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Are You Crazy To Continue Believing In Collapse?: James Howards Kunstler | Peak Prosperity

Are You Crazy To Continue Believing In Collapse?: James Howards Kunstler | Peak Prosperity.

BLOG

Sandra Cunningham/Shutterstock

Are You Crazy To Continue Believing In Collapse?

That it hasn’t happened yet doesn’t mean you’re wrong
by James H. Kunstler
Wednesday, March 5, 2014, 4:16 AM

It’s nerve-wracking to live in the historical moment of an epic turning point, especially when the great groaning garbage barge of late industrial civilization doesn’t turn quickly where you know it must, and you are left feeling naked and ashamed with your dark worldview, your careful preparations for a difficult future, and your scornful or tittering relatives reminding you each day what a ninny you are to worry about the tendings of events.

Persevere. There are worse things in this life than not being right exactly on schedule.

Two simple words explain why more robust signs of an economic collapse have hung fire since the tremors of 2008: inertia and fraud. Never in human history has there been such a matrix of complex systems so vast, dense, weighty, and powerful for running everyday life (nor a larger population engaged in it). That much stuff in motion takes a while to slow down. The embodied energy has kept enough of it running to give the appearance of continuity. For instance, agri-biz still sends its amber waves of grain and tankers of corn-syrup to the Pepsico snack-food factories, and the WalMart trucks still faithfully convey the pallets of Cheetos, Fritos, Funyons, and Tostitos from the Pepsico loading dock to the big box aisles of glory. The freeways still hum with traffic even though oil is pricey at $100 a barrel. The lights stay on. The gabble and blabber of Cable TV continues remorselessly in the background of life. All of that is due to inertia. It gives the superficial impression of the old normal carrying on. Things go on until they can’t, in the immortal words of Herb Stein

The fraud is present in the abuse and misrepresentation of official statistics used as metrics in government policy, in the pervasive accounting chicanery of that same government in its fiscal dealings, as well as in our leading financial institutions and corporations, including control fraud in banking, interest rate rigging, mortgage and title fraud, front-running, naked shorting, re-hypothecation, money laundering, pumping-and-dumping, channel stuffing, the endless innovation of swindles, and, most importantly, the fundamental mispricing of the cost of money, which reverberates through everything else, most particularly real estate, stocks, and bonds. Beyond that, in the shadows of the shadowland known as shadow banking, a liminal realm of secrets and intrigues, only a few are privileged to know what is going on, and you can be sure they only know their end of the trade — while immense sums of ever more abstract “money” slosh through the derivative sewers on their way to oblivion in the ocean of failed trust.

So, don’t feel bad if this colossal armature of folly still stands, and have faith that the blinding light of God’s judgment will eventually shine even unto the watery depths where failed trust has sunk. Sooner or later the relationship between reality and truth re-sets to the calculus of what is actually happening.

Meanwhile, the big questions worth reflecting upon are: What is the shape of the future? How might we conduct ourselves in it and on our way to it; and how will we think and feel about all that? It’s very likely that the journey to where we’re going will be rougher than the actual destination, once we get there. There is a hearty consensus outside the mainstream financial media and the thickets of academia that the models we have been using to understand the economy look more broken each month, and this surely adds to the difficulty of constructing our own mental models for how the everyday world of the years ahead will operate.

Some of the commentators in blogville and elsewhere like to blame capitalism. Capitalism is a phantom adversary. It isn’t an economic system. It isn’t an ideology, really, or a belief system. If the word means anything, it describes the behavior of accumulated surplus wealth in concert with the known laws of physics — the movement of energy through time and space — and the choices we make organizing society in relation to that.  The energy is embodied as capital, represented in money for convenience. Interest expresses the cost of money over time and the risks associated with lending it. By the way, interest rates work the same way under all political systems, despite attempts in some societies to criminalize it.

During the high tide of the industrial expansion, when fossil fuels were cheap and we accumulated the greatest wealth surplus ever in history, humanity made some very bad choices, squandering this possibly one-time bonanza. We fought two world wars, and lots of wasteful lesser ones. Russia and its imitators attempted to collectivize wealth under gangster government and only succeeded in impoverishing everyone but the gangsters. America built suburbia and Las Vegas. The one thing that no “modern” culture did was plan for a future when the fossil fuel orgy and the techno-industrial fiesta might wind down, which is exactly the case now. Instead, we opted for the Julian Simon folly of crossing our fingers and hoping that some unnamed band ofgenius wizard innovators would mitigate the problems of resource scarcity and population overshoot just in time.

The demonizers of capitalism propose to remedy our compound predicament by just getting rid of money. But the idea of a human society without money leaves you either up a baobab tree on the paleolithic savannah, or in some sort of Ray Kurzweil techno-narcissistic masturbation fantasy multiverse with no relation to the organic doings on planet earth. I suspect as long as there are human societies there will be things to exchange that have a quality we call “money,” and as long as that’s the case, some individuals will have more of it than others, and they will lend some of their surplus to others on terms. What most people call capitalism was a model of economy derived from a particular transitory moment in history. It seemed to describe reality, but after a while it didn’t because reality changed and it was, finally, just a model. Nothing lasts forever. Boo-hoo, Karl Marx, J.M Keynes, and Paul Krugman.

What’s cracking up first is the complexity and abstraction of our current money operations, sometimes loosely called the financialized economy. If we blame anything for our problems with money, blame our half-baked attempts to mitigate the wind-down of the techno-industrial cavalcade of progress by issuing ersatz surplus wealth in the form of debt — that is, promises to fork over hypothetical not- yet-accumulated wealth at some future date. There are too many promises now, and too few trustworthy promisors, and poor prospects for generating the volumes of wealth as we did in the recent past.

