China's Great Wall of Credit Begins to Crumble

leverage, leverage and more leverage.....it is the magic economic growth enhancer...but it acts just like a rubber band.....when it is stretched too far - it always breaks!

On another note - have not heard/seen much about the other 'fast growing' country (India) lately.......is no news good news???

China's Great Wall of Credit Begins to Crumble

China’s credit-fueled bubble economy is falling to pieces before our very eyes.

Between 2008 and 2013, China’s credit market increased from $9 trillion to an incredible $23 trillion.

To give this number some perspective, China’s GDP is a little over $7 trillion. So China today has a credit market well north of 300% of its GDP.

There is simply no other way to view this than as a bubble. Indeed, we see all of the clear signs of a bubble in the real estate markets today with countless ghost cities, massive empty malls, and other excess capacity.

What’s truly stunning to witness however, is the fact that in spite of all of this expansion in credit, China’s GDP growth continues to fall.

Indeed, GDP is now trending downwards for the first time in a decade. China’s Government has realized that this is a major problem for the country and so has announced that “GDP is no longer a measure of success.”

This is an incredible admission from the Chinese Government as everyone on the planet knows China’s GDP measure has been a work of fiction for decades. The fact that GDP growth is slowing in spite of all the manipulation of the metric is a major sign that things are sharply turning for the worse in the People’s Republic.

Indeed, we get additional indications that China’s economic data is dramatically overstated from other less massaged metrics.

China recently announced that it would be implementing a crackdown on fraudulent trade invoicing. It is not coincidence that right after this, China posted a truly horrible steel export results for the month of May: a mere 1% increase from the year before (hardly the stuff of which 8% GDP growth is made of).

Another metric is electricity usage, which increased by a mere 2.9% in the first quarter of 2013.

So, steel exports are increasing by 1% year over year. Electrical usage increased by just 2.9% in the first quarter of this year, and the Chinese Government has announced that the world should stop looking at its GDP numbers because they are not truly indicative of the economy there.

The Government is right in saying this, though not in the way it means. China’s GDP is not indicative of its true GDP growth… it’s sharply overstating it.

More evidence shows up in the China ETF (FXI) which has been in a massive wedge pattern for five yeas now. AS soon as we take out that bottom line, it’s GAME OVER.

Investors take note, China, the growth engine for the global economy is sputtering. The implications will be serious for markets globally.

http://www.zerohedge.com/contributed/2014-01-25/chinas-great-wall-credit-begins-crumble

Mega Default In China

leverage, leverage and more leverage - and then leverage on top of leverage.....it is always the systemic problem that brings an economy to a halt (ruin)....

leaders try to tinker and put band aides on the problems (or ignore them and just throw more money at them) and they grow until one day the leverage rubber band breaks....

this article could have be written about most industrialized nations and their history of dealing with economic issues - including America!

Mega Default In China Scheduled For January 31

http://www.forbes.com/sites/gordonchang/2014/01/19/mega-default-in-china-scheduled-for-january-31/

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.

Most analysts don’t worry about a WMP default.  Their argument is that the People’s Bank of China, the central bank, is encouraging a failure of the Zhenfu product to teach investors to appreciate risk and such lesson will improve the allocation of credit nationwide.  Furthermore, they reason the central authorities would never allow a default to threaten the system. 

Observers make the logical argument that “to have a market meltdown, you have to have a market” and China does not have one.  Instead, Beijing technocrats dictate outcomes.

That’s correct, but that is also why China is now heading to catastrophic failure.  Because Chinese leaders have the power to prevent corrections, they do so.  Because they do so, the underlying imbalances become larger.  Because the underlying imbalances become larger, the inevitable corrections are severe.  Downturns, which Beijing hates, are essential, allowing adjustments to be made while they are still relatively minor.  The last year-on-year contraction in China’s gross domestic product, according to the official National Bureau of Statistics, occurred in 1976, the year Mao Zedong died.

Why will China’s next correction be historic in its severity?  Because Chinese leaders will prevent adjustments until they no longer have the ability to do so.  When they no longer have that ability, their system will simply fail.  Then, there will be nothing they can do to prevent the freefall. 

And The Most Unexpected Correlation To The Fed's Balance Sheet Is...

Here it is.....and who says we don't live in a 'form over substance' world!

And The Most Unexpected Correlation To The Fed's Balance Sheet Is...

