China facing full-blown banking crisis, world’s top financial watchdog warns

September 2016 BEIJING China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog. A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late. The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.
Studies of earlier banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring.  The credit to GDP gap measures deviations from normal patterns within any one country and therefore strips out cultural differences. It is based on work the US economist Hyman Minsky and has proved to be the best single gauge of banking risk, although the final denouement can often take longer than assumed. Indicators for what would happen to debt service costs if interest rates rose 250 basis points are also well over the safety line. China’s total credit reached 255pc of GDP at the end of last year, a jump of 107 percentage points over eight years. This is an extremely high level for a developing economy and is still rising fast .
Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP, and it is this that is keeping global regulators awake at night. The BIS said there are ample reasons to worry about the health of world’s financial system. Zero interest rates and bond purchases by central banks have left markets acutely sensitive to the slightest shift in monetary policy, or even a hint of a shift.
“There has been a distinctly mixed feel to the recent rally – more stick than carrot, more push than pull,” said Claudio Borio, the BIS’s chief economist. “This explains the nagging question of whether market prices fully reflect the risks ahead.” Bond yields in the major economies normally track the growth rate of nominal GDP, but they are now far lower. Roughly $10 trillion is trading at negative rates, and this has spread into corporate debt. This historical anomaly is underpinning richly-valued stock markets at time when profit growth has collapsed. The risk is a violent spike in yields if the pattern should revert to norm, setting off a flight from global bourses. We have had a foretaste of this over recent days.  The other grim possibility is that ultra-low yields are instead pricing in a slump in nominal GDP for years to come – effectively a trade depression – and that would be even worse for equities. “It is becoming increasingly evident that central banks have been overburdened for far too long,” said Mr Borio. The BIS said one troubling development is a breakdown in the relationship between interest rates and currencies in global markets, what it describes as a violation of the iron law of “covered interest parity.”  –Telegraph
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This entry was posted in Age of Decadence, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Civilization Unravels, Economic Collapse, Fiat Money Printing Fiasco, Financial Market plunge, Financial market turmoil, Flashpoint for war, Greed and Corruption, Hierarchal Control, Hoarding Gold, Infrastructure collapse, New World Order, Squandered Resources, Troubled Banks, Unsustainable Debt Burden. Bookmark the permalink.

2 Responses to China facing full-blown banking crisis, world’s top financial watchdog warns

  1. Dennis E. says:

    In the past on this blog site as well as others, stories have been posted regarding ghost cities in China. We now have our answer. Similar to what occurred during the Reagan Years. I read reports that buildings were built that were never occupied because of lower taxes and credit. Now those were good tears and it was the Reagan military build up that made it possible for us to fight Desert Storm and conflicts afterwards. I know I was in the military at the time.

    Back to the subject: If what occurs in China(banking) that occurred in The U.S.A in 2008 they are going to have much trouble within.

    But I read also the one line “The other grim possibility is that ultra-low yields are instead pricing in a slump in nominal GDP for years to come – effectively a trade depression – and that would be even worse for equities.” The stoppage of trade or the lack of could mean jobs in our country, manufacturing in some degree could come back. Just a thought.

  2. Joseph Sonny Skies says:

    So interesting that in this report that it states the fact that central banks are being overburdened. From what? Pastry shops wanting to expand their business? NO! Of course not; It’s from all of the countries funding WAR to either force other countries to join the NWO or countries trying to avoid that at any cost. There is always enough money for hegemony and ” defense of national interests” but like an article shortly before this article mentions the truth that many more are becoming homeless. Yet it should not be a case of agencies having to shelter so many, though there will always be some. but governments and banks that stole that money to make people too poor to keep up with ” rent” should be able to smooth out those situations. It is a complicated situation yet a simple spirit of compassion can solve so much.

    I will simply quote the Bible at this point from Revelation 11: 18 [any correlation to November 18??? ] Those nations were angry and your wrath has come. The time has come for judging the dead, and for rewarding your servants the prophets and your people who revere your name, both great and small- and for destroying those who destroy the Earth.[ NIV ].

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