The hidden (or ignored) truth of this quandary expresses itself inevitably in the degenerate culture of the day, the freak show of pornified criminal avarice that the USA has become. It only shows how demoralizing our recent history has been that the collective national attention is focused on such vulgar stupidities as twerking, or the Kanye-Kardashian porno romance, the doings of the Duck Dynasty, and the partying wolves of Wall Street. By slow increments since about the time John F. Kennedy was shot in the head, we’ve become a land where anything goes and nothing matters. The political blame for that can be distributed equally between Boomer progressives (e.g., inventors of political correctness) and the knuckle-dragging “free-market” conservatives (e.g.,money is free speech). The catch is, some things do matter, for instance whether the human race can continue to be civilized in some fashion when the techno-industrial orgy draws to a close.

In Part 2: How Life Will Change, we sort out the new operating principles that will matter more in the future than the trash heap of current cultural norms. The society that emerges from the post-growth economy will surely require a new moral compass, a set of values based on qualities of behavior and things worth caring about — as opposed to coolness, snobbery, menace, or power, the current lodestars of human aspiration.

Click here to access Part 2 of this report (free executive summary; enrollment required for full access).

Are You Crazy To Continue Believing In Collapse?: James Howards Kunstler | Peak Prosperity

Are You Crazy To Continue Believing In Collapse?: James Howards Kunstler | Peak Prosperity.

BLOG

Sandra Cunningham/Shutterstock

Are You Crazy To Continue Believing In Collapse?

That it hasn’t happened yet doesn’t mean you’re wrong
by James H. Kunstler
Wednesday, March 5, 2014, 4:16 AM

It’s nerve-wracking to live in the historical moment of an epic turning point, especially when the great groaning garbage barge of late industrial civilization doesn’t turn quickly where you know it must, and you are left feeling naked and ashamed with your dark worldview, your careful preparations for a difficult future, and your scornful or tittering relatives reminding you each day what a ninny you are to worry about the tendings of events.

Persevere. There are worse things in this life than not being right exactly on schedule.

Two simple words explain why more robust signs of an economic collapse have hung fire since the tremors of 2008: inertia and fraud. Never in human history has there been such a matrix of complex systems so vast, dense, weighty, and powerful for running everyday life (nor a larger population engaged in it). That much stuff in motion takes a while to slow down. The embodied energy has kept enough of it running to give the appearance of continuity. For instance, agri-biz still sends its amber waves of grain and tankers of corn-syrup to the Pepsico snack-food factories, and the WalMart trucks still faithfully convey the pallets of Cheetos, Fritos, Funyons, and Tostitos from the Pepsico loading dock to the big box aisles of glory. The freeways still hum with traffic even though oil is pricey at $100 a barrel. The lights stay on. The gabble and blabber of Cable TV continues remorselessly in the background of life. All of that is due to inertia. It gives the superficial impression of the old normal carrying on. Things go on until they can’t, in the immortal words of Herb Stein

The fraud is present in the abuse and misrepresentation of official statistics used as metrics in government policy, in the pervasive accounting chicanery of that same government in its fiscal dealings, as well as in our leading financial institutions and corporations, including control fraud in banking, interest rate rigging, mortgage and title fraud, front-running, naked shorting, re-hypothecation, money laundering, pumping-and-dumping, channel stuffing, the endless innovation of swindles, and, most importantly, the fundamental mispricing of the cost of money, which reverberates through everything else, most particularly real estate, stocks, and bonds. Beyond that, in the shadows of the shadowland known as shadow banking, a liminal realm of secrets and intrigues, only a few are privileged to know what is going on, and you can be sure they only know their end of the trade — while immense sums of ever more abstract “money” slosh through the derivative sewers on their way to oblivion in the ocean of failed trust.

So, don’t feel bad if this colossal armature of folly still stands, and have faith that the blinding light of God’s judgment will eventually shine even unto the watery depths where failed trust has sunk. Sooner or later the relationship between reality and truth re-sets to the calculus of what is actually happening.

Meanwhile, the big questions worth reflecting upon are: What is the shape of the future? How might we conduct ourselves in it and on our way to it; and how will we think and feel about all that? It’s very likely that the journey to where we’re going will be rougher than the actual destination, once we get there. There is a hearty consensus outside the mainstream financial media and the thickets of academia that the models we have been using to understand the economy look more broken each month, and this surely adds to the difficulty of constructing our own mental models for how the everyday world of the years ahead will operate.

Some of the commentators in blogville and elsewhere like to blame capitalism. Capitalism is a phantom adversary. It isn’t an economic system. It isn’t an ideology, really, or a belief system. If the word means anything, it describes the behavior of accumulated surplus wealth in concert with the known laws of physics — the movement of energy through time and space — and the choices we make organizing society in relation to that.  The energy is embodied as capital, represented in money for convenience. Interest expresses the cost of money over time and the risks associated with lending it. By the way, interest rates work the same way under all political systems, despite attempts in some societies to criminalize it.

During the high tide of the industrial expansion, when fossil fuels were cheap and we accumulated the greatest wealth surplus ever in history, humanity made some very bad choices, squandering this possibly one-time bonanza. We fought two world wars, and lots of wasteful lesser ones. Russia and its imitators attempted to collectivize wealth under gangster government and only succeeded in impoverishing everyone but the gangsters. America built suburbia and Las Vegas. The one thing that no “modern” culture did was plan for a future when the fossil fuel orgy and the techno-industrial fiesta might wind down, which is exactly the case now. Instead, we opted for the Julian Simon folly of crossing our fingers and hoping that some unnamed band ofgenius wizard innovators would mitigate the problems of resource scarcity and population overshoot just in time.

