The Sum of All Fears…..and a few related charts……
Today, I’d like to take some time to revisit a couple of related topics that we first started discussing a few years ago. I am, of course, referring to the burgeoning increases in China’s Debt levels, Shadow Bank Assets (loans) and M2, along with a high-level analysis of the most recent PBOC Financial Stability Report and FSB Global Shadow Bank Monitoring Report. (No!….please don’t click this page closed….I promise this will eventually get interesting…)
As a starting point, let’s begin by reviewing the February, 2015 McKinsey report Debt and (not much) Deleveraging . I first referenced the report in this blog in March of 2015. The report focused on the world’s, and particularly China’s, rapidly building debt/leverage phenomenon (2014 Year End Data). I encourage you to re-read the entire report, but for those of you who are pressed for time, I’ll give you the executive summary bullet-points right here:
- Debt continues to grow
- Reducing government debt will require a wider range of solutions
- Shadow banking has retreated, but non‑bank credit remains important
- Households borrow more
- China’s debt is rising rapidly
I’m hoping that the McKinsey authors will consider updating the report, bringing the figures current, as I believe these observations, figures and analysis are even more pertinent today than they were back in 2015.
China’s Debt
So now, using McKinsey as a reference point, let’s take a look at where we are today, via the FRED (St. Louis FED)data below.
The FRED (Federal Reserve Economic Data – Citations below) Chart below represents US Core Debt (as defined and provided by the BIS – Bureau of International Settlements) compared to China Core Debt, as a percentage of GDP. The third (bold Red) line represents China’s debt levels adjusted for a “what-if” constant I’ll explain shortly.
…click on the above link to read the rest of the article…
