Chinese debt load at 250%
April 25, 2016
The impact of prolonged negative rates has been the story taking up most column inches. The ECB’s Nowotny, coming to the defence of Mario Draghi’s actions, saying that the Eurozone needs negative rates to avoid sliding into deflation. Unfortunately to all intents and purposes the Eurozone is already in a deflationary tract.
German criticism of these policy moves is still rife as the savers revolt continues. Germans, for decades largely a nation of tenants and prudent savers, are flocking to property as interest rates fall and rents rise. Not only just to own their own homes but also in search of investment returns, that can no longer be earned on their bank savings. The shift to a more US or British approach to the property market is encouraging the recent construction boom in Germany, and you can pretty much guarantee that when rates eventually do rise it will lead to a bust. Just like the UK and US.
The inevitable property bubble in Germany is not all good news though apparently. Whilst strong housing demand is fuelling a construction boom, exporters who have traditionally driven growth are struggling due to a slowdown in some of their major markets such as China.
Speaking of which, Chinese debt burden grew at its fastest rate in the first quarter, now sitting at 240% of GDP, a total of $25 trillion and 50% ahead of this time last year. The writing has been on the wall for quite some time with very few actually willing to admit the impending disaster. There will be a point of critical mass where the cards come tumbling down, which far too few are calling the “Lehman moment”, and far too many are desperately trying to prop up and ignore.
2008 will seem like a walk in the park, as credit markets are already beginning to freeze up, debt burdens are becoming and for a great many are already unsustainable. We are only one large default away from calamity and much like Japan in the 90’s are looking down the barrel of a lost decade.
This week features another episode of global currency wars, as the Fed and BoJ decide their next move in the race to debase. Confidence in the BoJ is at rock bottom, but in reality knows no bounds. Unsurprisingly the BoJ meeting on Thursday is expected to be a reactionary one to the Fed’s meeting on Wednesday. But according to the G20 there are no currency wars going on.
Other highlights this week, first quarter growth for the UK, US and Eurozone. Otherwise today is pretty quiet, with predictions of where growth levels were for Q1 flying about all of which are down.
Have a great week.