The demonizers of capitalism propose to remedy our compound predicament by just getting rid of money. But the idea of a human society without money leaves you either up a baobab tree on the paleolithic savannah, or in some sort of Ray Kurzweil techno-narcissistic masturbation fantasy multiverse with no relation to the organic doings on planet earth. I suspect as long as there are human societies there will be things to exchange that have a quality we call “money,” and as long as that’s the case, some individuals will have more of it than others, and they will lend some of their surplus to others on terms. What most people call capitalism was a model of economy derived from a particular transitory moment in history. It seemed to describe reality, but after a while it didn’t because reality changed and it was, finally, just a model. Nothing lasts forever. Boo-hoo, Karl Marx, J.M Keynes, and Paul Krugman.

What’s cracking up first is the complexity and abstraction of our current money operations, sometimes loosely called the financialized economy. If we blame anything for our problems with money, blame our half-baked attempts to mitigate the wind-down of the techno-industrial cavalcade of progress by issuing ersatz surplus wealth in the form of debt — that is, promises to fork over hypothetical not- yet-accumulated wealth at some future date. There are too many promises now, and too few trustworthy promisors, and poor prospects for generating the volumes of wealth as we did in the recent past.

The hidden (or ignored) truth of this quandary expresses itself inevitably in the degenerate culture of the day, the freak show of pornified criminal avarice that the USA has become. It only shows how demoralizing our recent history has been that the collective national attention is focused on such vulgar stupidities as twerking, or the Kanye-Kardashian porno romance, the doings of the Duck Dynasty, and the partying wolves of Wall Street. By slow increments since about the time John F. Kennedy was shot in the head, we’ve become a land where anything goes and nothing matters. The political blame for that can be distributed equally between Boomer progressives (e.g., inventors of political correctness) and the knuckle-dragging “free-market” conservatives (e.g.,money is free speech). The catch is, some things do matter, for instance whether the human race can continue to be civilized in some fashion when the techno-industrial orgy draws to a close.

In Part 2: How Life Will Change, we sort out the new operating principles that will matter more in the future than the trash heap of current cultural norms. The society that emerges from the post-growth economy will surely require a new moral compass, a set of values based on qualities of behavior and things worth caring about — as opposed to coolness, snobbery, menace, or power, the current lodestars of human aspiration.

Click here to access Part 2 of this report (free executive summary; enrollment required for full access).

China On The Verge Of First Corporate Bond Default Once More | Zero Hedge

China On The Verge Of First Corporate Bond Default Once More | Zero Hedge.

While everyone was focusing on the threat of tumbling debt dominoes in China’s shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers – the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate – as well as shadow banking – bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.

FT reports:

The company has until March 7th to repay the interest, charged at an annual 8.98 per cent, the company said in a statement. “Due to various uncontrollable factors, until now the company has only raised Rmb 4m to pay the interest,” it said in the statement.

Trading in the Chaori bond, given a CCC junk rating, was suspended last July because the company suffered two consecutive years of losses. The company had a further RMB1.37bn loss in 2013, according to the results it posted on the exchange.

Just pointing out the obvious here, but how bad must things be for the company to be on the verge of default not due to principal repayment but because two years after issuing a bond, it only has 4% in cash on hand for the intended coupon payment?

Furthermore, as noted previously, China has so far been able to kick the can on its defaults for nearly three decades. Which is why suddenly everyone is focusing on this tiny company: Chaori Solar’s default – if it transpires – would mark the first time a company has defaulted on publicly traded debt in China since the central bank began regulating the market in the late 1990s. Bloomberg adds, citing Liu Dongliang, Shenzhen-based senior analyst at China Merchants Bank, that such a default would be the “first of a string of further defaults in China.”  FT continues:

Though the bond is relatively small, a default could deliver a sharp shock to risk management strategies in China vast corporate debt market, estimated by Standard&Poor’s to be $12tn in size at the end of 2013.

Any default could also slow down new issuance. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 per cent, from Rmb1.82tn to Rmb4.74tn, between December 2008 and September 2013.

In January, a Chinese fund company avoided a high-profile default, reaching a last-minute agreement to repay investors in a soured $500m high-yield investment trust, in a case that had sent tremors through global markets.

Then again, those who follow China’s bond market will know that Chaori’s failure to pay interest would not really be the true first Chinese corporate default: recall as we reported almost exactly a year ago:

For the first time, a mainland Chinese company has defaulted on its bonds. SunTech Power Holdings has been clinging on by its teeth but after failing to repay $541mm of notes due on March 15th – and following four consecutive quarters of losses through the first quarter of 2012 and since then having failed to report quarterly earnings – owed to Chinese domestic lenders, the firm is restructuring. As Bloomberg reports, Chinese solar companies are struggling after taking on debt to expand supply, leading to a glut that forced down prices and squeezed profits – and most notably were unable to renegotiate its liabilities and obtain “additional flexibility” from creditors. This is highly unusual and perhaps is the beginning of a trend for Chinese firms.

