Last decade runaway speculative lending for real estate created a global asset bubble. When it burst the GFC ensued. In response the US Fed has had to create $2.5 trillion in funny money to keep its broken banks and government going. So far the story is familiar.
Meanwhile over in China bank lending in the last five years alone has totalled over $15 trillion, $3.5 trillion in the last year alone. Over the five years bank assets have only risen $2.1 trillion. Yes, these figures are not a typo!
China has a runaway train on its hands that is loaded with financial nuclear weapons of mass destruction. Inflation is now racing and bond yields have had to be jacked up to their highest level in 9 years. The government is also racing to put into place regulations to hold back the booming shadow bank lending sector ( 23% of all lending last year) and hoping this will curb the crazy real estate bubble. In response to this the economy is spluttering with little real growth this year in purchasing managers indices.
In the meantime smart Chinese are moving money offshore into a real estate market near you, have you noticed? They are also scooping up gold as fast as the world can get it to them. China’s largest jewellery business has reported a 49% jump in profit this year.
when the western world’s real estate bubble burst in 2008 it smashed western economies. China’s problem is monumentally bigger. $2.5 trillion of Central bank injections would be water off a ducks back. No Central bank will be big enough to stop this runaway train. The Chinese proverb “May you live in interesting times” looks like coming true shortly.