Andy Xie: Fear the Dark Side of China's Lending Surge

[dummass]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

For clarification, as our subscribers are aware, our position is that debt deflation began in early 2008 and took the stock market down more than 40%, exactly as we forecast. The market then had a First Bounce off March 2009 lows due to re-inflation by global fiscal and monetary stimulus, again as forecast. As the re-inflation cannot produce a self-sustaining recovery in the U.S., China, Europe or any nation without economic restructuring, debt deflation will continue.

The U.S. fiscal deficit at 12% of GDP in 2009 exceeds twice the level that was previously considered tolerable in an advanced economy without the bond market and currency selling off. We expect long term that the U.S. will deflate the debt against the monetary unit of debt, the dollar, by allowing oil producers to facilitate the devaluing of the dollar against oil rather than gold as in the 1930s. That is the essence of Ka-Poom Theory.

Fred,

Can a new thread be started in Select? The above statement would appear to merit further discussion. Is this a change to previous forecasts? If we are expecting another round of debt deflation, do we also have a forecast for duration. The last one lasted 6 months. What's the new time-line? What happened to "Deflation fare thee well" :confused:

[Jay]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Fred,

Can a new thread be started in Select? The above statement would appear to merit further discussion. Is this a change to previous forecasts? If we are expecting another round of debt deflation, do we also have a forecast for duration. The last one lasted 6 months. What's the new time-line? What happened to "Deflation fare thee well" :confused:

dummass, my understanding is that the entire process of debt deflation continues to go on. The characteristics it takes on, disinflation(deflation) vs. inflation, are reflected in the political choices made, i.e. the balance between printing vs. insolvencies/bankruptcies/foreclosures. Since it is much more expedient for our politicians to print, that is ultimately how we will come out of this, hence POOM as an inevitability. The disinflation we saw was just an early presentation of the whole process and we could get multiple whipsaws in the future, just bigger is my guess, or just one big POOM if something goes awry geopolitically.

[dummass]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Thanx Jay, that's a good summary. This message is different, however, from the message presented in EJ's "Deflation Fare Thee Well..."

[c1ue]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Dummass,

Don't let the deflation word throw you off.

A debt deflation equals inflation. Similarly an outright deflation is a debt inflation.

Its all about the denominator...

[dummass]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Dummass,

Don't let the deflation word throw you off.

A debt deflation equals inflation. Similarly an outright deflation is a debt inflation.

Its all about the denominator...

Does this agree with your understanding of the terms?

Debt Deflation:
Stocks up (nominal not real)
Commodities up
House prices down
Bonds up (yields down)
T's down (yields up)
Consumer goods up
Food prices up
Gas prices up
Gold and Silver up

Disinflation:
Stocks down
Commodities down
House prices down
Bonds down (yields up)
T's Up (yields down)
Consumer goods down
Food prices down
Gas prices down
Gold and Silver down

[Jay]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Dummass,

Don't let the deflation word throw you off.

A debt deflation equals inflation. Similarly an outright deflation is a debt inflation.

Its all about the denominator...

c1ue, my understanding of debt deflations is that a debt deflation does not necessarily equal inflation, but only will in our present period of debt deflation because there is no gold standard and politicians have the option to inflate. The term debt deflation describes only the amelioration of debt, the process by which the debt is resolved is not essential to the definition. Bankruptcy, inflation or a combination of both are all under the umbrella of "debt deflation" and its manifestations in 1873 and 1929 were different due to this fact. Please clarify my thinking if it is off.

[Jay]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Does this agree with your understanding of the terms?

Debt Deflation:
Stocks up (nominal not real)
Commodities up
House prices down
Bonds up (yields down)
T's down (yields up)
Consumer goods up
Food prices up
Gas prices up
Gold and Silver up

Disinflation:
Stocks down
Commodities down
House prices down
Bonds down (yields up)
T's Up (yields down)
Consumer goods down
Food prices down
Gas prices down
Gold and Silver down

dummass, I see disinflation as a process within the current debt deflation not the opposite of it, so your categories should be inflation and disinflation (or deflation depending where you sit in that debate) which are all part of the broader concept of debt deflation which can encompass both. Again others, please correct me if I am wrong.

[dummass]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

C1ue makes the point that debt deflation is inflation. So, disinflation or deflation (according to your point of view) must be the opposite.