So yes: a prior default, and one by a solar company no less. However, going back down memory lane again, ultimately Suntech had the same fate as all other insolvent corporations in China do – it got a post-facto bailout:

Struggling Chinese solar panel maker Suntech Power Holdings Co Ltd is set for a $150 million local government bailout, a step towards tackling its $2.3 billion debt pile that is at odds with Beijing’s effort to wean the sector off state support. The lifeline comes from the municipal government of Wuxi, an eastern city where Suntech’s Chinese subsidiary is headquartered, and follows Shunfeng Photovoltaic International Ltd’s signing of a preliminary deal to buy its bankrupt Chinese unit.

Curious why China’s local government continues to balloon at an exponential pace, and has doubled in roughly two years to roughly CNY20 trillion (that’s the real number – the official, made up one is CNY17.9 trillion or $3 trillion)? Because just like the Fed and ECB are the ultimate toxic bad banks in the US and Eurozone, respectively, in China all the bad debt ultimately disappears under the comfortable carpet of the broad “local government debt” umbrella. However, things like these must never be discussed in polite public conversation. Which is why despite what Guan Qingyou, an economist with Minsheng Securities said in his Weibo account that the “first default might not be a bad thing even that means more defaults might happen, because it is ultimately good for the market reform”, the reality is that once the dam breaks, it may well be game over for a country that only knows one thing – how to kick the can ever further.

There are additional considerations: As the FT also notes, “given the squeeze on credit supply already seen in January this year, corporate debt defaults could further slow momentum in China’s fixed asset investments.” In other words, the just announced 7.5% GDP target revealed ahead of the National People’s Congress will be impossible to achieve, should China be unable to fund the Capex to build its burgeoning ghost cities, should rates spike.

Which is why this too default will ultimately be made to disappear.

And the next one, and the one after that, because “now” is never the right time to make the right, but difficult decision.

But how much longer can China avoid reality? Not much if one consider this just crossed headline on Bloomberg:

  • CHINA TO SHUT 50,000 COAL FURNACES THIS YEAR, LI SAYS

Recall coal is the industry that China’s near-bankrupt Trusts have most of their exposure to.

And then there are our four favorite charts confirming the dire situation in China’s credit market:

 

 

 

 

 

For those who need a refresh course on why the Chinese situation is rapidly going from bad to worse, read these several most recent comprehensive articles on the topic:

Bank of America warns further that a more confident government means the start of defaults

With amazing speed in consolidating power in 2013, a more confident President Xi Jinping and team are expected to push for a wide range of reforms. 2014 will be the year for China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008. We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market
 

China On The Verge Of First Corporate Bond Default Once More | Zero Hedge

China On The Verge Of First Corporate Bond Default Once More | Zero Hedge.

While everyone was focusing on the threat of tumbling debt dominoes in China’s shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers – the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate – as well as shadow banking – bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.

FT reports:

The company has until March 7th to repay the interest, charged at an annual 8.98 per cent, the company said in a statement. “Due to various uncontrollable factors, until now the company has only raised Rmb 4m to pay the interest,” it said in the statement.

Trading in the Chaori bond, given a CCC junk rating, was suspended last July because the company suffered two consecutive years of losses. The company had a further RMB1.37bn loss in 2013, according to the results it posted on the exchange.

Just pointing out the obvious here, but how bad must things be for the company to be on the verge of default not due to principal repayment but because two years after issuing a bond, it only has 4% in cash on hand for the intended coupon payment?

Furthermore, as noted previously, China has so far been able to kick the can on its defaults for nearly three decades. Which is why suddenly everyone is focusing on this tiny company: Chaori Solar’s default – if it transpires – would mark the first time a company has defaulted on publicly traded debt in China since the central bank began regulating the market in the late 1990s. Bloomberg adds, citing Liu Dongliang, Shenzhen-based senior analyst at China Merchants Bank, that such a default would be the “first of a string of further defaults in China.”  FT continues:

Though the bond is relatively small, a default could deliver a sharp shock to risk management strategies in China vast corporate debt market, estimated by Standard&Poor’s to be $12tn in size at the end of 2013.

Any default could also slow down new issuance. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 per cent, from Rmb1.82tn to Rmb4.74tn, between December 2008 and September 2013.

In January, a Chinese fund company avoided a high-profile default, reaching a last-minute agreement to repay investors in a soured $500m high-yield investment trust, in a case that had sent tremors through global markets.

Then again, those who follow China’s bond market will know that Chaori’s failure to pay interest would not really be the true first Chinese corporate default: recall as we reported almost exactly a year ago:

For the first time, a mainland Chinese company has defaulted on its bonds. SunTech Power Holdings has been clinging on by its teeth but after failing to repay $541mm of notes due on March 15th – and following four consecutive quarters of losses through the first quarter of 2012 and since then having failed to report quarterly earnings – owed to Chinese domestic lenders, the firm is restructuring. As Bloomberg reports, Chinese solar companies are struggling after taking on debt to expand supply, leading to a glut that forced down prices and squeezed profits – and most notably were unable to renegotiate its liabilities and obtain “additional flexibility” from creditors. This is highly unusual and perhaps is the beginning of a trend for Chinese firms.

So yes: a prior default, and one by a solar company no less. However, going back down memory lane again, ultimately Suntech had the same fate as all other insolvent corporations in China do – it got a post-facto bailout:

Struggling Chinese solar panel maker Suntech Power Holdings Co Ltd is set for a $150 million local government bailout, a step towards tackling its $2.3 billion debt pile that is at odds with Beijing’s effort to wean the sector off state support. The lifeline comes from the municipal government of Wuxi, an eastern city where Suntech’s Chinese subsidiary is headquartered, and follows Shunfeng Photovoltaic International Ltd’s signing of a preliminary deal to buy its bankrupt Chinese unit.

