Howestreet.com - the source for market opinions

ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

July 22, 2018 | Surge in Global Credit Driven by China: Deflationary Bust Coming

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Since 2008 the growth in global credit has been on the back of China. Real estate led the way. Now what?

Inquiring minds should take a look at FT Alphaville article Chinese Real Estate, Charted. Here is the key chart.

In March, Jim Chanos stated “China has gotten worse”.

According to Chanos, global credit expanded by $1.5 trillion in the first quarter of 2018, and China provided $1 trillion of it.

Chinese Real Estate Single Most Important Asset Class

In February, Jim Chanos told Business Insider that Chinese real estate to be the most important single asset class in the world.

There’s an excellent video interview in the BI article where Chanos discusses the surge in credit fueled by unwarranted residential real estate speculation.

Inflation Deflation

Note the decline in US credit expansion in 2010. Mark-to-market, the recovery began in 2009 when Bernanke suspended mark-to-market recording of business loans.

My definition says inflation is an increase in money supply and credit, marked-to-market. With rules suspended in the midst of stress test lies, what’s going on can only be estimated.

It’s clear, for now, that we are in a period of global inflation. The markets act as if this credit can be paid back. It won’t, and that is the fallacy of expecting an inflation boom in the future. The boom has been underway for a long time, fueled by FED, ECB, and BoJ QE accompanied by a surge in Chinese credit.

A bust will come, and it will not be inflationary.

Mike “Mish” Shedlock

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.

July 22nd, 2018

Posted In: Mish Talk

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site

*
*

This site uses Akismet to reduce spam. Learn how your comment data is processed.