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.

lol
lol

central banks comin to the stark realization that they're gonna have keep printing money literally round the clock and buy everything (literally)in perpituaty ,china knows.fed,boj.ecb all know it,just keep printing …..until u can't.

Stuki
Stuki

You know you're getting close to peak and final progressive idiocy, when the 'most important "asset" class' is a simple commodity, whose inherent difficulty of provisioning was conclusively solved over a century ago. And which is today no more difficult to produce than a cheap polyester sweater!

Competent people can build houses for virtually nothing. (Good ones, too. Or at least decent ones. As opposed to the trash that gets passed of as "luxury villas" in Pac Heights and Bel Air.) And then, they can sell them by the millions to billions, for a few bucks more than that. Employing millions upon millions of other productives in the process.

But instead, by government fiat, intervention and threat of violence; and to the applause of a world wide mass of illiterate indoctrinates too dumb to find their own nose in a mirror image; "real estate" has been turned into a playground for a global clown army of undifferentiated uselessness and expendability. Who, as always given their inherent uselessness; never has, never will, contribute a lick of value to anyone nor anything.

Who have never built a house, never designed one, never designed nor improved upon a single component nor process than goes into building one. Nor designed, nor improved upon any whatsoever piece of infrastructure than goes into making house provisioning more efficient and simpler. (Not even non engineering ones. As idiots, by their very nature, prefer arbitrariness: Arbitrariness, stupidity and incompetence always go hand in hand, while non-arbitrariness requires at least a modicum of ability to think in abstract terms) IOW, never done anything at all related to actual provisioning of the goods produced by the "industry" they cluelessly insist they are somehow part of.

Instead acting solely as welfare recipients and useful idiot champions for an ever more invasive and extractive government. Cheering on it's every effort to extract ever more wealth and value add from their more competent betters.

In the process needlessly creating homelessness; crime; poor educational attainment for kids forced to live on top of each other; sickness from poor air quality; loss of productivity from lack of sleep due to noisiness as well as long commutes; excessive cost and compromised processes due to lack of access to more, realistic cost, space for productive enterprise; sclerotizised economies due to lack of labor and capital mobility etc., etc.

All for no other reason than to support the rent seeking of a bunch of abject nothings; too incompetent to feed themselves absent the massive, forced wealth transfers required to turn something so cheap, simple and solved as a roof, four walls and a handful of pipes and wires, into an "asset class" serving as no more than an obfuscation for crass, rampant, productivity, life quality and West-destroying (thank goodness for that...) theft. From the competent, for the benefit of connected not-sos.

hmk
hmk
Stuki
Stuki said: You know you're getting close to peak and final progressive idiocy, when the 'most important "asset" class' is a simple commodity, whose inherent difficulty of provisioning was conclusively solved over a century ago. And which is today no more difficult to produce than a cheap polyester sweater! Competent people can build houses for virtually nothing. (Good ones, too. Or at least decent ones. As opposed to the trash that gets passed of as "luxury villas" in Pac Heights and Bel Air.) And then, they can sell them by the millions to billions, for a few bucks more than that. Employing millions upon millions of other productives in the process. But instead, by government fiat, intervention and threat of violence; and to the applause of a world wide mass of illiterate indoctrinates too dumb to find their own nose in a mirror image; "real estate" has been turned into a playground for a global clown army of undifferentiated uselessness and expendability. Who, as always given their inherent uselessness; never has, never will, contribute a lick of value to anyone nor anything. Who have never built a house, never designed one, never designed nor improved upon a single component nor process than goes into building one. Nor designed, nor improved upon any whatsoever piece of infrastructure than goes into making house provisioning more efficient and simpler. (Not even non engineering ones. As idiots, by their very nature, prefer arbitrariness: Arbitrariness, stupidity and incompetence always go hand in hand, while non-arbitrariness requires at least a modicum of ability to think in abstract terms) IOW, never done anything at all related to actual provisioning of the goods produced by the "industry" they cluelessly insist they are somehow part of. Instead acting solely as welfare recipients and useful idiot champions for an ever more invasive and extractive government. Cheering on it's every effort to extract ever more wealth and value add from their more competent betters. In the process needlessly creating homelessness; crime; poor educational attainment for kids forced to live on top of each other; sickness from poor air quality; loss of productivity from lack of sleep due to noisiness as well as long commutes; excessive cost and compromised processes due to lack of access to more, realistic cost, space for productive enterprise; sclerotizised economies due to lack of labor and capital mobility etc., etc. All for no other reason than to support the rent seeking of a bunch of abject nothings; too incompetent to feed themselves absent the massive, forced wealth transfers required to turn something so cheap, simple and solved as a roof, four walls and a handful of pipes and wires, into an "asset class" serving as no more than an obfuscation for crass, rampant, productivity, life quality and West-destroying (thank goodness for that...) theft. From the competent, for the benefit of connected not-sos.