Curious why China’s local government continues to balloon at an exponential pace, and has doubled in roughly two years to roughly CNY20 trillion (that’s the real number – the official, made up one is CNY17.9 trillion or $3 trillion)? Because just like the Fed and ECB are the ultimate toxic bad banks in the US and Eurozone, respectively, in China all the bad debt ultimately disappears under the comfortable carpet of the broad “local government debt” umbrella. However, things like these must never be discussed in polite public conversation. Which is why despite what Guan Qingyou, an economist with Minsheng Securities said in his Weibo account that the “first default might not be a bad thing even that means more defaults might happen, because it is ultimately good for the market reform”, the reality is that once the dam breaks, it may well be game over for a country that only knows one thing – how to kick the can ever further.

There are additional considerations: As the FT also notes, “given the squeeze on credit supply already seen in January this year, corporate debt defaults could further slow momentum in China’s fixed asset investments.” In other words, the just announced 7.5% GDP target revealed ahead of the National People’s Congress will be impossible to achieve, should China be unable to fund the Capex to build its burgeoning ghost cities, should rates spike.

Which is why this too default will ultimately be made to disappear.

And the next one, and the one after that, because “now” is never the right time to make the right, but difficult decision.

But how much longer can China avoid reality? Not much if one consider this just crossed headline on Bloomberg:

  • CHINA TO SHUT 50,000 COAL FURNACES THIS YEAR, LI SAYS

Recall coal is the industry that China’s near-bankrupt Trusts have most of their exposure to.

And then there are our four favorite charts confirming the dire situation in China’s credit market:

 

 

 

 

 

For those who need a refresh course on why the Chinese situation is rapidly going from bad to worse, read these several most recent comprehensive articles on the topic:

Bank of America warns further that a more confident government means the start of defaults

With amazing speed in consolidating power in 2013, a more confident President Xi Jinping and team are expected to push for a wide range of reforms. 2014 will be the year for China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008. We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market
 

UPDATE February 2012 — The Food Crises: Predictive validation of a quantitative model of food prices including speculators and ethanol conversion | NECSI

UPDATE February 2012 — The Food Crises: Predictive validation of a quantitative model of food prices including speculators and ethanol conversion | NECSI.

Cite as: M. Lagi, Yavni Bar-Yam, K.Z. Bertrand, Yaneer Bar-Yam,
arXiv:1203.1313, March 6, 2012.

Abstract

Increases in global food prices have led to widespread hunger and social unrest—and an imperative to understand their causes. In a previous paper published in September 2011, we constructed for the first time a dynamic model that quantitatively agreed with food prices. Specifically, the model fit the FAO Food Price Index time series from January 2004 to March 2011, inclusive. The results showed that the dominant causes of price increases during this period were investor speculation and ethanol conversion. The model included investor trend following as well as shifting between commodities, equities and bonds to take advantage of increased expected returns. Here, we extend the food prices model to January 2012, without modifying the model but simply continuing its dynamics. The agreement is still precise, validating both the descriptive and predictive abilities of the analysis. Policy actions are needed to avoid a third speculative bubble that would cause prices to rise above recent peaks by the end of 2012.

NECSI Food Price Update Warns of Crisis by 2013

CAMBRIDGE (March 6)–According to a new study from the New England Complex Systems Institute the next food price bubble will occur by 2013.

“The food price bubble of 2011 caused widespread hunger and helped trigger the Arab spring. In 2013 we expect prices to be even higher and may lead to major social disruptions.” said Professor Bar-Yam President of NECSI, who has just returned from Davos where he presented his findings on speculation in global commodity markets. His paper “The Food Crises: A Quantitative Model of Food Prices Including Speculators and Ethanol Conversion” was called by Wired magazine one of the top 10 discoveries in science of 2011.

In 2008 and 2011 increases in global food prices triggered hunger, food riots and social unrest in North Africa, the Middle East, and elsewhere, at a cost to global stability which policy makers can no longer ignore. Over the past decade, world unrest has sharply increased at time of peak food prices; now the long-term price trend is getting close to what used to be episodic peaks.

According to the new study, the next food price peak will take place in about a year. The results will be dramatically higher prices than we have encountered thus far. The study warns that should ethanol production continue to grow according to multiyear trends, even the underlying trend will reach social-crisis levels in just one year.

NECSI’s latest findings reveal that the model from their 2011 paper still fits food price price trends. Their update reveals one important shift, however, in price trends, which might add to, not lessen, global instability. “The current trend of prices suggests that in the immediate future market prices may become lower than equilibrium,” says the study, “consistent with bubble and crash market oscillations.”

Lower prices at first may seem like good news as a reprieve from the extremely high food prices seen in the past, but the study says that the drops are likely to be short-term.

To examine what is driving the rises in food prices, researchers at the New England Complex Systems Institute (NECSI) performed a detailed study in 2011. The Institute, which uses mathematical modeling to reveal social and political trends, drew from the FAO Food Price Index from January 2004 to March 2011, and investor movements—shifting among commodities, equities and bonds. The analysis discovered two key drivers behind the rise: investor speculations and the rush toward conversion of corn to ethanol. The study was presented by invitation at the World Economic Forum in Davos and featured as one of the top 10 discoveries in science in 2011 by Wired magazine.

This month, NECSI is publishing the results of its study update, in which the institute extends its food price model to January 2012, entering no modifications to the model and continuing to use its dynamics.

NECSI’s researchers said the model they have used to examine food prices has proven to be robust and consistent with ongoing behavior of food prices.

