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Welcome To The Grand Finale Of Extend-And-Pretend

A weekend topic starting with Asia News. “Here we publish the ground breaking speech that Prof. Xiang Songzuo held on December 16th at the Renmin University School of Economics, during a seminar for entrepreneurs. This speech is now impossible to find in China because the censors erased it from the Internet. The reason is clear: Prof. Xiang, known for his frank character, gives China a far less marvelous picture than the one told by journalists and ‘experts,’ true court aids – so numerous and well-paid in the east and west.”

“Prof. Xiang: China’s economy has been going downward this year, as everyone knows. The year 2018 is an extraordinary year for us, with so many things taking place. But the main thing is the economic slowdown.”

“In the four decades following the economic reform, we have undergone five phases of consumption. The first was to solve the food problem, the second was the ‘New Big Three’ [新三大件, short for refrigerator, color TV, and washing machine], the third was the consumption of information, the fourth was automobiles, and fifth was real estate.”

“But these five waves have essentially all come to an end. Car sales have dropped sharply and real estate spending is also substantially decreasing, so we are facing serious problems. China’s economic decline indicates that there is a major issue with the focus on expansion and growth:  It has deviated from the fundamental and moved to speculation. These are the words of former chief of China’s central bank, Zhou Xiaochuan (周小川).”

“What are our current financial risks? They are hidden, complex, acute, contagious, and malevolent. Structural imbalance are massive, and violations of law and regulations are rampant. There are black swans to prevent, and gray rhinos to stop. A reporter once asked Zhou, ‘Where are the black swans? Which ones?’ Zhou smiled and did not answer.”

“The black swans are right next to you. The P2P lending, blockchain, Coin Circle, aren’t all these black swans? But you can’t see them. As for the gray rhinos, they can charge at any time. The biggest of them is real estate.”

“I’m acquainted with many bosses of listed companies. Frankly speaking, a large part of their equity pledge funds did not go into their primary business, but used on speculation. They have many tricks. They buy financial products; they buy housing. The government said listed companies have spent 1-2 trillions on speculative real estate. Basically China’s economy is all built on speculation, and everything is over leveraged.”

“Starting in 2009, China embarked on this path of no return. The leverage ratio has soared sharply. Our current leverage ratio is three times that of the United States and twice that of Japan. The debt ratio of non-financial companies is the highest in the world, not to mention real estate.”

From Leap Rate. “Copenhagen based Retail FX broker Saxo Bank has today published its Q1 2019 Quarterly Outlook for global markets. Steen Jakobsen, Chief Economist and CIO, Saxo Bank, commented: ‘As 2019 gets under way, Europe is sliding back into recession despite a negative ECB policy rate. Strains in the US credit market reached a crescendo in the first trading days of 2019, as Barclay’s high-yield spread climbed more than 500 basis points above US Treasuries.'”

“‘This combined with a bear-market run in equities from the September highs saw US Federal Reserve chief Jerome Powell trotting out the latest version of the Fed in an interview where he shared the stage with his two bubble-blowing predecessors. There was plenty of egg on Powell’s face as his promise to ‘listen to the market’ came barely two weeks after he put on a hawkish show at the December 20 Federal Open Market Committee meeting. So the Fed is already slamming on the brakes as the flows from corporate repatriation run dry and high-risk issuers have not been able to auction debt.'”

“‘The global economy is suffering, global markets are shaken after a terrible 2018, and China will do all it can for stability. The hunt for a solution is fully engaged, and the odds of one appearing are rising fast. Nonetheless, beware of incoming turbulence as the policy response everywhere is reactive rather than predictive and may come a bit too late.'”

“That being said, early 2019 could merely mark the start of the cycle or the early innings of the next cycle of intervention. 2020 is more likely to prove the real year of change. That would fit the political cycle, and it might take an even bigger scare for central banks and politicians to get their acts together – unfortunately.
Welcome to the Grand Finale of extend-and-pretend, the worst monetary experiment in history.'”

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This Post Has 25 Comments

    1. “My own reflection has reached its conclusion: The problem with the Chinese economy is no longer speed or quantity, but quality.”

      This is where the rubber meets the road.

        2. I predict a lot more shoddily constructed Chinese high rises are destined to fall down over the next couple of decades. It’s kind of a no-brainer if you think about it…gravity matters in this case.

    3. Uh…does China have gulags? If so, I sincerely hope that Prof. Xiang can avoid landing in one for committing the crime of frank reporting.

      1. “Uh…does China have gulags?”

        They have re-education camps.

        “Xinjiang re-education camps – Wikipedia”

        https://en.m.wikipedia.org/wiki/Xinjiang_re-education_camps

        (Uyghur: قايتا تەربىيەلەش لاگېرلىرى‎; Chinese: 再教育营) are a title given to the internment camps operated by the People’s Republic of China Xinjiang autonomous region’s government since 2014. They have unprecedentedly intensified since a hardline party secretary, Chen Quanguo, took charge of the region in August 2016. These camps are operated secretly and outside of the legal system; many have been locked up without any trial or charges being levied. Local authorities are reportedly holding hundreds of thousands of Uyghurs and Muslims from other ethnic minorities in these camps, claiming the detentions are a bid to counter extremism and terrorism.

        (snip)

        “On October 24, 2018, the BBC released the details of an extensive investigation into China’s “hidden camps” and the extent to which the People’s Republic goes to maintain what it calls “correct thought’.”

