Financial market report for November 7, 2011
1) … Stocks wavered as investors shunned Italian debt and awaited news of possible Greek and Italy government restructuring.
Political and debt concerns pertaining to Greece and Italy caused investment concern on the stock market today, causing world stocks, ACWI, to waiver. Short sell covering caused China Materials, CHIM, China Small Caps, HAO, and Italy, EWI, to rise in value. The currency demand curve, which is the ratio of RZV:RZG, fell strongly lower today, suggesting that a run on currencies is about to commence once again. This is also suggested in the ratio of the world major currencies, relative to emerging market currencies, CEW, DBV:CEW, rising strongly in value.
Gold, $GOLD, rose on sovereign angst. It has retraced approximately 61.8% of the September drop. Gold’s recent run up has come as the US Dollar, $USD, strengthens no less, which should really be no surprise considering it is a safe haven investment. Gold may turn lower for a while, as the US Dollar is likely to continue to rise to 78.50, before it turns lower again. OIl, USO, and BNO, rose today with the WaPo report IAEA is about to report that Iran is on the verge of becoming a nuclear state. But Natural Gas, UNG, fell 2.6%.
Yahoo Finance reports DirecTV Group, DTV, last week reported adding a record 327,000 subscribers in the third quarter, greatly helped by its exclusive NFL Sunday Ticket. Today DTV turned 2% lower.
Mike Mish Shedlock reports Italian debt yields soar to euro-era record And Tyler Durden reports Italian Treasury Cancels November 10 Bill Auction As 10 Year BTP Hits 6.66%
Austrian economist Mike Mish Shedlock writes History Suggests Greece Will Freeze Bank Deposits, Exit Euro by Christmas; Spain and Portugal to Follow Next Year; What’s the Rational Thing to Do? The rational thing to do if you live in Spain, Portugal, or Greece is to take all of your money out of banks while it’s still denominated in Euros, while you still can. Greece wants to hang on until the next Tranche of money comes in. EMU leaders want to prevent a Greek exit at any and all costs (without doing an analysis of the costs). Thus, the EMU, ECB, and IMF “Troika” have made matters much worse for themselves when the inevitable finally happens.
This is out of the hands of Greece, Germany, Merkozy, the Troika, President Obama, and everyone else who thinks they are in control. The end of the line comes when Greek citizens act rationally and pull their deposits. From my perspective, the sooner that happens the better as sending more money to Greece does nothing but squander more European taxpayer’s money.
To that end, the Troika would be advised to not send the next tranche of money and instead coordinate an exit strategy for countries that are inevitably going to exit. Unfortunately, EMU bureaucrats will not be bright enough to figure this out. Expect a very disorderly, disruptive, and unplanned exit accompanied by bank closures.
Mr Shedlock writes a most excellent article. Being a reformed Christian, I believe that God is in control, and has been in control from eternity past. While indeed Greece may become an outcast nation, the Sovereign Lord God, Isaiah 4:9-14, is exercising His sovereign will Ephesian 1:1, through the 1974 Clarion Call of the 300 elite of the Club of Rome for regional economic government, together with destructionism, to cause the baton of sovereignty to pass from countries to regional economic government.
Democracy is dying and diktat is rising. Italy having lost its debt sovereignty today, is no longer a sovereign nation state. Italy will have to look to EU ECB and IMF leadership, that is EU ECB and IMF diktat, and their sovereign authority for seigniorage, that is moneyness, as well as a resource for their fiscal spending.
Neoliberalism featured sovereign nations. Neoauthoritarianism features sovereign leaders. Freedom and free enterprise are experiences of the bygone Milton Friedman Free To Choose floating currency regime. Austerity measures, structural reforms, pension overhauls, and debt servitude will be de rigueur under the regime of Neoauthoritarianism. This Beast System, Revelation 13:1-4, is literally rising from the governments located in the Mediterranean Sea. It will have seven heads, that is it will occupy in all of mankind’s seven institutions. And it will have ten horns, that is it will govern in all ten world regions.
Those living in the EU will be living under a eurocracy, and a totalitarian collective: totalitarian collectivism is the Eurozone’s future. Neoliberalism featured wildcat finance, a Doug Noland term. Neoauthoritarianism features wildcat governance, where leaders bite, rip, and tear at one another; only the most fierce survive to stay in office and lead the people. Neoliberalism’s leaders understood and used schemes of ponzi financing, such as student lending and Wenzhou private lending collateralized by stockpiles of copper. Neoauthoritarianism’s leaders understand and use schemes of regional framework agreements.