Bar-Yam, who co-authored last year’s food-price study as well as the latest study update, said that the fit with the FAO Food Price Index is still “strikingly quantitatively accurate, validating both the descriptive and predictive abilities of the model.

“To extend NECSI’s earlier model ten months out and to still witness a fit is important,” he added. “This means we have validated it for data that was not around when we first made the model. It predicted the burst of the 2011 food bubble at the exact time it happened, when many were saying that high food prices were there to stay. Success in predictive validation is remarkable. The conclusions are reinforced greatly that high food prices are due to ethanol and speculators–with all the relevant policy implications.”

“The current equilibrium value is about 50% higher than the prices prior to the impact of the ethanol shock. And the projected time until the next food price bubble is about a year.” The results will be dramatically higher prices than encountered thus far.

Press contacts

Karla Bertrand, Press Relations
karla@necsi.edu, 617-547-4100

Clare Froggatt, Program Coordinator
clare@necsi.edu, 617-547-4100

Can the Markets Crash? | Zero Hedge

Can the Markets Crash? | Zero Hedge.

This is the trillion-dollar question. From a common sense perspective, the simple answer is “absolutely!”

 

Since 1998, the markets have been in serial bubbles and busts, each one bigger than the last. A long-term chart of the S&P 500 shows us just how obvious this is (and yet the Fed argues it cannot see bubbles in advance?).

 

 

Moreover, we’ve been moving up the food chain in terms of the assets involved in each respective bubble and bust.

 

The Tech bubble was a stock bubble.

 

The 2007 bust was a housing bubble.

 

This next bust will be the sovereign bond bubble.

 

Why does this matter?

 

Because of the dreaded “C word” COLLATERAL.

 

In 2008, the world got a taste of what happens when a major collateral shortage hits the derivatives market. In very simple terms, the mispricing of several trillion (if not more) dollars’ worth of illiquid securities suddenly became obvious to the financial system.

 

This induced a collateral shortfall in the Credit Default Swap market ($50-$60 trillion) as everyone went scrambling to raise capital or demanded new, higher quality collateral on trillions of trades that turned out to be garbage.

 

This is why US Treasuries posted such an enormous rally in the 2008 bust (US Treasuries are the highest grade collateral out there).

 

Please note that Treasuries actually spiked in OCTOBER-NOVEMBER 2008… well before stocks bottomed in March 2009.

 

 

The reason?

 

The scrambling for collateral, NOT the alleged “flight to safety trade” that CNBC proclaims.

 

WHAT DOES THIS HAVE TO DO WITH TODAY?

 

The senior most assets backstopping the $600 trillion derivatives market are SOVEREIGN BONDS: US Treasuries, Japanese Government Bonds, German Bunds.

 

By keeping interest rates near zero, and pumping over $10 trillion into the financial system since 2007, the world’s Central Banks have forced investors to misprice the most prized collateral backstopping the entire derivatives system: SOVEREIGN BONDS.

 

SO what happens when the current bond bubble bursts and we begin to see bonds falling and yields rising?

 

Another collateral scramble begins… this time with a significant portion of the interest rate derivative market (over 80% of the $600 TRILLION derivative market) blowing up.

 

At that point, rising yields is the last thing we need to worry about. The assets backstopping a $600 trillion market themselves will be falling in value… which means that the real crisis… the crisis to which 2008 was the warm up, will be upon us.

 

This is why Central Banks are so committed to keeping rates low. This is also why all Central Bank policy has largely benefitted the large financial institutions (the Too Big To Fails) at the expense of Main Street…

 

THE CENTRAL BANKS AREN’T TRYING TO GROW THE ECONOMY, THEY’RE TRYING TO PROP UP THE FINANCIAL INSTITUTIONS’ DERIVATIVE TRADES.

 

They will fail eventually. When they do, the markets will experience yet another terrible collapse even worse than that of 2008.

 

For a FREE Special Report on how to prepare your portfolio for this, visit us at:

 

http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

 

Phoenix Capital Research

Junk Yield Premiums Soar on China’s Looming First Default – Bloomberg

Junk Yield Premiums Soar on China’s Looming First Default – Bloomberg.

By Bloomberg News  Feb 9, 2014 9:42 PM ET

The extra cost to borrow for China’s riskiest companies is at the highest in 20 months as soaring interest rates heighten concern the nation will experience its first onshore bond default.

The yield gap on five-year AA- notes over AAA debt jumped 27 basis points last month to 224, the most since June 2012, Chinabond indexes show. Ratings of AA- or below are equivalent to non-investment grades globally, according to Haitong Securities Co., the nation’s second-biggest brokerage. The similar spread in the U.S. is 403 basis points, Bank of America Merrill Lynch data show.

The failure of coal companies to meet payment deadlines for trust products has increased concern over debt defaults, with the equivalent of $53 billion of bonds sold by renewable energy, construction materials, metals and mining companies due in 2014. A report on Jan. 30 signaled China’s factories are contracting for the first time since August amid signs of financial stress including mounting losses and bailouts.

“China’s bond market will definitely see its first default this year,” said Xu Hanfei, a bond analyst inShanghai at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “The economy is slowing while the government seems still confident about growth, which means the authorities probably won’t announce any measures to avert the slowdown. This is the worst scenario.”

Financial Panic

A further $21 billion of securities in those three sectors mature in 2015, the Bloomberg data show, with companies including Baoshan Iron & Steel Co., China Minmetals Corp. and Wuhan Iron & Steel Co. among the most indebted. Bonds of steel and coal companies are under added pressure considering the government’s campaign to reduce smog, and industry overcapacity, according to Moody’s Investors Service, which has a negative outlook on both.

