From Bill Bonner’s Diary (USA) – Here comes an update that must stagger every sober observer…
In the first two months of the year, China’s total credit – including “shadow banking” system loans (loans made by unregulated financial firms) – exploded by about $1 trillion.
Chinese debt is expanding at a pace equal to 5% of GDP – PER MONTH!
Why would credit increase so much… even as the world economy enters a slowdown?
Why would the demand for iron ore and steel go up when demand for finished products is slumpy and falling?
Because as it is somewhere recorded in the Bible, a berserk monetary policy begets berserk prices, which beget bad investments, excess capacity, and misallocation of resources…
…which beget booms and busts, which beget even more berserk monetary policies.
And now, China is in the grip of a misbegotten Ponzi crisis.
More than a quarter of its debt cannot be serviced out of revenues. Instead, it must be refinanced – new debt must be taken on to service old debt.
More than 50 trillion renminbi ($7.7 trillion) will be needed – a huge increase with no corresponding increase in output.
What happens next?