Debt Rattle Feb 17 2014: A Racing Certainty

[Raúl Ilargi Meijer]

Harris & Ewing “Snow after blizzard, Washington, DC” January 1922 The Chinese government may have wanted to tighten lending and shrink shadow banking,
[See the full post at: Debt Rattle Feb 17 2014: A Racing Certainty]

[Raleigh]

Very interesting, Ilargi. Here’s a good article entitled “The Ocean’s Death March”.

“The use of fossil fuel, in large measure, is the primary pathway behind this impending extinction event. Excessive quantities of CO2, of which the ocean absorbs 30% of CO2 emitted into the atmosphere, are changing the ocean’s chemistry, called acidification, which eventually has the potential to kill most, but not all, ocean life forms. […]

Most, if not all, of the five global mass extinctions in Earth’s history carry the fingerprints of the main symptoms of… global warming, ocean acidification and anoxia or lack of oxygen. It is these three factors — the ‘deadly trio’ — which are present in the ocean today.”

The Ocean’s Death March

[rapier]

Why do the Chinese loans have to be repaid? Why do any loans have to be repaid? I’m serious. Why?

So the banks won’t be bankrupt? Well if the books don’t balance but nobody cares then they aren’t bankrupt are they?

There is an entire monetary ‘school’ now called Modern Monetary Theory which totally and completely ignores that loans are assets. Well that’s my reading anyway. Just lend, borrow and spend, and there will be growth, end of story. When Mark to Market accounting was suspended by the congress for the banks so they did not have to deflate the assets on their balance sheets the principal was put into action. A perfect fait accompli. Well ordinary citizens still have to pay off their loans but beyond that the powers that be can pick and choose what has to be repaid and who has to repay and what and who doesn’t.

The Chinese, the ones not worrying about the bubble anyway, must be laughing their heads off at the US and its drive to lower the deficit and thus shrink credit growth. I’d figure 75% of that 15%/yr credit growth there is government borrowing. Mostly via local consuls building whole cities and all the rest. If the banks books don’t balance here and it makes little difference that should go triple for China. I mean really, whose to say what the numbers are?

Again, this is all only half tongue in cheek. I am at a loss to think how it could end if nobody says it has to end. That the loans have to be written down. The banks bankrupted. Maybe Mother Nature will be the only brake.

[Andrewp111]

Response to rapier. You are right about the effect of Mark To Market repeal. Do loans have to be repaid if no one cares? Of course not, but there are 2 natural constraints. A bank is insolvent when it can’t make a payment on debt it owes, and is forced to default. This is what happened to Lehman. If a bank is backed by the Government, it never has to default. Then the ultimate constraint is resources – especially energy. I expect the China bubble to end when oil prices shoot the moon again. It could be a long time before that happens.

[Author]

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