The Long Wave “Winter of Discontent”!
We are currently in the bust of a classic “boom/bust cycle”, however, this is the key point; it is not only companies and individuals with excessive debt, but, countries, as well.
The Long Wave “Winter of Discontent”!
Climbing Gold and Silver's Wall of Worry
By: Clint Siegner
Photo: Agence France-Presse/Getty Images
The Revenge of Turkey’s Erdogan
The coup deserved to fail, but his purge will cause further turmoil.
China Is Now Driving Drunk - And You're The Passenger
by: The Heisenberg
At China's mid-tier lender Industrial Bank Co, for example, the volume of investment receivables doubled over the first nine months of 2015 to 1.76 trillion yuan ($267 billion).
This is equivalent to its entire loan book - and to the total assets in the Philippine banking system, filings showed.
These are now the fastest growing assets on the balance sheets of most listed banks, excluding the Big Five, not just in percentage terms but absolute terms. The concern is that the lack of transparency and mis-categorization of credit assets potentially hide considerable non-performing loans.
An economic hard landing has already happened in north-eastern China and Shanxi province, with combined nominal GDP growth slowing to 1% yoy in 2015 and further to -0.4% in 1Q16.
In contrast, local banking asset growth remained strong at 16% yoy, with city/rural commercial banks and policy banks the key funding providers (assets up 26% for each type), while the big- five banks in the local market only grew their asset base by 6%. The 17 unlisted local banks, which made up 12% of local banking assets, recorded asset expansion of 22% yoy, mainly driven by fast-growing, higher-risk shadow credit (up 78% yoy). We think that these banks are likely providing "evergreen" lending to weaker corporates and hence are associated with higher credit risks.
The 17 local banks grew their asset balance by 22% yoy in 2015. If including the three listed banks in these four provinces, their asset growth registered at 28% yoy in 2015. This compares to the Chinese banking system as a whole at 15.7% yoy, nearly twice as fast. Furthermore, it is also stunning when compared with only 1% nominal growth in regional GDP. In our view, one explanation would be that these banks were extending "evergreen" credit to weaker corporates, in order to prevent unemployment and corporate bankruptcy.
The strong asset growth was mainly driven by shadow credit (58% of new assets), which was packaged in the form of receivable investments and available-for-sale (AFS) investments. Their receivable investments were up 85% yoy and accounted for 13% of total assets.
With a relatively small loan book of c.Rmb50bn per bank, these 17 banks are more exposed to riskier sectors and also have a higher concentration of large customers.
As shown in Figure 18, they have notably higher exposure than listed banks to the manufacturing, wholesale & retail trade and mining sectors, which include the major overcapacity sectors (e.g. steel, cement, coal and non- ferrous etc.).
If just one of these banks (even one of the country's 130+ city commercial lenders) goes under, it could send shock waves through the whole system and cause a crisis of confidence. It only takes one domino to trigger a collapse. That's when Bass's thesis comes into play. When it comes time to plug the holes, there's really no where to go but down for the yuan for the four reasons outlined at the outset.
A Trump Economy Beats Clinton’s
His plans that would get the U.S. back on track include the biggest pro-growth tax cut since 1981 and repeal of ObamaCare.
By Andy Puzder and Stephen Moore
LONDON – Britain will have a new prime minister today – but the country’s post-European Union future remains uncertain. Indeed, prolonged delays are likely in implementing the voters’ decision to leave the EU.
China, International Law and Reality
The South China Sea case proves that laws mean nothing if there is no enforcement mechanism.
By George Friedman
A court in The Hague ruled in favor of the Philippines in a dispute over islands in the South China Sea earlier this week. The Chinese told the court, the Philippines and anyone who cared to listen that they couldn’t care less about what the court said. This has led some to assert that tension is increasing in the South China Sea. If only because people seem to care a great deal about the topic, we need to address it.
First, a lot is said about the rule of law. Thomas Hobbes, an English philosopher, pointed out that law can only exist when a Leviathan exists. What he meant is that the law only exists when there is something enormously more powerful than the individual actors who feel compelled to obey the law. Therefore, international law doesn’t exist because there is no global Leviathan that can enforce the law. It exists only in the sense that there are treaties, agreements and academic volumes on the subject. And there are people who want international law to exist.