LDK Solar Co. is looking at ways to restructure obligations on its offshore yuan debt after missing payments on its dollar debt last year. Zhuhai Zhongfu Enterprise Co. (000659), a manufacturer of beverage packaging, said on Jan. 28 its 2015 debentures may be suspended from trade after its estimated net loss was as much as 450 million yuan ($74.2 million) in 2013. The yield on the 5.28 percent notes has climbed 217.5 basis points this year to 18.76 percent, exchange data show.

Steel, Shipping

The world’s second-biggest economy slowed in the fourth quarter to 7.7 percent from 7.8 percent in the previous three months as Premier Li Keqiang drove up money-market rates to encourage companies and local governments to deleverage.

China’s central bank signaled in a Feb. 8 report that volatility in money-market interest rates will persist and borrowing costs will rise, further underscoring the risk of defaults which could weigh on confidence and drag down growth.

China Credit Trust Co. reached an agreement last month to repay bailed-out investors in a high-yield product whose threatened failure spurred concern bad debts will rise in the nation’s $1.7 trillion trust industry.

The gap between top-rated and lower-rated bonds in China may widen further this year as news about possible defaults shakes the market, according to Cheng Qingsheng, an analyst at Evergrowing Bank Co.

“There should be a default in China’s onshore bonds this year,” Shanghai-based Cheng said. “Privately issued bonds have higher default risks than publicly traded bonds.” A first default may happen in the steel, coal, shipping or photovoltaic power industries, Cheng said.

Default Swaps

As default concerns escalate, the cost of insuring the nation’s debt against non-payment is rising. China’s credit-default swaps have increased 13 basis points this year to 93 as of Feb. 7. The yuanfell to 6.0646 per dollar on Feb. 7, the lowest level this year. It was little changed at 6.0605 as of 10:32 a.m. in Shanghai.

There have been no defaults in China’s publicly traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s.

Local governments have helped some companies avert missing payment deadlines, according to Yao Wei, the Hong Kong-based China economist at Societe Generale SA. CHTC Helon Co., a fiber maker which used to be called Shandong Helon Co., repaid 400 million yuan of notes in April 2012 even as it failed to make loan repayments.

Shanghai Chaori Solar Energy Science & Technology Co. (002506), which averted default on an interest payment last year and had just 618.7 million yuan cash as of September, will pay 898 million yuan of debt in March, according to Guotai Junan. The solar-panel maker’s debt-to-asset ratio was 90.1 percent at the end of the third quarter, according to a company financial report released Oct. 27.

High Cost

Other companies are receiving help from related entities. Changzhou Wintafone Chemical Co., a maker of herbicides and insecticides based in the eastern province of Jiangsu, said last month it’s stopped production and can’t repay notes due in March. Changzhou Qinghong Chemical Co., the note’s guarantor, repaid 36.9 million yuan on its behalf on Jan. 17.

A first default may be avoided if local governments continue to step in, said Beijing-based Yang Feng, a bond analyst at Citic Securities Co., the nation’s biggest brokerage.

“The cost of a default on a bond would be very high,” said Yang. “If a company in Shanghai defaults, it would be difficult for every company in the city to raise money.”

Turning Cautious

The yield on AA- rated five-year corporate bonds climbed 13 basis points last month to 8.38 percent. The rate on the benchmark five-year government bond dropped 24 basis points to 4.22 percent over the same period.

The average yield on high-yield Dim Sum bonds, or yuan-denominated notes sold in Hong Kong, has climbed 14 basis points this month to 5.66 percent on Feb. 6, the highest since October, according to an index compiled by HSBC Holdings Plc. Yields averaged 5.52 percent on Dec. 31.

U.S. dollar-denominated 13.25 percent notes sold by Glorious Property Holdings Ltd. (845) in February last year and due in 2018 were yielding 19.61 percent on Feb. 7, Bloomberg-compiled prices show. The company’s chief executive officer and chief financial officer resigned last week, less than one month after shareholders rejected an offer by Chinese billionaire Zhang Zhirong to take the developer private.

“Investors have turned cautious on high-yield bonds,” said Guotai Junan’s Xu, who forecasts China’s economy will grow 7 percent this year. “Since China’s onshore bond market hasn’t had a default, the market may not have priced in all the risk it should have.”

Sinovel, Nanjing

Sinovel Wind Group Co. (601558), said on Jan. 29 its bonds due 2016 may be suspended from trade because it may report a second year of losses. The yield on the 6.2 percent notes has jumped 329 basis points in 2014 to 15.01 percent as of today. Similarly, Nanjing Iron & Steel Co. (600282), partly owned by Chinese billionaire Guo Guangchang, said last month its 2018 bonds may stop trading because it too could report a second year of losses. The yield on those notes has soared 208 basis points this year to 10.72 percent, exchange data show.

“It would be best if the government will allow defaults,” Zhang Ming, a senior research fellow at the government-backed Chinese Academy of Social Sciences in Beijing, said in a Jan. 22 interview. “The bubbles are gradually inflating, and sooner and later there will be a collapse. The best scenario is that you allow defaults in some places when you are ready so that some risks can be released. The later the default, the more damaging.”

To contact Bloomberg News staff for this story: Judy Chen in Shanghai atxchen45@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net; Sandy Hendry at shendry@bloomberg.net

Obama To Unveil Treasury IRA Plans, Or Planning For A Post-Monetization World | Zero Hedge

Obama To Unveil Treasury IRA Plans, Or Planning For A Post-Monetization World | Zero Hedge.