Bible prophecy foretells that soon, out of sovereign crisis, a prince of the people, Daniel 9:26, and Revelation 13:5-10, will rise to power in the EU; he will be accompanied by a European Banker, Revelation 13:11-18. And together, their word, will and way will provide a new economic, political and social order, as well as a new moneyness, that is the seigniorage of diktat, and the people will be amazed by this and place their trust in it, giving it their full allegiance, Revelation 13:3-4.
McManus of Irish Times writes strongly that Germany Wll Inevitably Face Final Choice On Euro Zone Cure. More than ever there is a certain “all roads lead to Frankfurt” inevitability about the solution to the euro zone debt crisis. Which road we go down to get there remains to be decided, but as things stand it looks as if things will have to escalate to the point where a binary choice faces Germany: debase the ECB or see the euro zone break up as market support for Italy or Spain or France evaporates.
Please consider that freedom and choice are simply mirages on the Neoauthoritarian Desert of the Real. God being omniscient, looked down the corridor of time, and planned and is orchestrating all things 2 Corinthians 5:18. The Book of Daniel, specifically chapter two, contains God’s divine appointment of kings and kingdoms to govern mankind from the sixth century BC. until the 1,000 year rule and reign of Christ in His kingdom known as the Millennium.
Nebuchadnezzar’s dream, as authoritatively interpreted by God through Daniel, tells us that history will see the rise of four consecutive Gentile world powers, representing the kingdom of man, and then a seven year period ruled by Satan who gives global powers to the Sovereign and the Seignior which includes the 666 credit system, Revelation 13:15-18. All of which in the end will be crushed by the Lord’s eternal reign. This message was conveyed through the appearance of a giant statue in Nebuchadnezzar’s dream. The head of gold represents Babylon. The breast and arms of silver indicate Medio Persia. While its bronze belly and thighs symbolize Greece. Rome is the final entity that appears in two phases: its legs of iron, the ancient Roman Empire of the first century, and its feet partly of iron and partly of clay, the Revived Roman Empire which will emerge as ten regions of global governance, after a soon coming global financial collapse, Daniel 2:31-35.
CNBC reports Ex-ECB’s Lucas Papademos Front-Runner For Greek Prime Minister. Robert Wenzel of EconomicPolicy Journal relates that according to Wikipedia, Papademos is currently a visiting professor of public policy at the Kennedy School of Government at Harvard University. He was previously a vice president of the European Central Bank and also served as a senior economist at the Federal Reserve Bank of Boston. He is a Trilateral Commission member.
Destructionism is causing growth to turn recession, as seen in the Bloomberg report, European Service Sector PMI’s Are Cllapsing, and the report Lagarde Warns of East Europe Liquidity Squeeze. IMF Managing Director Christine Lagarde warned that eastern Europe may face a credit squeeze as western European banks mired in the euro-area debt crisis withdraw liquidity from the region. “Big fault lines” remain in the former communist bloc’s financial systems, adding to its high dependence on exports to western Europe, Lagarde said today in speech at Moscow’s State University of the Ministry of Finance after meeting President Dmitry Medvedev. The risks include a high share of external debt and loans in foreign currencies, both funded by western banks, she said. “If the storm strengthens further in the euro area, emerging Europe as its closest neighbor would be severely hit,” Lagarde said. “This time around, western parent banks, which have been instrumental in keeping those economies afloat, would no longer necessarily be here to sustain growth and the health of those countries.” (Hat Tip to Between The Hedges)
2) … News of the day.
Mary Clare Jalonick, of AP writes Farm state lawmakers are moving to create a whole new subsidy that would protect farmers when their revenue drops, an unprecedented program that critics say could pay billions of dollars to farmers now enjoying record-high crop prices.
The subsidy, free insurance that would cover farmers’ “shallow crop losses” before their paid insurance kicks in, has been pushed by corn and soybean farmers who could benefit the most from the program. It would replace for the most part several other subsidy programs, including direct payments preferred by Southern rice and cotton farmers. Growers get the direct payments regardless of crop yields or prices. They don’t even have to farm.
The income insurance plan has a diverse group of opponents — environmental groups that have long argued against farm subsidies, conservatives who say the plan won’t save the government much and even one of the nation’s largest farm groups. The American Farm Bureau Federation says the beefed-up insurance could encourage farmers to make riskier decisions and drive up the price of land.