But there is no Leviathan, no force that can compel nations to comply with rulings they disagree with. Some may wish international law existed. But it does not. It is as if there were a law against theft, and the thieves were more powerful than the police. In that case, there is a law, but the thieves determine what will and will not happen. There are places like that in most countries, and some countries have only that.
It is similarly the case with the international legal system. Individual states will not capitulate to the legal findings of international courts unless they choose to. And when they choose not to obey, nothing can be done about it. Some nations, like the United States, are wary about signing international agreements that give international courts jurisdiction. In the United States, a treaty has the force of law and a domestic court may enforce the ruling of an international court. In contrast, other countries are happy to sign treaties, knowing perfectly well that if they object to a particular ruling, they will ignore it.
The only countries where international law has meaning are weak, fragmented countries where major powers will support court rulings because they do not affect their national interests. And supporting international law makes major countries look good. African states have complained bitterly that their leaders are subjected to scrutiny and prosecution that would never be applied to major powers. This is undoubtedly true and indicates the arbitrariness of the international legal system. International courts prosecute who they can and pass rulings that they know will be ignored.
China’s rejection of the ruling was no surprise, because the Chinese said they would reject the ruling long before it happened, and they never participated in the trial. The trial happened anyway, China lost and the headlines are filled with stories that imply that this matters. The Chinese aren’t embarrassed because internally they can use this to show that the world is against them, and that all of China should come together. In the Philippines, there will be celebration because a court has said that the Philippines was right about something. In the rest of the world, this will be forgotten in a week.
The question is, what does this mean for the South China Sea? The answer is that it changes nothing. All sides will continue to make military movements that the others will denounce as aggressive. No side will actually engage in significant military action against the others. We define significant military action as, at a minimum, shooting something meant to hit the other guy. The others will not fire on Chinese vessels because they are not actually interfering with anything important, and also because firing on Chinese vessels is a non-trivial action by a country like the Philippines. The Chinese will not fire for effect on anyone, because they have to assume that the United States would intervene with its massive naval and air forces, and China is not ready for such a confrontation.
This is not to say that the South China Sea is trivial. It is encircled by islands from Indonesia to the Philippines. Those islands create choke points that could be readily blocked by the United States – with submarines and aircraft from carriers at a distance and from even more distant bases. China is a trading nation and the fear of being blockaded by the United States is real.
The Chinese, like many other countries, see the United States as powerful and, therefore, unpredictable. They believe that in the long run they will have to confront the United States on the periphery of the South China Sea. They hope the U.S. will give them the time needed to build a force that can challenge it. One way to do that is to make themselves appear reckless and dangerous, without triggering a war. Sending warships hither and yon and building islands, all without actually engaging in combat, is their best move. They appear to be more capable than they are, while carefully avoiding a test of strengths.
The ideal Chinese solution would be to to convert Taiwan, the Philippines or Indonesia into an ally. That would solve China’s blockade problem decisively. The United States has worked intensely with these nations and with Vietnam to prevent this from happening. If a conversion cannot be done diplomatically, it is always possible to do it by subversion or invasion. The Chinese had such a subversion program in 1965 in Indonesia but it ultimately failed. The Chinese attacked Vietnam but it did not go well. Conducting an amphibious assault against Taiwan would be very difficult, and generating a pro-Beijing program there in the middle of President Xi Jinping’s purges is not likely. The Philippines might prove vulnerable, but making an incursion would take a great deal of time and risk.
When we talk of the South China Sea and China, international law is an interesting idea. But the likelihood of China capitulating on major issues of national interest because a court in the Netherlands directed it to is low. In the meantime, the strategic discussion has far more meaning than the legal one. Some may wish it weren’t so, but it is. It is not that there couldn’t be an international government, but having seen Britain rail against the majority for daring to vote to leave the EU, we must be careful what we wish for. A global democracy and police force would leave the Chinese with a lot of votes and power. We might prefer an impotent court to one created by a genuinely global democracy. Leviathans can come in many flavors.