Here is a direct link.