Credit Bubble Bulletin

Credit Bubble Bulletin2020-05-20T17:01:05-06:00

Presented by Doug Noland

Weekly Commentary

May 28, 2021: The Wisdom of Benjamin Anderson

It’s perhaps the greatest issue confronting today’s global markets. It didn’t work in the U.S. in the late-twenties. Arguably, it was an unmitigated disaster. Beijing has begun moving more aggressively to rein in speculative excess, while continuing its unrelenting furtherance of productive investment. Surging commodities prices are problematic for manufacturers along with other sectors, while stoking inflationary pressures throughout the unbalanced Chinese economy. China’s apartment Bubble has created monumental financial and economic risks, while exacerbating inequality and societal vulnerability.

Meanwhile, Chinese officials remain steadfast in their determination to prolong the economic cycle. Especially after covid recovery measures, there’s an incredible amount of “money” sloshing around China’s financial system (and globally). Unprecedented Credit growth has elevated myriad price levels, particularly throughout the asset markets. Meanwhile, Beijing has repeatedly reaffirmed its commitment to “stable” Credit and liquidity management, which at this stage of the cycle basically signifies massive ongoing Credit expansion and over-liquefied “money” markets.

In perhaps history’s most parlous historical revisionism, Ben Bernanke has professed a view that the Great Depression was the consequence of post-crash monetary policy mistakes. In short, the Fed was negligent for failing to print new money in quantities sufficient to recapitalize the banking system and reflate the general economy. Bernanke dismisses the Fed’s role in nurturing boom-time excess that over the long cycle fueled deep structural maladjustment. Moreover, Bernanke’s analytical framework disregards the momentous role speculative Credit – and associated liquidity excess and Monetary Disorder – played in fomenting both financial and economic fragilities (laid bare in the post-crash landscape).

May 26 – Bloomberg (Sofia Horta e Costa): “China’s battle to maintain order in financial markets is getting tougher as money floods into everything from commodities to housing and stocks. In May alone, the government vowed to tackle speculation in metals, revived the idea of a property tax, oversaw hikes in mortgage rates in some cities, banned the mining of cryptocurrencies and played down calls within the central bank for a stronger yuan. Authorities are zeroing in on the risks of assets overheating as they maintain a relatively loose monetary policy to support the economic recovery from the pandemic… ‘The policy trend is now focused on ensuring financial stability,’ said Alex Wolf, head of investment strategy for Asia at JPMorgan Private Bank. ‘Beijing will want to resolve bubble risks at the outset, in a targeted manner, using strong rhetoric and small adjustments to policy. That appears to be enough for now.’” (more…)

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