        1. More …

          “Laogai (simplified Chinese: 劳改; traditional Chinese: 勞改; pinyin: Láogǎi), the abbreviation for Láodòng Gǎizào (劳动改造; 勞動改造), which means “reform through labor”, is a slogan of the Chinese criminal justice system and has been used to refer to the use of penal labour and prison farms in the People’s Republic of China (PRC). Láogǎi is different from láojiào, or re-education through labor, which was an administrative detention system for people who were not criminals but had committed minor offenses, and was intended to reform offenders into law-abiding citizens. Persons detained under laojiao were detained in facilities that were separate from the general prison system of laogai. Both systems, however, involved penal labor.”

          “In 1994 laogai camps were renamed “prisons”.[2] However, Chinese Criminal Law still stipulates that prisoners able to work shall “accept education and reform through labor”.[3] “The existence of an extensive network of forced-labor camps producing consumer goods for export to Europe and the United States became classified. Publication of information about China’s prison system by Al Jazeera English resulted in its expulsion from China on May 7, 2012.

          “The system is estimated to have caused tens of millions of deaths and has been likened to slavery by critics.”

          https://en.m.wikipedia.org/wiki/Laogai

          1. I am posting this part again for any of you pukes who missed it the first time …

            “The existence of an extensive network of forced-labor camps producing consumer goods for export to Europe and the United States became classified. Publication of information about China’s prison system by Al Jazeera English resulted in its expulsion from China on May 7, 2012.

            “The system is estimated to have caused tens of millions of deaths and has been likened to slavery by critics.”

            FWIW.

          2. “The system is estimated to have caused tens of millions of deaths and has been likened to slavery by critics.”

            But we’ve hardly heard a peep about it? Seems like something Trump would want to publicize. How does any other economy compete against unpaid labor?

            The video on the AJ site wasn’t working for me, here it is on Youtube:

            https://www.youtube.com/watch?v=rqXAkE-54NU

  3. Saxo Bank/Steen Jakobsen –
    “Since the global financial crisis, the business cycle has been suspended, and replaced by only a credit cycle . Credit, credit and more credit crowded out productivity and inflated asset prices while doing little for the real economy and driving the worst inequality in generations . The mis-pricing of money and credit has also driven a terrible misallocation of capital and kept unproductive zombie debtors alive for too long .”
    – Nice summary.
    The Fed and other central banks = Wile E. Coyote, Super Genius.
    https://www.youtube.com/watch?v=STeVTzWelns
    Wile E Coyote, Super Genius

    1. So long as the stock market keeps rising, nobody wants to talk much about the misallocation of capital which the Fed’s perpetual punchbowl respiking operations foster.

    2. You missed an important step …

      Our wonderful education system and the bought-and-paid-for mainstream media keeps the general population of ignorant pukes sufficiently dumbed down so as to allow:

      1. Politicians work to keep the banks rich.
      2. Banks work to keep politicians elected.

      And you are absolutely correct about step 3 …

      3. Neither give a f$%# about you.

  8. “Car sales have dropped sharply and real estate spending is also substantially decreasing, so we are facing serious problems. China’s economic decline indicates that there is a major issue with the focus on expansion and growth: It has deviated from the fundamental and moved to speculation.”

    The correlation in the retraction of China investing in RE and the drop in sales in us RE are not rocket science to see. Going back to 2016 they pumped in over 45 billion into our real estate, by 2018 it was down to 4 billion and we in the US felt it. It will have to be covered at some point but until then the MSM will continue blaming weather, interest rates, and what ever else they pull out of the hat…

    The government said listed companies have spent 1-2 trillions on speculative real estate. Basically China’s economy is all built on speculation, and everything is over leveraged.”

  9. FWIW I went to Wikipedia and looked up “debt slavery” and arrived at this …

    “Debt bondage, also known as debt slavery or bonded labour, is the pledge of a person’s services as security for the repayment for a debt or other obligation, where the terms of the repayment are not clearly or reasonably stated, and the person who is holding the debt and thus has some control over the laborer, does not intend to ever admit that the debt has been repaid.”

    So far I like it. Moving on …

    “The services required to repay the debt may be undefined, and the services’ duration may be undefined, thus allowing the person supposedly owed the debt to demand services indefinitely.”

    Now I REALLY like it! Moving forward once again …

    “Debt bondage can be passed on from generation to generation.”

    😁

    “Currently, debt bondage is the most common method of enslavement with an estimated 8.1 million people bonded to labour illegally as cited by the International Labour Organization in 2005. Debt bondage has been described by the United Nations as a form of “modern day slavery” and the Supplementary Convention on the Abolition of Slavery seeks to abolish the practice.”

    I prefer the implementation of debt slavery over the old-fashioned type of slavery in that debt slavery involves the powers of persuasion and not the powers of coercion.

    Using coersion is a pain in the ass because this type of slave is always struggling to become free, physically free. Slavery through persuasion results in the slave always struggling to become financially free, which means he will WILLINGLY work for money and then will WILLINGLY pass on huge chunks of this money onto whomever it is that financially owns him.

    A near perfect arrangement.

    😁

    1. “Debt bondage can be passed on from generation to generation.”

      “Can” be if the next generation chooses to take on the debt. In a scenario where a family member takes the assumption of a mortgaged home from a passing family member, this would be a choice THEY made to assume the financial “slavery”. Very interesting nonetheless

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