Tag Archives: Excesses

Fitch says China credit bubble unprecedented in modern world history – Telegraph

China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.

The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.

The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.

“There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling,” she told The Daily Telegraph.

Fitch says China credit bubble unprecedented in modern world history – Telegraph

China’s rigidity has put it on the express path to financial crisis.

Turkey’s Geopolitical Ambition

At a time when Europe and other parts of the world are governed by forgettable mediocrities, Recep Tayyip Erdogan, Turkey‘s prime minister for a decade now, seethes with ambition. Perhaps the only other leader of a major world nation who emanates such a dynamic force field around him is Russia‘s Vladimir Putin, with whom the West is also supremely uncomfortable.

Erdogan and Putin are ambitious because they are men who unrepentantly grasp geopolitics. Putin knows that any responsible Russian leader ensures that Russia has buffer zones of some sort in places like Eastern Europe and the Caucasus; Erdogan knows that Turkey must become a substantial power in the Near East in order to give him leverage in Europe. Erdogan’s problem is that Turkey’s geography between East and West contains as many vulnerabilities as it does benefits. This makes Erdogan at times overreach. But there is a historical and geographical logic to his excesses.

The story begins after World War I.

RealClearWorld – Turkey’s Geopolitical Ambition

Did Flaws in the Democratic System Cause the Financial Crisis? – Business News – CNBC

Contrary to popular belief, bankers and politicians are not to blame for the financial crisis. Rather, it’s systemic flaws in the very nature of democracy that allowed financial imbalances to take root.

“Social plateshifts fostered excesses of leverage and a dearth of thrift that brought capitalism to its knees,” David Roche and Bob McKee wrote in their book Democrisis.

Did Flaws in the Democratic System Cause the Financial Crisis? – Business News – CNBC

Parallels between Rome and U.S. politics – Philly.com

Is America following the path of the ancient Roman Republic? Will we, as one of the greatest superpowers in human history, one day crash and burn like the Romans did in the fifth century?

In addition to our excesses, over-indulgences and moral decadence, there are many serious problems that confront America – war fatigue, illegal immigration, our dependence on foreign oil, health care, education and huge budget deficits, just to name a few.

“We have to reach some kind of crisis,” he said, “that’s when true change will occur.” For the Roman republic, the crisis was the return to monarchy when Julius Caesar took control. But what will be the tipping point for the United States?

Parallels between Rome and U.S. politics – Philly.com

Why China Will Have an Economic Crisis | Business | TIME.com

The problem here is that prices can’t stay wrong indefinitely. There is a good reason why classical economists are always so focused on allowing markets to find the correct price level. In that way, markets send the proper signals to potential investors on where money should or should not go. If those price indicators are skewed, so is the direction of resources. The Asian model, by playing around with prices, eventually creates tremendous distortions, in which money is wasted and excess capacity is generated. Subsidized companies don’t have to generate returns in the same way as unsubsidized firms, and that leads them to make bad investment decisions to build factories and buildings that are unnecessary and unprofitable. As a result, loans go bad and banking sectors buckle. That’s exactly what happened in both Japan and Korea. Though their crises were tipped off in very different ways — the bursting of an asset bubble in Japan, an external shock in Korea — the reason both countries collapsed was the same: weak banks, indebted companies, silly investments.

China is indulging in all of the same excesses as Japan and Korea, and then some. The level of investment in China, at nearly 50% of GDP, is lofty even by Asian standards. The usual argument made in defense of such astronomical investment in fixed assets is that China is a large developing country that needs all of the buildings and roads it is constructing. Qu Hongbin, the very smart chief China economist at HSBC, made that very argument in a recent study:

Why China Will Have an Economic Crisis | Business | TIME.com

Gordon Gekko, Meet Lei Feng – NYTimes.com

The Chinese Communist Party knows it has a problem. A billion Gordon Gekkos are blooming, but moral standards are withering on the vine. Corruption pervades. Villainy abounds.

Everybody seems to be cutting corners. Contractors add too much sand to their concrete, causing bridges and buildings to collapse. Shoddy designs send bullet trains running off their rails. Milk producers add poisonous chemicals to baby formula. Government officials gamble away municipal funds in the casinos of Macao. A third of China’s wealthiest billionaires are senior leaders supposedly living on meager government salaries — while their kids party in exclusive clubs and flout traffic laws in absurdly expensive cars. Everyday citizens are increasingly angry at the excesses of the so-called Red Nobility, and the societal rift between town and country grows ever more bitter.

