Bear markets and recessions have been rescinded. Stocks always to up. Debt and deficits don’t matter. The Beijing meritocracy is up to any challenge. Global central bankers have things well under control. We shouldn’t underestimate Craziness Extremis. But prolonged market distortions come with grave consequences.
The epicenter of the Bubble is in “repo” finance and myriad instruments (CDO’s, ABS, special purpose vehicles, derivatives and such) financed directly and indirectly in short-term market-based lending markets.
Chinese Credit is heading toward an inevitable crisis of confidence – with or without a trade pact. China’s Bubbles have inflated dangerously
Stocks are fired up at the prospect of a year-end melt-up. The surprise would be a global bond market beat down.
With global policy rates already so low, the future will see even greater central bank reliance on QE. And central bankers are determined to ignore excesses.
Delaying the day of reckoning only makes things (much) worse. The world over the past couple weeks has experienced riots in an expanding number of countries – including Lebanon, Egypt, Iraq, Spain, Chile, Bolivia, Ecuador and Hong Kong. Wait until the global Bubble bursts.
Beyond the acute vulnerability to any weakening of Credit growth, the Chinese Bubble economy is demonstrating obvious signs of imbalances and price distortions. And that’s a problem for the US and everywhere else.
The Fed’s balance sheet might inflate to $10 trillion.
The extraordinary $575 billion M2 growth over the past 22 weeks (that receives zero attention) was the second strongest (22-week) monetary expansion in U.S. history, trailing only 2011’s “QE2” period.
A serious globalized de-risking/deleveraging episode would require multi-Trillion expansions of Federal Reserve and global central bank balance sheets.