What Could Possibly Go Wrong?

by Dave Schuler on February 22, 2014


I don’t know if you find the graph above as concerning as I do. It illustrates the growth of U. S. bank assets and Chinese bank assets from 2008 to the present. Here’s a slightly longer timeframe to put the increase in U. S. bank assets over time into a little bit better perspective:

ZeroHedge quotes the Bank of America:

We posit that this large rise was in part driven by the carry trade offered up by QE – China banks and corporates issued substantial forex-denominated bonds, and borrowed straight loans from international banks. We recognize the caveat that correlation does not imply causation. The USD655bn rise in China debt issuance is highly correlated to the Fed’s balance sheet since late-2008. As Chart 11 shows, the rise in China debt issuance of USD 655bn has (along with FDI and the C/A surplus), boosted international reserves by USD1,773bn since late-2008. Also, as Chart 11 shows, the USD1,773bn rise in China international reserves mirrors the rise of USD2,585bn in the EM monetary base. Lastly, the rise of China’s monetary base of USD2,585bn correlates well with the USD10.9tr rise in China’s broad money expansion.

Considering the very large proportion of non-productive loans believed to be on the books and the notorious opacity of Chinese banks it will be interesting to see how this unfolds.

{ 3 comments… read them below or add one }

... February 22, 2014 at 9:52 am

“Interesting”? You are clearly in a Chinese frame of mind.

Dave Schuler February 22, 2014 at 10:22 am

Although what I’ve written in this blog over the years could be taken as anti-Chinese, if anything the opposite is true. I’m pro-Chinese. I’m anti-Chinese ruling regime.

I think our policy with respect to China over the last twenty some-odd years has been very imprudent. I think we should have robust firebreaks in our dealing with China. I’d include trade, finance, and information, at the very least.

I’m not picking on China in this regard. I’d think the same about any autocracy with a billion people and no tradition of robust civil law.

TastyBits February 22, 2014 at 12:23 pm

Credit Gone Wild. Nothing to worry about.

I am sure the people in charge have gotten things worked out this time. This time they will use blue paper and green ink because it could not possibly be the policies that are the problem.

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