China is caught between the devil and the deep blue sea…
[Ludwig Von Mises: There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.]
“China’s debt-fuelled plans to prop up economic growth could push its already high debts up to dangerous levels, raising the chance of a painful crunch for the global economy, the Bank of England fears.
“A further fall in China’s economic growth risks making its debts “significantly less sustainable” with serious implications for markets, Deputy Governor Sir Jon Cunliffe has warned.
“The world’s second-largest economy has debts amounting to more than twice its entire annual GDP, which Sir Jon said was the level at which countries such as the US, Japan, Denmark, Thailand and Spain had suffered crises in recent years.
“China’s authorities tried to rein in debts to minimise this risk, but a slowdown made them change tack.
“The stimulus package has helped stop the slide in global growth, shoring up GDP and bolstering financial markets. But it comes at the cost of extra debt in an economy, which has already ramped up borrowing sharply in recent years.”
“This year is shaping up to be the biggest by far for defaults in China’s $13 trillion bond market, highlighting the widening fallout from the government’s campaign to rein in leverage.
“Companies defaulted on 39.2 billion yuan ($5.8 billion) of domestic bonds in the first four months of the year, some 3.4 times the total for the same period of 2018, according to data compiled by Bloomberg. The pace is also more than triple that of 2016… The trend is clear: unless something changes, 2019 will be the new high.”
“China is now more important to the health of the global economy than the U.S. It’s the top trading partner to more countries and with emerging markets driving 60% of global GDP expansion is the engine powering the world’s growth…
“The combination of the trade war, the debt pullback and the shift of resources all weighed on China’s growth, spurring the government to take action and re-introduce economic stimulus in late 2018.”
“The next flash point in India’s credit markets could be real-estate debt. That’s the view of ICICI Prudential Life Insurance Co., a major corporate bond buyer and one of India’s top life insurers. The firm avoided investing in debt of stressed companies before credit market strains spread last year.”
“The Turkish lira slid to a seven-month low against the dollar on Tuesday after a decision to rerun an election for Istanbul mayor raised the possibility of more economic and financial instability.
“The lira fell as much as 1.5 percent to 6.16 per dollar, adding to losses made late on Monday when the rerun was announced by the nation’s electoral board. The currency has dropped 14 percent this year, adding to a decline of 28 percent in 2018.”
“Algeria is the tenth largest country in the world by area, tenth in the world for natural gas reserves, sixteenth for oil and third for shale gas.
“Second, with its 42 million population – 45 per cent below the age of 15 – and chronic unemployment, Algeria is a powder keg just off Europe’s shores.”
“The European Union yesterday halved its growth prediction for the Germany economy as it forecasted lower growth for the Eurozone as a whole, laying bare the extent of the bloc’s economic challenges before a leaders’ summit in Romania this week…
“Official forecasts, released by the European Commission (EC), said Italy’s budget deficit will balloon to 3.6 per cent of GDP in 2020 – breaking the EU’s three per cent limit – in a development likely to cause further rows between Rome and Brussels.”
“…the chief risk officer for Credit Suisse, Lara Warner, expressed concern over a European contagion. She warned that German and Italian recessions, Italian political instability, and rising European debt could all lead to a collapse of the European economy. That, in turn, could spill over into US markets.
““I do worry that we are in a period where small earthquakes can lead to large tsunamis. It [Europe] seems to be the place that is the most fragile.””
“Mexican president Andrés Manuel López Obrador says his country’s economy is looking better than ever — but numbers show the opposite.
“The country’s economic activity registered its biggest fall for starting a year in a decade. And among the main factors: nervous foreign investors.”
“Behind all this is a global trade slowdown, caused by slower economic growth, especially in developing countries, along with financial volatility. Slower economies hit Brazil, Russia, India, Indonesia and South Africa. China’s slowing growth rate goes back several years. Some studies peg the slowdown as going back globally as far as 2010 or even earlier.”
“Gundlach’s basic argument is that the elevated level of debt in the U.S. economy–both government and corporate debt–makes the bond markets much more vulnerable than in any time in this expansion to heightened default risk in the event of any economic slowdown.”
“Trend raises risks for commercial mortgage lenders as concern grows over defaults. … It is the highest level since 2009, and in line with levels seen in the build-up to the 2008 financial crisis…”