Top Republicans and Democrats on the House and Senate Agriculture Committees are looking at folding the new subsidy into a farm bill proposal they are quietly crafting as part of their charge by the deficit-cutting congressional supercommittee to cut farm spending.
The four lawmakers — Senate Agriculture Chairwoman Debbie Stabenow, D-Mich.; Sen. Pat Roberts, R-Kansas; House Agriculture Chairman Frank Lucas, R-Okla. and Rep. Collin Peterson, D-Minn. — have said they will shave $23 billion from farm and food aid programs over the next decade. The new revenue insurance program would be considered part of their effort to achieve that goal.
The committee leaders have not yet released the proposal. It is unclear just how the revenue insurance will be crafted and what effort will be made to control its costs. Critics fear a worst-case scenario that would use current, record-high crop prices as a baseline for average revenue. Farmers who suffer minor revenue losses in future years could get major payouts, which could eat up some of the $23 billion in promised savings. Federally subsidized crop insurance programs are now costing taxpayers $7 billion to $8 billion despite the biggest farm profits in nearly four decades. The Agriculture Department predicts net farm income by the end of this year till total $103.6 billion, a rise of 31 percent from 2010. The department says this is the highest value since 1974, adjusted for inflation.
“The only rationale for a new federal revenue guarantee program on top of existing revenue insurance programs is that it seems politically easier to defend than direct payments,” said Bruce Babcock, an agricultural economist at Iowa State University. Babcock released a report last week calling revenue insurance a “boondoggle.” The report was commissioned by the Environmental Working Group, an advocacy group that has long opposed federal farm subsidies.
Agriculture committee leaders argue that the revenue insurance plan makes sense because farmers would receive payments when prices fall or their crops are destroyed, unlike direct payments which are paid in good times and bad. The “shallow loss” insurance programs could begin paying out once a farmer’s revenue falls by as little as 5 or 10 percent. Federally subsidized crop insurance, for which farmers pay premiums, would kick in with deeper losses.
Landon Thomas Jr. and Stephen Castle of the NYT relate The Denials That Trapped Greece. By early 2010, banks and bond investors were growing reluctant to lend Greece money. The country’s finance minister, George Papaconstantinou, delivered a blistering message to his European partners.
“I know we have German elections in May,” he said, referring to a regional vote to be held that month that was being blamed in part for Germany’s reluctance to sign off on a rescue package for Greece. “But I have a 9 billion euro bond maturing on May 9,” he added, “and if we are not careful, this could blow up in our face before the election!”
Despite that warning, Mrs. Merkel, angry over being misled about Greece’s finances, stalled for time. Greek officials were acknowledging privately that the country was out of money. No one wanted to say so publicly.
John Redwood writes The Euro Means The Death Of National Democracies. Strong opposition with an alternative programme is important to national hope. Those who don’t like the government can live in hope of change. Those who don’t like individual policies of their current government live in hope that Parliamentary action by the Opposition will force a change of policy anyway.
In crucial areas of government policy that help determine prosperity, living standards, inflation rates, returns on savings, jobs, and business success, the level of public sector spending and borrowing, the Euro scheme takes most of the decisions away from democratic debate. The individual Euro member state can no longer call the shots and make changes in these crucial areas. The Opposition in Greece cannot offer a different view on interest rates, borrowing, public spending and the rest because they have had to buy into the terms of the EU/IMF control of the economy.
The Euro destroys a big part of national democracy. The issue then is how do people change the policy if it is not working or they do not like it? Democratic consent relies on the ability to change policy as well as personnel and on the hope of a better tomorrow. Euroland politicians have a big task in maintaining that consent.
John Page comments The Greek middle classes have never seen why they should pay taxes. Greece has been run on political favours for years and years. It is “institutionally” corrupt.
Brian Tomkinson comments Of course the Euro means the death of national democracies in the Eurozone, that was its purpose; to be followed by the death of democracy in the other member states of the EU who had stayed outside the Euro. The United States of Europe, which we have been continually told was not the objective, is looming more clearly into view.
Dennis comments Don’t forget the smaller states. It has brought down the Slovakian government too. As an aside, a check out lady at the the local supermarket who happened to be Slovakian was complaining that such a poor country as hers has to contribute to the bailout fund to help Greece.