Could you elaborate on how to build a house for virtually nothing? I haven't seen any ground breaking innovations in home construction, like 3d printing or prefabing some of the framing, that would bring down pricing? I do get going into debt for buying a house isn't as productive for the economy as creating productive debt that produces income. What the overall breakdown of productive vs non productive debt is in our economy vs somewhere like China is something I haven't seen addressed nor what the consequence of that would be.

George_Phillies
George_Phillies

No innovations in home construction? When my dad was a little boy, the carpenters showed up on site, and one guy started sawing with a hand saw, to cut the 2x4s (which were actually over size, relative to need, at 2"x4") to the exact length needed. They are now unloaded by a crane, precut to the right length. The wood in my floors was prefinished, a dozen layers under carefully controlled conditions, as opposed to 30 years ago and "had to start again; the change in humidity wrecked a coat being put down inside your house." I could go on.

hmk
hmk

The key part to that question was bring down pricing, i.e. next to nothing.

caradoc-again
caradoc-again

Something else to consider - the demographics. Japan was 1st with Germany, China & Southern Europe behind. We know what happened in Japan. What impact will the others have? USA is relatively better but not ideal too.

MntGoat
MntGoat

For some reason modular homes built in controlled factory environments have not taken off as much in US as they have in Japan, Germany and the Netherlands. This could seemingly require less time, labor and the quality of the home wouldn’t be subject to the weather as stick built is. If the permitting process and city/state zoning bureaucracy could be streamlined and made cheaper, and apartments and homes could be built much faster in factories, maybe this could add supply to bring down prices and rents. But like usual, there are a lot of “powers that be”, NIMBY’s, etc… that would fight this tooth and nail because it would lower the values of their current properties.

Stuki
Stuki

Touche!!

Factory building, shipping and stacking container sized houses high and wide, is cheap as heck even now. And that is without the kind of innovation that would (going by experience from every other field, ever) stem from getting rid of all and any cost increasing regulations/restrictions on doing so anywhere someone may want to.

There is no reason to believe site building larger structures from prefabbed smaller modules won't see a similar cost decline. Ditto standardized utility hookups etc....

Take the cost and quality of a Toyota Corolla. Now imagine it being site built from sheets and bolts, by dudes with saws hammers, in your driveway. Which are only allowed to show up after you have spent half a million and a few years obtaining permits. Which can be delayed indefinitely, and which requires pointless legal battles with someone next door who happen to already have his Corolla. And who worry you also having one, will reduce the "value" of his by increasing supply, hence making the carless less desperate....

Stuki
Stuki

4 walls, a roof, some pipes and the hardware required to kind of hold it all together. Perhaps a floor. Or perhaps just a plywood box on a trailer..... It's not all that expensive. As well as being of a standard no lower than many of the mold, roach and rat infested shacks that are currently being rented/sold for fortunes in many parts of the country.

If you want, and can afford, fancier; nothing's stopping you from building a Passivhaus Mar-a-Lago replica out of vacuum insulated solid bronze. But even the above dwelling beats the heck out of being homeless.

And, once the floodgates open to unrestricted innovation/experimentation, there is no reason to believe price/quality won't drop just as fast in housing as in every other field where it has been tried.