Surge in Global Credit Driven by China: Deflationary Bust Coming

Since 2008 the growth in global credit has been on the back of China. Real estate led the way. Now what?

Inquiring minds should take a look at FT Alphaville article Chinese Real Estate, Charted. Here is the key chart.

Economic Model Built on Debt

Jim Chanos says says China has an Economic Model Built on Debt.

That is true for the entire global economy, but China is leading the way.

Chinese Real Estate Single Most Important Asset Class

In February, Jim Chanos told Business Insider that Chinese real estate to be the most important single asset class in the world.

There's an excellent video interview in the BI article where Chanos discusses the surge in credit fueled by unwarranted residential real estate speculation.

Inflation Deflation

Note the decline in US credit expansion in 2010. Mark-to-market, the recovery began in 2009 when Bernanke suspended mark-to-market recording of business loans.

My definition says inflation is an increase in money supply and credit, marked-to-market. With rules suspended in the midst of stress test lies, what's going on can only be estimated.

It's clear, for now, that we are in a period of global inflation. The markets act as if this credit can be paid back. It won't, and that is the fallacy of expecting an inflation boom in the future. The boom has been underway for a long time, fueled by FED, ECB, and BoJ QE accompanied by a surge in Chinese credit.

A bust will come, and it will not be inflationary.

Mike "Mish" Shedlock

Comments (15)
No. 1-15
flubber
flubber

Mish,

Am I missing something here? The screen shots with Jim Chanos are showing DOW at 14,695. This definitely can't be from 2018.

gliderdude
gliderdude

Trying to make the asshole look good with 5 year old photos :-) Kind of like a dating sites

Flip312
Flip312

Why couldn't it be an inflationary bust? That's what happened in Indonesia and Latin America before that. Real estate went way down in dollar and gold terms but not in local currency terms.

shamrock
shamrock

lol, his warning is from 5 YEARS ago? And nothing has happened except gold is down 50% and s&p has doubled? Yikes.