Zorro comments The EU is fundamentally anti-democratic, the club from which there is no escape. Let’s face it if they had any sense Greece would have been ejected a long time ago, if their single currency had any economic sense. It is like the Borg it assimilates everything it touches…its never ending wish to expand and control, and woe betide any nation which dares to consult its people about it. However, this undemocratic nature was always implicit in the Treaty of Rome and the expanding ever closer union thus making direct democracy all the more difficult. It looks like Orwell’s supranational anti-democratic structures march on.
Daily Bell reports Euro-union totalitarian empire emerges. And Of Two Minds relates Democracy is tolerated until it threatens global markets.
Open Europe relates the Mail on Sunday reports Cabinet ministers Iain Duncan Smith and Owen Paterson are due to meet Prime Minister David Cameron today, and are expected to push him to take a clearer lead on Europe following his decision to order Conservative MPs to vote against an EU referendum.
Open Europe relates El País reports A poll of 18,000 Spanish voters published by the Centre for Sociological Investigation shows that Spain’s opposition Partido Popular is set for a historical victory at the upcoming general elections scheduled for 20 November. The PP is credited with 190-195 seats in the lower house of the Spanish parliament, while the governing Socialist party would stop at 116-121 seats
Patrick Martin of WSWS writes Greek Prime Minister Forced Out In Euro Crisis Deal PASOK retains a narrow majority in parliament, demonstrated in the 153-145 vote of confidence won by Papandreou in the early hours of Saturday morning. The next prime minister could thus be another PASOK leader, most likely Venizelos, or a “nonparty” caretaker, such as Loukas Papademos, the former vice president of the European Central Bank, Greece’s largest single creditor.
New Democracy has abandoned its posture of opposition to the austerity policies of PASOK, which was aimed solely at undermining and ultimately bringing down the Papandreou government. The conservative party has close ties with co-thinkers like the Christian Democrats of Angela Merkel in Germany and the French UMP of Nicolas Sarkozy, the two leaders most active in the imposition of savage budget cuts on Greece.
In Greece, the political crisis takes the form of a de facto takeover of the government by the EU and its emissaries. EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters that the European powers backed the change in government in Athens. “We have called for a national unity government and remain persuaded that it is the convincing way of restoring confidence and meeting the commitments,” he said.
He added that the proposal announced last Monday by Papandreou for a popular referendum in Greece on the austerity measures dictated by the EU and the IMF amounted to “a breach of confidence by Greece” that would “lead it outside the euro zone.” Rehn continued, “We do not want that, but we must be prepared for every scenario, including that one, for the sake of safeguarding financial stability and saving the euro.”
Papandreou sprang the referendum proposal in order to call the bluff of New Democracy on the one hand and the Greek trade unions and their pseudo-left allies on the other and to force them to drop their professed opposition to the austerity measures, which are fiercely opposed by the broad mass of the Greek people. After being summoned to France by Sarkozy and Merkel on the eve of the G20 summit and threatened with expulsion from the euro zone and a cutoff of funds, Papandreou dropped the referendum proposal, but not before New Democracy agreed to back the EU-IMF austerity plan.
According to some European press reports, Venizelos has the backing of the major EU powers, particularly Germany, because of his role in scuttling Papandreou’s call for a referendum. After Papandreou’s meeting with Merkel and Sarkozy, Venizelos came out publicly against the referendum and was widely lauded in the European media as a result.
Venizelos is a long-time political rival of Papandreou, dating back to their contest for the PASOK leadership in 2007, while the party was in opposition. He served as defense minister before Papandreou named him finance minister this summer, seeking to ensure support of all factions of PASOK for acceding to the austerity demands of the EU.
This connection to the military raises many questions in the wake of Papandreou’s firing of the entire top general staff last week, at the same time as he advanced the proposal for a referendum. Papandreou replaced the heads of the army, navy, air force and joint chiefs of staff, who were all appointed by the previous New Democracy government, but had worked with Venizelos as defense minister.
The purge of the top generals in the midst of a full-scale government crisis had the appearance of a preemptive effort to forestall military intervention. It was widely reported as such in the European media, but the American press has been virtually silent about it. This alone indicates that the US government is playing a critical but largely behind-the-scenes role in the Greek events, which the US corporate controlled media loyally covers up.
Whatever the outcome of the political maneuvers in Athens, the Greek working class has already paid an enormous price. According to a report by Inter Press Service (IPS), the measures already implemented have given birth to a “new poor” in Athens, with wide layers of the population, once accustomed to regular employment and adequate living standards, now plunged into destitution.