Enter Lei Feng to the rescue.

Gordon Gekko, Meet Lei Feng – NYTimes.com

Alexei Navalny: Scourge of Russia’s elite | BBC

One of the most influential new figures to emerge in Russian politics predicts that Vladimir Putin’s grip on power will crumble within a year and a half.

Alexei Navalny became well known as an anti-corruption activist, using his internet blog to expose widespread excesses and outright theft by Russia’s political elite.

But he is now becoming even more prominent as one of the informal leaders of huge protests in Moscow. Tens of thousands took to the streets in December and this month.

A lot of people inside the establishment understand that corruption cannot be the foundation of the system,” he said. “You can’t function like that forever, and it’s not right, and sooner or later it will come tumbling down.

BBC News – Alexei Navalny: Scourge of Russia’s elite

The Coming China Crash Will Separate The Sheep From The Goats

Socgen Ultra-bear Albert Edwards turns his attention to China, where he warns of rampant inflation and little hope of a soft landing.

The coming downturn will surely separate the investment sheep from the goats. …

The second school of thought takes the view that the more stable the cycle, and the more recessions are avoided, merely means that they are saved up for a future economic crash as resulting Minsky-like credit excesses sow the seeds for a bust. But the longer the bears are proved wrong, the quieter they become, partly due to embarrassment, partly due to they’re being physically removed from their jobs in an industry that thrives on bull markets. We say what we see and after having witnessed the U.S. debacle, it seems clear to me that faith in a China soft landing (while not impossible) is most likely to be blown asunder by events. Investors should prepare for both a hard-landing and a yuan devaluation.

ALBERT EDWARDS: The Coming China Crash Will Separate The Sheep From The Goats

A Significant Slowdown in Chinese Growth is Imminent

So what is at issue is not whether Chinese growth will slow, but when. … We found that fast-growing economies slow when their per capita incomes reach $16,500, measured in 2005 US prices. Were China to continue growing by 10% per year, it would breach this threshold just three years from now, in 2014.

… And slowdowns come sooner in countries with a high ratio of elderly people to active labor-force participants, which is increasingly the case in China, …

Slowdowns are also more likely in countries where the manufacturing sector’s share of employment exceeds 20%, since it then becomes necessary to shift workers into services, where productivity growth is slower. This, too, is now China’s situation, …

Most strikingly, slowdowns come earlier in economies with undervalued currencies. …

Finally, maintenance of an undervalued currency may cause imbalances and excesses in export-oriented manufacturing to build up, as happened in Korea in the 1990’s, and through that channel make a growth deceleration more likely.

For all these reasons, a significant slowdown in Chinese growth is imminent. The question is whether the world is ready, …

Slowing China by Barry Eichengreen – Project Syndicate

The Skyscraper Curse

If you want to know the countries that are going to have big problems in the future then find out which ones are building really tall buildings. It looks like Malaysia is the next one on our list. Saudi Arabia is high on the list too.

Really tall buildings represent the excesses that have built up within the country. Generally it’s difficult to see these excesses, but luckily tall buildings are a good proxy.

The “skyscraper curse” has struck again…

Every time a country builds the world’s tallest building, it seems their stock market crashes soon afterward.

It happened in America before the Great Depression. Architects unveiled two awesome new skyscrapers – the Chrysler Building and the Empire State Building – just as the worst bear market in America’s history was getting started.

There was another bear market in the 1970s. The stock market lost 75% of its purchasing power in a decade. The completion of the Sears Tower in 1973 marked a two-year, 45% decline in the Dow.

In 1997, Malaysia’s Petronas Towers took the title of the world’s tallest building from the Sears Tower. The same year, the Malaysian stock market fell 50%.

The Skyscraper Curse

Towering Ambition in Malaysia

Even just a glimpse of Kuala Lumpur’s 88-floor Petronas Towers is a reminder of Malaysia’s pharaonic ambitions. The reasons for building them were partly economic, but mostly symbolic—Malaysia had arrived, the towers were supposed to say. And between 1998 and 2004 they were the world’s tallest buildings.

Now, Malaysia wants to relive those glory years. It’s planning to build another tower,

Towering Ambition in Malaysia

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