via Money News:
The current Asian credit boom is much like the credit explosion in Ireland and the Baltic countries in their run up before the 2008 financial crisis, the report warns. The situation is particularly dangerous in Hong Kong, Vietnam and China.
In China, an increase in lending has prompted a strong increase in its manufacturing.
In Vietnam, the country’s property bubble is already popping. Property prices are falling, more loans are defaulting and economic growth is weakening.
“Private-sector credit as a share of gross domestic product [in Asia] has surged over the past few years and is now at an all-time high,” Capital Economics states, according to CNBC.
Hong Kong has been trying to control its boom in property prices by increasing taxes on home purchases by companies and nonpermanent residents in order to increase the supply of homes and limit the influx of buyers from other parts of China, Bloomberg reports.
It is here that we get the first glimpse of the true sheer extent of the Chinese credit bubble, which as the chart below shows, is already the largest in the entire world.
One problem is that China has run out of obvious ways to kick-start its $7.3 trillion economy. It was easy in 2008: Pump tens of billions of dollars into a sweeping stimulus project and 10 percent growth followed. China’s success gave markets the impression that its leaders could wave some magic wand and growth would be the result.
Magic is in short supply now. Local governments are cash- strapped and awash in debts that could turn bad. The euro zone seems locked into permanent-crisis mode while the U.S. is bogged down with debt, economic stagnation and political paralysis. China proved it can live for a few years without U.S. and European customers, but not forever.
Stagflation warning signs: When you look at what happened in the first half of the 1970s, the similarity between then and now is frightening.
Our economy has stalled, last quarter’s GDP was revised down to 1.25% and many economists expect the U.S. to head into a recession next year. Unemployment has been stuck above 8% for more than three years and has only been kept down by a decline in the labor force.
The Fed likes to argue that inflation has remained low, but it seems that trend is starting to change.
Just look at data from the American Institute for Economic Research (AIER), which “backs out” the big-ticket items that are infrequently purchased by consumers. It concentrates instead on “everyday prices” – the regularly purchased items that matter most to working Americans.
Its Everyday Price Index (EPI) rose 1.8% in August compared to the U.S. Bureau of Labor Statistics Consumer Price Index (CPI) which only rose 0.6% in August. Year-to-date the EPI has increased 4.2%, three times the 1.4% increase in the seasonally-adjusted CPI.
And although the oil embargo currently enacted by Iran is not as catastrophic as OPEC’s 1973 embargo, there are still numerous catalysts that could send oil soaring. Escalating tensions in Iran, overestimated supplies, and increased worldwide demand for oil could send the price above $150 a barrel next year.
ART CASHIN on US election: With the divided state of the nation on lots of issues, a close result might be the worse outcome.
Nov. 5, 2012
“The biggest political risk is the potential that the US result won‘t be known due to the combination of a tight election and re-count/mail-in issues in swing states,” writes Citi’s FX team.
From this morning’s Cashin’s Comments:
Tomorrow’s Election – There is a broad hope among traders that the election is not close. With the divided state of the nation on lots of issues, a close result might be the worse outcome.