The report published November 1 cited the emergence of homelessness on a mass scale in the Greek capital, as well as a proliferation of aid clinics and feeding stations familiar in third-world war zones, but not seen in the European Union in many decades. This includes a medical facility for the homeless, run by Doctors of the World, and a volunteer clinic in Perama, a working class district of Athens once home to longshoremen and shipbuilding workers, most of whom are now laid off.
Nikitas Kanakis, with Doctors of the World, told IPS, “Out of the 40 kids our pediatrician examined two weeks ago, 23 were malnourished. Some years ago we thought that this country had moved past the point where a lack of food was a prominent social issue. Now we are making public appeals for supplies so that we can provide those in need with dry rations and clothing along with our medicines.”
The Athens Center for the Homeless reports a 30 percent increase in people seeking food since the beginning of 2011. Together with church facilities and other agencies, charities distribute 12,000 meals a day to the hungry in Athens alone.
As part of the deal with PASOK, New Democracy has now agreed to ratification of the terms of the austerity deal with the European Union, once the final technical details are ironed out, by a deadline of December 15, the date when the Greek government will run out of money to pay obligations like state employee salaries and pensions and interest on government bonds.
Tyler Durden writes Silvio Berlusconi: “We Don’t Want Elections. We Want To Govern” – Tens Of Thousands Of Protestors Disagree. According to France 24 is not doing that hot. “Tens of thousands of Italians gathered in Rome on Saturday to protest Prime Minister Silvio Berlusconi’s tackling of the country’s sovereign debt crisis. “Silvio out” was the rallying cry for the large crowd that took part in the rally organised by the Democratic Party, the country’s main opposition movement. “There is growing concern Berlusconi no longer commands enough loyalty among MPs to ensure the quick passage that European and international financial officials say Rome must achieve to avoid falling victim to a dramatic debt crisis like that bringing Greece to its knees… “We don’t want elections. We want to govern,” Berlusconi added.”
Tyler Durden writes “Berlusconi: I Want To Look My Traitors In The Face” With the soap opera moving from Greece to Italy, the entertainment factor is about to have a step function move higher. Here is the latest on the Berlusconi “resignation” farce from La Repubblica, google translated: “Free Berlusconi: “I want to see in his face betrays those.” Silvio Berlusconi does not resign. Available on the phone with the Prime Minister gave to displace those who resigned and revealed: “Tomorrow is the statement in the House vote, then I will trust the letter submitted to the EU and the ECB. I want to see in the face of those who try to betray me. I do not understand how they are circulated the voices of my resignation, are devoid of any foundation, “said the premier.” Needless to say, grammatical perfection is irrelevant here: the message is all too clear, unless Silvion gets full immunity and prosection guarantees from his replacement, he will not step down. The question is can anyone give such a promise to the billionaire?
Bloomberg reports BP’s agreement to sell its $7.1 billion stake in Argentinian Pan American Energy LLC to China’s CNOOC Ltd. has collapsed. This comes after Argentina’s president ordered energy companies to repatriate export revenue.
Mail Online reports Lindsay Lohan was released from Century Regional Detention Facility in Lynwood, California after serving only 4.5 hours of a 30-day sentence due to overcrowding.
AP reports Barnes & Noble’s unveils $249 Nook Tablet The Nook Tablet will be in stores soon. It has a 7-inch color touchscreen, and will come preloaded with apps from Netflix and Hulu.
A global Eurasia war is coming. Business Insider questions Is The U.S. About To Invade Iran? And Business Insider reports Russia Warns Israel That Attacking Iran Would Be A ‘Very Serious Mistake’. And WaPo reports IAEA Says Foreign Expertise Has Brought Iran to Threshold of Nuclear Capability. Intelligence provided to U.N. nuclear officials shows that Iran’s government has mastered the critical steps needed to build a nuclear weapon, receiving assistance from foreign scientists to overcome key technical hurdles, according to Western diplomats and nuclear experts briefed on the findings. Documents and other records provide new details on the role played by a former Soviet weapons scientist who allegedly tutored Iranians over several years on building high-precision detonators of the kind used to trigger a nuclear chain reaction, the officials and experts said. Crucial technology linked to experts in Pakistan and North Korea also helped propel Iran to the threshold of nuclear capability, they added.
3) … Moneyness is seigniorage, the value presented by sovereign authorities on property and investments. Soon, only the moneyness will be the seigniorage of diktat and gold, will have moneyness.
FOFOA recommends gold as a store house of wealth which protects against hyper inflation, like that seen in the Weimar Republic or Zimbabwe, and clearly identifies gold as money. FOFOA questions Is money really the actual medium of exchange we use in trade? Or is it the unit of account the various media of exchange (checks, credit cards, PayPal) reference for value?
