The Oncoming Burst of the China Credit Bubble

History has proven that credit bubbles always burst. China by far is the biggest credit bubble in the world today. We lay out the proof herein. There are many indicators signaling that the bursting of the China credit bubble is imminent, which we also enumerate. The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world.

The Bank for International Settlements(BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to gross domestic product (GDP) in the household and (non-financial) corporate sector. Three large(G-20) countries are flashing warning signals today for impending banking crises based on such imbalances :China, Canada, and Australia.

china credit bubble

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capi
tal inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion.

Post the 2008 global financial crisis, the world’s central bankers have kept interest rates low and delivered just the right amount of quantitative easing in aggregate to levitate global debt, equity, and real estate valuations to the highest they have ever been relative to income. Across all sectors of the world economy: household, corporate, government, and financial, the world’s aggregate debt relative to its collective GDP (gross world product) is the highest it has ever been.

Central banks have pumped up the valuation of equities too. The S&P 500 has a cyclically adjusted P/E of almost 30 versus a median of 16, exceeded only in 1929 and the 2000 tech bubble. The US markets are also in a valuation bubble because US-owned financial assets have never been more richly
valued relative to income as we show below. The picture is equally frothy if we include real estate, also at record valuations to income. China’s capital outflow spillover from its credit bubble has driven up real estate valuations around the world.

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The biggest games of India begins today – Commonwealth Games

The wait is over. The complaints built up (courtesy our incompetent media). A few players stayed away.  When the players actually landed, they were astonished at the amount of misinformation and lies told to them by their own media back home.  Which was partly or fully supplied to them by our own homegrown media.

Well, ignore the naysayers.  No matter what we say or do, the first thing the western media likes to portray when it comes to India is a cow standing in the middle of the road.  What they cant seem to understand is how inspite of being the so-called beacons of democracy themselves, the cows of India have so much rights on walking on the roads of India.

Let’s face it.  Poverty sells.  Else the movies of Satyajit Rays and Adoor Gopalakrishnan’s of India wouldn’t be patronised whole-heartedly by the western media / public when they are themselves consigned to the garbage by the Indian public (the world’s biggest patrons).  Of course its not easy for some of the snooty public / media in the western world to understand why and how the games could be awarded to a developing nation.  The same happened with the Australia and English cricket teams.  Today they see that their traditional source of power in cricket has been usurped by the BCCI.  Its not easy to accept the truth that you are not longer relevant in the grander scheme of things.   Wiser people accept the truth and mould themselves accordingly to the changing situation.  Fools are buried in the shifting sands of time screaming and kicking.

The collapsed rainbow bridge is up; courtesy the Indian Army which put it up in 5 days flat.  Eventhough, its a bailey bridge, it still does its job of standing up when people walk over it.   The stadiums are ready, the games village has been praised by officials and players from all across the world.  The food has been simply divine (according to the players), there are regular cultural programs and the players themselves are actively participating in them.

Lets admit it, the city of Delhi and its citizens are the biggest benificiaries of the games.  A new world class metro, many flyovers, bridges, roads, parks, traffic lights; in short great infrastructure for Delhiites.

Of course there will be detractors who will complain of child labour being used for the construction of venues (What else will the child do sitting around when their parents are working at the site?  They will also contribute and earn some money…so what’s wrong with it?). Shanties and slums being demolished (they were all illegaly occupying the government land and they were demolished.  Is that wrong?  Why don’t those bleeding heart liberals take each of the families affected by the demolition and give them shelter in their own homes?).

So ignore all the crappy complaints, rest and relax as the biggest ever carnival on the land of India begins tonight.  The opening ceremony of the 19th Commonwealth Games gets underway at 1900 hrs IST.  Watch it on TV or at the stadium (if you are lucky to get the tickets).  As for all the ones who complain of human rights abuses and corruption, go and take a hike.  The people of India care two hoots for your complaints.

By yesterday, 6700 players had confirmed their entries to the games making it the biggest Commonwealth Games ever (beating the 5766 athletes and officials who took part in Melbourne four years ago). 71 teams from 54 countries.  Millions of viewers across the world watching the games and a giant alien over the Jawaharlal Nehru stadium for the opening ceremony. 5000 years of civilization and the secular ethos of the country will be a part of the ceremony.  Enjoy.

Come out and Play.