While the Fed pays lip-service to its increased transparency, the volumes of caveats and wordsmithing we exposed last week continue to surge.The problem is becoming worse for the Fed and is showing up in the oddest correlation to the Fed Balance Sheet we have found yet. As Deutsche Bank's Thorsten Slok shows, as the 'unemployment rate' approaches the 6.5% 'threshold', FOMC statements have surged in their verbiosity. Simply put, as Slok quantifies, it is becoming more and more difficult for the Fed to explain (away) what it is doing (and more and more expensive). And another thing we can look forward to: when the Fed's balance sheet hits $1 quadrillion in a few short years, at the current pace of expansion the FOMC statement will be 25,000 words, or the equivalent of a 100 page book.

http://www.zerohedge.com/news/2014-01-13/and-most-unexpected-correlation-feds-balance-sheet

The growth in temporary jobs along with the lack of income growth have had a dramatic impact (not positive!) on our country's economic recovery efforts. 

The foundation must be firmed before we can move forward and our fearful leaders in Washington DC only want to play games with semantics...and pass the blame (while keeping their cushy power jobs and benefit package)!

More Than Half Of December Jobs Added Were Temporary

Once again, in its sheer panic to tout the quantity, or lack thereof, in the case of the December jobs number, the frenzied media and pundits completely ignored the quality of the jobs gained in the last month of December. Or lack thereof. Because as the simple breakdown below shows, of the 74K jobs gained in December, 55%, or 40K were the worst of the lot when it comes to wages or benefits: temporary jobs.

As for the other job additions? Well, between Temp Help, and the bottom of the barrel paying Retail and Wholesale Trade jobs, the total additions were 111K. Which means all the other, better-paying, job groups saw... a drop of 35K.

http://www.zerohedge.com/news/2014-01-10/more-half-december-jobs-added-were-temporary

It's Official: The US Created Less Jobs In 2013 Than 2012

The Fed spent over $1 trillion in 2013 (to push the stock market to all time highs) and all we got was... less jobs created than in 2012?

Establishment survey 2012 vs 2013 job change:

And Household survey 2012 vs 2013 job change:

Source: BLS

Chart Of The Day

data points for ponderment

Retail Sales Point to Continuing Struggle for Economy

As you can see the trend in the data is clearly weakening and is unlikely to change much in coming months as higher healthcare costs, and taxes, weighs on consumer's disposable incomes.

http://www.zerohedge.com/news/2014-01-08/retail-sales-point-continuing-struggle-through-economy

This Chart Is A True Representation Of The Employment Crisis In This Country

The civilian labor force in the US has been causing bouts of hand-wringing and head-scratching. It represents the official number of people working or looking for work. It’s what the official unemployment rate (U-3) is based on. If labor force participation drops – if for whatever reason, millions of people are no longer counted as part of the labor force, as is the case in the US – it’s a troublesome indicator for the economy and the realemployment picture.

It also makes the unemployment rate, now 7.3%, look a lot less awful: if you’re not counted in the labor force, and you don’t have a job, you’re not counted as unemployed. There are millions of people in that category. And their numbers are growing, not diminishing.

This chart is a true representation of the crisis of employment in this country,” Dillon wrote. The diminishing labor force participation rate – the officially available labor pool, however unrealistic it might be – has been driving down the unemployment rate for the first time in history.

http://www.zerohedge.com/contributed/2014-01-08/%E2%80%9C-chart-true-representation-employment-crisis-country%E2%80%9D

Some fun facts to start 2014 -

Bonds experienced their first losing year since 1999 according to BAML research.

Stocks rose almost 30% and the Fed's balance sheet grew almost $1.1 trillion.

Stock prices rose 29% for the year.

The federal deficit shrank but total U.S. debt rose to over $18 trillion.

2014 is starting off with market prices at very different places than where they began 2013.

The 30-year fixed mortgage rate has risen from 3.35% to 4.48%.  (113 basis point increase)

The 10-year Treasury yield is up from 1.76% to 3.02%. (126 basis point increase)

The 5-year Treasury yield is up from 0.74% to 1.74%.

The 2-year yield is up from 0.26% to 0.38%.

The Census Bureau projected yesterday that the U.S. population will have grown to 317,287,938 as of January 1. That reflects a 0.7% YoY growth rate in 2013, the slowest rate of growth since the Great Depression according to research from the Brookings Institute.