The Sum of All Fears…..and a few related charts……
Today, I’d like to take some time to revisit a couple of related topics that we first started discussing a few years ago. I am, of course, referring to the burgeoning increases in China’s Debt levels, Shadow Bank Assets (loans) and M2, along with a high-level analysis of the most recent PBOC Financial Stability Report and FSB Global Shadow Bank Monitoring Report. (No!….please don’t click this page closed….I promise this will eventually get interesting…)
As a starting point, let’s begin by reviewing the February, 2015 McKinsey report Debt and (not much) Deleveraging . I first referenced the report in this blog in March of 2015. The report focused on the world’s, and particularly China’s, rapidly building debt/leverage phenomenon (2014 Year End Data). I encourage you to re-read the entire report, but for those of you who are pressed for time, I’ll give you the executive summary bullet-points right here:
Debt continues to grow
Reducing government debt will require a wider range of solutions
Shadow banking has retreated, but non‑bank credit remains important
Households borrow more
China’s debt is rising rapidly
I’m hoping that the McKinsey authors will consider updating the report, bringing the figures current, as I believe these observations, figures and analysis are even more pertinent today than they were back in 2015.
China’s Debt
So now, using McKinsey as a reference point, let’s take a look at where we are today, via the FRED (St. Louis FED)data below.
The FRED (Federal Reserve Economic Data – Citations below) Chart below represents US Core Debt (as defined and provided by the BIS – Bureau of International Settlements) compared to China Core Debt, as a percentage of GDP. The third (bold Red) line represents China’s debt levels adjusted for a “what-if” constant I’ll explain shortly.
…click on the above link to read the rest of the article…
