And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion.
That is an increase of $14 trillion in just a little bit more than 5 years.
Much of that “hot money” has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen.
Never before has so much private debt been accumulated in such a short period of time. All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads.
In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014.
Corruption, embezzling, drug-related crimes, and even theft on a large enough scale can all get you killed in China. Last month, a Chinese telecommunications executive was sentenced to death for accepting bribes. In March, China sparked a diplomatic incident by executing three Filipino citizens on drug trafficking charges. Other non-violent crimes punished by death have included, for example, 43-year-old Du Yimin, killed in March 2008 after he borrowed $100 million for investment schemes that never panned out.
Over the past several years, the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England have all been criticized for creating too much money. But the truth is that what has been happening in China surpasses all of their efforts combined.
Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis. “They have replicated the entire U.S. commercial banking system in five years,” she said.
The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. “This is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial,” she said.
Billboard In China
As with all other things in the financial world, what goes up must eventually come down.
And right now January 31st is shaping up to be a particularly important day for the Chinese financial system. The following is from a Reuters article…
The trust firm responsible for a troubled high-yield investment product sold through China’s largest banks has warned investors they may not be repaid when the 3 billion-yuan ($496 million) product matures on Jan. 31, state media reported on Friday.
Investors are closely watching the case to see if it will shatter assumptions that the government and state-owned banks will always protect investors from losses on risky off-balance-sheet investment products sold through a murky shadow banking system.
A WMP default, whether relating to Liansheng or Zhenfu, could devastate the Chinese banking system and the larger economy as well.
In short, China’s growth since the end of 2008 has been dependent on ultra-loose credit first channeled through state banks, like ICBC and Construction Bank, and then through the WMPs, which permitted the state banks to avoid credit risk.
Any disruption in the flow of cash from investors to dodgy borrowers through WMPs would rock China with sky-high interest rates or a precipitous plunge in credit, probably both. The result? The best outcome would be decades of misery, what we saw in Japan after its bubble burst in the early 1990s.
The big underlying problem is the fact that private debt and the money supply have both been growing far too rapidly in China. According to Forbes, M2 in China increased by 13.6 percent last year…
And at the same time China’s money supply and credit are still expanding. Last year, the closely watched M2 increased by only 13.6%, down from 2012’s 13.8% growth. Optimists say China is getting its credit addiction under control, but that’s not correct. In fact, credit expanded by at least 20% last year as money poured into new channels not measured by traditional statistics.
Deutsche Bank shares tumbled on Monday following a surprise fourth-quarter loss due to a steep drop in debt trading revenues and heavy litigation and restructuring costs that prompted the bank to warn of a challenging 2014.
Germany’s biggest bank said revenue at its important debt-trading division, fell 31 percent in the quarter, a much bigger drop than at U.S. rivals, which have also suffered from sluggish fixed-income trading.
If current trends continue, many other big banks will soon be experiencing a “bond headache” as well. At this point, Treasury Bond sentiment is about the lowest that it has been in about 20 years. Investors overwhelmingly believe that yields are heading higher.
If that does indeed turn out to be the case, interest rates throughout our economy are going to be rising, economic activity will start slowing down significantly and it could set up the “nightmare scenario” that I keep talking about.
In the end, it doesn’t really matter. The truth is that what has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years.
You may recall that exactly 1 year ago Germany asked for 674 tons of their gold held at the Federal Reserve Bank of New York to be returned and the Fed said it would take 7 years to fulfill the request.
Of course this is a ridiculous story line since the LBMA claims that close to 2,000 tons of physical gold transactions are processed EVERY DAY!
But never the less, it is important to understand that although there is likely “an agenda” behind the latest announcement it IS related to the ENDING of gold and silver manipulation.
The reason I say this, is that GERMANY is playing a big role in ending the US gold rigging operations. Do you remember when Obama and his economic team FREAKED OUT during a behind the scenes Oval Office interview a few years back.
It was touted as an “all access” day in the life of the President but at 7:15 minutes into Part 1 Larry Summers and Austan Goolsbee come into the Oval Office for a call with “the Germans”. Summers is obviously on edge and shuts down the cameras when he begins to discuss the problem.
Rothschild Czar Jabba Larry Summers
Summers: “Life has changed..ahh..since the briefing…ahh”
Obama: “For the better or for the worse?”
Goolsbee: “Net-net for the better…wouldn’t you say Larry?” (Goolsbee speaks loudly and unconvincingly for the cameras.) Summers: “(nervous laugh)..there’s elements of both. The Germans…actually we should stop (the cameras) here.”
And now we have Germany declaring that the Gold market is Rigged AND their largest gold trading entity and a main trading/control arm of the Bad Guys has immediately withdrawn from the gold market implying that they are GUILTY!
CONSIDER THE IMPLICATIONS!
In the Road to Roota Theory…I’m about to say I TOLD YOU SO!
But not yet.
Here’s where this is going:
-Gold and SILVER are traded by the same people in the BANKSTER trading rooms so when they say gold is rigged they are also implying the SILVER IS RIGGED TOO!
- Obviously, Deutsche Bank has Bankster accomplices in their Rigging Operations and they will be announced shortly.
- The chaos in the market will trigger HUNDREDS OF TRILLIONS of losses in the derivatives world exposing the counter-party risk.
- Too big to Fail turns in to TOO BIG TO BAIL!
The rest is new territory for the world. I have my theories of when this will all take place and how we will get out of it. I plan on releasing a new “Timeline to RootA” by the end of the week which lays it all out.
We have arrived my friends. ANYTHING can happen in the chaos so stay out of their system. COMEX “prices” for gold and silver can be set at $0 or $1M by the click of a mouse so you need physical ONLY in your own possession and must have the emotional strength to ride out anything as related to prices.
Oh, and get yourself some bitcoin because it will survive the crash as well…na in the future it will THRIVE as a means of exchange!!!