Does this need to be so complicated? :confused:

[ThePythonicCow]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Does this need to be so complicated? :confused:

For most of us (who are not economists) "inflation" means "the local currency prices of stuff I buy are rising" and "deflation" means those prices are falling.

The only way I (who dropped out of Econ 101 after one week) can routinely make sense of inflation and deflation claims is to split them into two kinds.

If made by a trained economist, then they are likely referring to an increase or decrease in some monetary base -- ask which base, for which time frame.

If made by any of the "rest of us", they are likely referring to the currency denominated price of some goods or basket of goods - ask which currency, which goods, which time frame.

We are dealing with

• much sloshing about, back and forth, of currencies, currency bases, be that gold, euros, dollars, Treasuries, or fraudulent CDOs-squared,
• much misallocattion of resources and productive capacity, and
• much confusion and misrepresentation of the truth.

Claims of "inflation" are always and everywhere a relative phenomenon, relative to whether an economist or ordinary man is speaking, and if an ordinary man, relative to which currency and which basket of goods is being considered, for which time frame.

Answer the above questions, which is usually pretty easy in the original context, and most claims of inflation or deflation make sense, at least sufficient to enable further sensible agreement or disagreement.

But unqualified claims of inflation or deflation that cannot be grounded by the above specifics are useless in my experience.

[ThePythonicCow]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Article regarding Chinese bank ratings.

http://www.telegraph.co.uk/finance/c...one-of-us.html

That was a good read - thanks for the link.

The misallocation of productive and financial resources afflicts China as well. I'm playing the recent rise in commodity prices as a dangerous Chinese driven bubble (meaning I already sold what little I had invested there for a small profit.)

When the Titanic sank, one end apparently rose up out of the water as the other end flooded first. Not long after, all chambers were flooded, to the long standing amusement of some deep water fish.

[WildspitzE]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

courtesy of naked capitalism.... end of chinese commodity stockpiling? misinformation/expectation management? creating a dip?

http://www.nakedcapitalism.com/2009/...ockpiling.html

[touchring]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

courtesy of naked capitalism.... end of chinese commodity stockpiling? misinformation/expectation management? creating a dip?

http://www.nakedcapitalism.com/2009/...ockpiling.html

end for the time being/

[llanlad2]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Further arguments against China from the often interesting China Financial Markets Blog

Massive growth in lending much of which is likely to be non-performing loans

New loans RMB	2008	2009
January	804	1,600
February	243	1,100
March	286	1,900
April	464	591
May	319	665
June	332	1,200
Half year	2,448	7,056

Evidence of Banking Irregularities:

Three major Chinese lenders said Tuesday that auditors had discovered irregularities in their lending last year, but added that these findings would not affect their financial results. The Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and China CITIC Bank said in separate statements that the National Audit Office (NAO) found some violations of rules in last year’s routine audits. None of the lenders revealed the amount of loans involved in these violations.
…ICBC, China’s largest lender, said in Tuesday’s statement that some of its branches were found to have violated rules in business operations, and some weaknesses in management were also pinpointed.
The bank added it had corrected the violations and had moved to improve risk management and internal controls. The other two lenders said some of their branches had been found to have extended loans against rules or been negligent in supervision over borrowers after the loans were made.

LOANS FOR SPECULATION

And of course there’s a lot more evidence of credit gaps. Along with a study by a local economist suggesting that an awful lot of new lending was ending up on the gaming tables of Macau (which after all may perhaps be economically more justifiable than further commodity stockpiling), Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council, worries about money leaking into illegal stock speculation. According to an article in yesterday’s Bloomberg:Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.

That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said.

…A further 30 percent of the loans in the first five months may have been used for discounted bill financing, or short-term credits used to fund working capital needs, China Business News said today. These funds may help form a financial bubble, the newspaper cited Wei as saying, adding this is the economist’s personal view.

[touchring]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

More riots. News, internet and twitter shut down. 1,000 killed or wounded (140 killed, 828 wounded)

http://www.nytimes.com/2009/07/07/wo...er=rss&emc=rss

Does this look like a country that will pull the world out of the crisis or will it only add to it?

this is a country in crisis. or rather, the majority of people in crisis - the state, and the 5% of people in the communist party are doing better than ever.

[WildspitzE]

Re: Andy Xie: Fear the Dark Side of China's Lending Surge

Does this look like a country that will pull the world out of the crisis or will it only add to it?

I think most look to pillaging their large savings, or that they, themselves, will pillage such large savings, as the source of a recovery.