Yes, China again.
Don't blame me, blame Ambrose Pritchard, who decided today would be a good day to talk about China's continuing bad detb crisis, with non-performing loans now approaching 20% of all loans and that number would be much WORSE if it were not for the fact that overall loan growth jumped 25% this year, from $8Tn to over $10Tn. That made the $2.1Tn in bad loans shrink back from 25% of $8Tn to "just" 20% of $10Tn – see, problem solved!
“The longer debt grows, the greater the risk of asset quality and liquidity shocks to the banking system,” said Fitch. "Capital shortfalls are currently 11% to 20% of GDP, but this threatens to hit 33% in a worst case scenario by the end of 2018. Defaults in China could lead to mutual credit guarantees in the background pulling other firms into distress. A large increase in real defaults risks triggering a chain of bankruptcies that magnifies the potential for financial instability,” it said.
To put that in perspective, the losses we endured in the 2008/9 crisis added up to 8% of the US and Europe's GDP and we're still recovering from that! Overall public debt is now 55% of China's GDP and China's A+ debt rating may also be in danger. An attempt to reform the system last year led to an over 40% collapse in the Chinese market last summer and it's been hands off ever since and the banks and corporations have gone hog wild at the debt trough.
Overall credit in China is now 243% of their GDP, up 100% since 2008 so their 7% annual GDP growth over 7 years (49%) has been paid for by a 120% increase in debt. Once could extrapolate then, that had China not gone MASSIVELY into debt, their economy would be contracting faster than Japan's and do you know who went MASSIVELY into debt to stave off a recession 20 years ago? JAPAN!!!