Danielle was a guest with Kerry Lutz on The Finanancial Survival Network talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.
Listen to “Danielle Park – China’s Debt Crisis #4373” on Spreaker.
I have long noted that the leverage, securitization and off-book accounting gimmicks that imploded enery-giant-ENRON in the early 2000s were adopted far and wide over the last 20 years. Bailouts to those instrumental in the 2008 implosion, along with central bank liquidity-pumping globally, enabled a continuation of similar antics in the last decade, and particularly in China.
Beneath the deadpan delivery in the segment below the numbers are truly startling: twenty to twenty-five percent bad debt in the Chinese banking system amounts to some U$ 10 trillion that could be written off and/or down to a fraction of its face value. Meanwhile owners of the paper have made the classic error of presuming it was ‘risk-free’ on the assumption that the government would hold so called ‘investors’ harmless. As the Ponzi monstrosity grows however, making participants whole becomes less possible.
The story, actors, destructive-incentives and behaviours at play here are all reminiscent of previous episodes including the 1997 Asian, and 2008 subprime, financial crises.
Charlene Chu, senior analyst at Autonomous and former senior director at Fitch Ratings, discusses liquidity pressures in China, non-performing loans, and shadow credit. Here is a direct video link.
In terms of relative household debt levels, Canadians measured as more financially prudent than US households heading into the 2008 recessi
on–that was then.
Today, as shown beside, Canadians are world leaders in financial imprudence with both record high debt and near-zero saving rates (in red below, versus US savings rate in black).
Being worse money managers than Americans is saying something because Americans have been notoriously profligate. (See: Why the next recession will hit Canadians harder than Americans.)
As shown below, in the early 1980s, when interest rates were in the teens and the economy struggling through a
double-dip recession, Canadians were saving more than 15% of their disposable income. Today, after 20 years of saving less than 5%, we are plagued by capital deficits in most institutions and households.
Getting saving rates back above 10% is an essential part of rebuilding financial strength and resilience. But to achieve this we need to spend less than we earn and get out of debt via less consumption and higher efficiency. Excersise cannot outrun destructive food choices, and large incomes or lump sums cannot outrun destructive financial management. The facts speak volumes: 70% of people who 
receive large amounts of money go through it all in just a few years (National Endowment for Financial Education).
In a conference speech last week I summarized the ‘tricks’ or foundations of financial health in the slide above. Definitely not rocket science, and yet, evidently little understood or implemented.