Many hard money philosophers have pointed their finger at others for the fiat situation we use today. It was the bankers and governments, the kings and cohorts, big business and robber barons or some communist manifesto that forced us to use this type of money. Well, you may not like the process and consider yourself above or apart from it all. You may even declare all of them evil. But, in the end, one fact remains; society may govern itself in many ways over thousands of years, but it has never stopped the evolution that corrupts the use of real money as official money.
For the better part of human existence, gold alone has served all of the best functions of tradable wealth. But as soon as we call it our money, human nature takes over. Yes, we can call it a stock or a bond, a piece of land or a painting, a car, boat or antique, but just don’t label it as money.
For us, as hard money “Physical Gold Advocates”, to understand the value of gold, we must remove ourselves from present time thought and think of gold as the Ancients did. Not as money but as little tradable hunks of metal. Gold for goods, straight up, as the citizens of Troy did! It’s the Physical Gold Advocate’s “advantage”, because while he is waiting for the real value to emerge, the real value that we know existed in antiquity has never gone away! It just doesn’t have a marketplace to show it. It will.
The pure concept of money is our shared use of some thing as a reference point for expressing the relative value of all other things. Money is the referencing of the thing, not the thing itself. As FOA said, money is “a value stored in your head!” Money is not something you save. “Money in its purest form is a mental association of values in trade; a concept in memory not a real item… the value is in your association abilities. This is the money concept, my friends.”
Today’s monetary base is a clearly defined thing. It is all physical currency plus reserves held at the Fed. We the people cannot have electronic base money. We cannot open an account at the Fed. Only banks and the government can. We use commercial bank credit and private credit to keep the economy churning. The reference point of our credit is the base. We reference that base when we transact in “dollars”.
Private and commercial bank credit appears and disappears spontaneously all the time, all throughout the real economy. This is what actually lubricates the economic engine; having a base of stable value to which we refer in monetary transactions. Private credit is generally cleared using bank credit. And bank credit is cleared using the monetary base. But all credit denominated in dollars refers to that base and relies on a stable unit value or price stability.
It is the banks’ job (both commercial and central banks) to make sure that bank credit (the people’s money) and base money (the banks’ money) are fungible. That is, they are always freely and equally exchangeable. But of course they are two separate things, credit and base money, with two very different volumes. Under normal conditions, there’s a lot more credit money floating around than there is base money. So keeping them fungible can be a juggling act on occasion. But for the most part, we the people choose to hold bank credit as our money rather than cash. And, in fact, it is the limited availability of cash in the system (its relative “hardness”) that keeps our money stable in unit value.
Money is our shared use of some thing as a reference point for expressing the relative value of all other things. And by expanding the base you don’t simply create money, you destroy the moneyness of it.
4) … Concluding thoughts.
Soon out of sovereign armageddon, that is a credit bust and global financial collapse, the only “money good” will be gold and diktat. Neoliberalism featured credit liquidity, leverage and risk taking. Neoauthoritarianism features credit evaporation, deleveraging and derisking.
The Sydney Morning Herald communicates that Neoliberalism’s prosperity came through massive global credit bubbles. Booming Echoes of Global Crisis in China. Back in 2008, when the crisis broke, industrial production collapsed around the world. Chinese factories were mothballed and the workers laid off. China’s communist leaders well understood the potential for serious social unrest so they ordered Chinese banks to keep the economy moving by expanding credit. At one stage, the annualised increase in credit growth in China hit 170 per cent, almost certainly the biggest such surge there has ever been. The result was over-investment on a colossal scale: not just in industrial capacity but in property. China is now awash with factories that will struggle to make a profit and with a glut of overpriced housing. Historically, an uncontrollable rise in credit has been the best indicator of a financial crisis, as the west knows from recent experience. Can China buck this trend? Well, it is interesting that many of the arguments along the ‘‘this time it’s different’’ line propounded in the US in the mid-2000s are being trotted out again. The fundamentals justify elevated property prices, just as they did in the US. There is exaggerated confidence in the ability of the People’s Bank of China to finesse a soft landing, just as there was in the ability of the ‘‘maestro’’ Alan Greenspan to prevent the American bubble popping a decade ago. There are booming echoes of the sub-prime crisis: too much leverage, property sold at distressed prices, and evidence of wrongdoing. (Hat Tip to Between The Hedges)
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