Wondering who will take over the mantle of Treasury bond buyer now that the Fed is stepping away? Curious of the government’s next steps towards repression and control of wealth? Wait no longer. As the AP reportsPresident Obama will unveil a new retirement savings plan tonight that allows first-time savers to buy US Treasury bonds tax-deferred for retirement. Of course, this is not the mandatory IRA that remains somewhat inevitable (as the muddle-through fails) but is certainly a step in the direction we alerted readers to a year ago by which the government generously offers to help manage your retirement savings. Two words spring to mind… remember Poland.

 

Via AP,

Eager not to be limited by legislative gridlock, Obama is also expected to announce executive actions on job training, retirement security and help for the long-term unemployed in finding work.

 

Among those actions is a new retirement savings plan geared toward workers whose employers don’t currently offer such plans.

 

The program would allow first-time savers to start building up savings in Treasury bonds that eventually could be converted into a traditional IRAs, according to two people who have discussed the proposal with the administration. Those people weren’t authorized to discuss it ahead of the announcement and insisted on anonymity.

Of course, this is not what the CFPB suggested a year ago… We’re sure the government is just trying to protect your retirement account from terrorists. From Bloomberg:

The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.

 

That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have,” bureau director Richard Cordray said in an interview. He didn’t provide additional details.

 

The bureau’s core concern is that many Americans, notably those from the retiring Baby Boom generation, may fall prey to financial scams, according to three people briefed on the CFPB’s deliberations who asked not to be named because the matter is still under discussion.

But it’s getting close.

Though Poland remains the strawman…

RBC cuts fixed-rate mortgages by 10 basis points – Business – CBC News

RBC cuts fixed-rate mortgages by 10 basis points – Business – CBC News.

Fixed-rate mortgages at RBC are down by 10 basis points. (Canadian Press)Fixed-rate mortgages at RBC are down by 10 basis points. (Canadian Press)

RBC lowers fixed mortgage rates

RBC lowers fixed mortgage rates 2:15

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RBC has cut two-, three, four- and five-year fixed mortgage rates by 10 basis points after a slide in Canadian bond yields.

Other Canadian banks will be watching the change and could move Monday to follow.

RBC posted the new rates over the weekend on its website. RBC’s discounted five-year fixed rate is now 3.69 per cent, though it may discount that rate for preferred customers.

Five-year fixed mortgage rates rose industry-wide for much of 2013 with an uptick in August helping to cool the overheated housing market.

The five-year rate is an important measure because it is the rate used to qualify borrowers for CMHC financing and for variable and other fixed-rate terms.

The new rate reflects the lowering of Canadian bond yields by 26 basis points in January, which mirrors the slide in yields on U.S. bonds. Bank borrowing costs rest in part on bond yields.

The Bank of Canada has not changed its key overnight lending rates to the banks – it will announce its latest decision on interest rates on Wednesday.

Bond yields rose when the  U.S. Federal Reserve decided in December to taper its bond-buying program to $75-billion US a month, but the market has since absorbed the change. However, further Fed tapering or changes in the U.S. economic outlook could lead to fluctuation in the bond markets later this year.

The small change in rates won’t have much impact on home buyers at a time when rates are so low, says one mortgage broker.

“From a mortgage broker’s perspective and probably from a lot of homeowners’ perspective, the real question is not necessarily interest rates,” said Jason Scott of The Mortgage Group in Edmonton.

“It’s got more to do with what the finance minister and the department of finance will do vis-a-vis making it harder to qualify for a mortgage if they don’t like the fact that rates are low and they’re concerned about a possible housing bubble.”

Finance Minister Jim Flaherty has expressed concern at Canada’srapidly rising housing prices and has taken a series of measures over the last two years to cool them, including demanding higher downpayments and limiting most mortgage terms to 25 years.

The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next?

The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next?.

Bubble - Photo by Jeff KubinaDid you know that financial institutions all over the world are warning that we could see a “mega default” on a very prominent high-yield investment product in China on January 31st?  We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in “sky-high interest rates” and “a precipitous plunge in credit“.  In other words, it could be a “Lehman Brothers moment” for Asia.  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 ofapproximately 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.

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.  You can see an incredible chart which graphically illustrates this point right here.  As the Telegraph pointed out a while back, the Chinese have essentially “replicated the entire U.S. commercial banking system” in just five years…

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.

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.

If there is a major default on January 31st, the effects could ripple throughout the entire Chinese financial system very rapidly.  A recent Forbes article explained why this is the case…

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.

Overall, M2 in China is up by about 1000 percent since 1999.  That is absolutely insane.

And of course China is not the only place in the world where financial trouble signs are erupting.  Things in Europe just keep getting worse, and we have just learned that the largest bank in Germany just suffered ” a surprise fourth-quarter loss”

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.

But I am not the only one talking about it.

In fact, the World Economic Forum is warning about the exact same thing…

Fiscal crises triggered by ballooning debt levels in advanced economies pose the biggest threat to the global economy in 2014, a report by the World Economic Forum has warned.

Ahead of next week’s WEF annual meeting in Davos, Switzerland, the forum’s annual assessment of global dangers said high levels of debt in advanced economies, including Japan and America, could lead to an investor backlash.

This would create a “vicious cycle” of ballooning interest payments, rising debt piles and investor doubt that would force interest rates up further.

So will a default event in China on January 31st be the next “Lehman Brothers moment” or will it be something else?

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.

It is just a matter of time.

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