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January 2022
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China’s debt boom will have consequence

China’s policy makers are facing a real challenge to deal with the fast and furious debt buidup. The comparison below is alarming.

China debt level compared to crisis countries

(graph courtesy of WSJ)

Now, it looks as if China’s stimulus plan enacted during 2008-09 period may have just postponed the crisis, not killed it. As we say, there is no free lunch.

A recent report from Goldman Sachs shows that most debt, more than 70%, is concentrated in the corporate sector.  My hunch is that most of the leverage in the corporates came from large state-owned enterprises (SOEs), or investment vehicles created by local governments, the so-called LGFVs.  See the chart below (courteys of GS).

china debt break down

 

Are we prepared for the next financial crisis?

A discussion at Chicago Booth:

Great leap backward

How the Great Recession and European debt crisis have turned back the growth “clock” of most advanced economies, sometimes more than ten years.  Looks like Ken Rogoff was right:  this is not Great Recession; it’s Great Contraction.

[singlepic id=43 w=600 h=450 float=]

Source: Economist Mag.

World Debt Map

Mapping the world’s debt problem, from Economist Magazine:

(click on the graph to go to the interactive chart)

 

A Documentary on European Crisis

WSJ crew came out a nice documentary on European crisis – something to put in your archive.

How Chinese view Europe

Interview of Jin Liqun, Chairman of China’s Investment Corp. (or CIC), China’s sovereign wealth fund, with $460 billion assets under management.

Jin offers his views toward Europe and her economic and political systems. He also explains why CIC is unlikely to inject large rescue investments as per European leaders’ request. I’d say Jin’s views toward Europe is quite typical in China.

Starting from 12″10′ in the video interview, Jin had some really strong (yet painfully true) comments toward European welfare system.

Jon Corzine of MF Global Testimony

When debt contagion arrives…

Now it looks like no matter what Europeans are trying to do, and how many summits politicians rush to put together, things just keep getting worse.

If PIGS (Portugal, Italy, Greece and Spain) were to ‘fly ‘, and debt contagion were to spread, and Europe’s Lehman moment finally to arrive, you probably want to at least have a slightest hint of where the next domino is likely to fall. That’s the purpose of this short post.

The following four charts are from researchers at BIS, including my former Brandeis teacher Steve Cecchetti.  I suggest that everybody take a minimum of five minutes going through these tables. For nerds like me, I stick them on the wall in my office.

All debt:

[singlepic id=17 w=240 h=180 float=]

Government debt:

[singlepic id=19 w=240 h=180 float=]

Household debt:

[singlepic id=20 w=240 h=180 float=]

Corporate debt:

[singlepic id=18 w=240 h=180 float=]