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The Sum of All Fears…..and a few related charts……

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…

 

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