Tuesday, January 7, 2014

Prechter on China

"In China, domestic credit since 2008 is up 2.5 times, from $9 trillion to $23 trillion now. In a New York Times op-ed column, 'Stumbling Toward the Next Crash,' Gordon Brown, the United Kingdom’s former prime minister, points out that this amount is more than the entire commercial banking sector of the U.S. 'China’s growth of credit is now faster than Japan’s before 1990 and America’s before 2008, with half that growth in the shadow- banking sector.' What’s the shadow-banking sector? Basically, it’s loan sharking. 'I am a loan shark but a legal one,' explains one 'shadow banker' who charges rates of up to 50% a year to 'debt-hungry businesses and households' whose borrowing otherwise has been reined in by new government restrictions. With past-due loans at 9.1% and the real estate market cooling, the banker reports that he 'is expanding his microfinance business' with loans for weddings, car purchases, small businesses and down payments on apartments. The base of the debt pyramid continues to expand, but its stagnant core and the impossible demands it is placing on increasingly implausible borrowers reveal that it cannot do so for long."

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