The Chinese Insolvencies Begin

Will "it" (financial Armageddon) come from the West (Europe) or the East (China and Japan) in 2012? Or, will be a synchronous pincer movement? Time will tell.

The China Daily says it will be an unhappy New Year for Chinese banks.


Provincial borrowers defer loan payments

Hunan Provincial Expressway Construction Group is delaying payment on 3.11 billion yuan ($490.5 million) in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan, according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November.

As local governments delay payments for projects commissioned as part of the stimulus to ward off recession in 2009, less money is available for bank lending even as China is taking steps to inject more into the economy. The central bank has held interest rates at 6.56 percent since July to boost the economy, while the US Federal Reserve and the Bank of Japan have kept benchmark rates near zero since 2008.

"When companies start to roll over debt they're not retiring debt, and banks aren't retrieving their capital, so you're crowding out new lending," Patrick Chovanec, a professor at Tsinghua University in Beijing, said in a Dec 13 interview. "This is a problem that's going to start to bite next year." 

Local governments had 10.7 trillion yuan in debt at the end of last year, 79 percent due to banks, (Jesse's contagion-ometer says thats $1.7Trillion USD!!) according to the country's first audit released in June. So-called local financing vehicles that meet collateral requirements can have a one-time extension on their loans, Zhou Mubing, vice-chairman of the China Banking Regulatory Commission, said at a conference on Oct 24 organized by the Internet portal Sina.com.cn, according to a transcript of his comments on the website.

$1.7Trillion USD? I wonder if Wayne Swan reads or gets briefed on the Chinese news?

Even after the reduction in interest payments, Gansu Provincial Highway said that interest and principal payments in 2011 will amount to 3.33 billion yuan, more than its 2010 cash flow of 3.04 billion yuan, according to bond-marketing materials.

"This prospectus is telling us that banks can expect to only receive roughly half of what would have been expected in interest payments," Charlene Chu, a Beijing-based banking analyst with Fitch Ratings, said of the Gansu disclosure. 

Chinese New Year is 23rd January  2012 and its the Year Of The Dragon (no kidding!).

新年好

Merry Christmas From Jesse

To the 3 people who read this blog, Merry Christmas and Happy New Year.

Your visits and comments are appreciated.

Portuguese:

Feliz Natal e ano novo feliz

Irish (Gaelic): 

Nollaig Shona agus Athbhliain faoi mhaise duit

Italian:

Buon Natale e nuovo anno felice

Greek:

Χαρούμενα Χριστούγεννα και καλή χρονιά

Spanish:

Feliz Navidad y Feliz Año Nuevo

Merry Christmas Peasants - From America's Kleptocrats

Matt Taibbi has written a poignant piece in Rolling Stone. America's ultra-rich are very appreciative of the tax payer funded bailouts that fund their thievery. Read the whole article in the link.

A Christmas Message From America's Rich

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?” 

“If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit,” said Golisano, who turned 70 last month, celebrating the birthday with girlfriend Monica Seles, the former tennis star who won nine Grand Slam singles titles. 

Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said. “You’ll get more out of me,” the billionaire said, “if you treat me with respect.” 

Asked if he were willing to pay more taxes in a Nov. 30 interview with Bloomberg Television, Blackstone Group LP CEO Stephen Schwarzman spoke about lower-income U.S. families who pay no income tax. “You have to have skin in the game,” said Schwarzman, 64. “I’m not saying how much people should do. But we should all be part of the system.” 

Capitalists “are not the scourge that they are too often made out to be” and the wealthy aren’t “a monolithic, selfish and unfeeling lot,” Cooperman wrote. They make products that “fill store shelves at Christmas…” 

"Qu'ils mangent de la brioche" (Let them eat cake)

50 Frightening Facts...On The US Economy

The Roman Empire lasted five centuries, at this rate the American Empire won't complete one. Some startling facts below with embedded links to sources.

50 Economic Numbers From 2011 That Are Almost Too Crazy To Believe

#1 A staggering 48 percent of all Americans are either considered to be "low income" or are living in poverty.

#2 Approximately 57 percent of all children in the United States are living in homes that are either considered to be "low income" or impoverished.

#3 If the number of Americans that "wanted jobs" was the same today as it was back in 2007, the "official" unemployment rate put out by the U.S. government would be up to 11 percent.

#4 The average amount of time that a worker stays unemployed in the United States is now over 40 weeks.

#5 One recent survey found that 77 percent of all U.S. small businesses do not plan to hire any more workers.

#6 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million extra people to the population since then.

#7 Since December 2007, median household income in the United States has declined by a total of 6.8% once you account for inflation.

#8 According to the Bureau of Labor Statistics, 16.6 million Americans were self-employed back in December 2006.  Today, that number has shrunk to 14.5 million.

#9 A Gallup poll from earlier this year found that approximately one out of every five Americans that do have a job consider themselves to be underemployed.

#10 According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.

#11 Back in 1980, less than 30% of all jobs in the United States were low income jobs.  Today, more than 40% of all jobs in the United States are low income jobs.

#12 Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job.  In July, only 81.2 percent of men in that age group had a job.

#13 One recent survey found that one out of every three Americans would not be able to make a mortgage or rent payment next month if they suddenly lost their current job.

#14 The Federal Reserve recently announced that the total net worth of U.S. households declined by 4.1 percent in the 3rd quarter of 2011 alone.

#15 According to a recent study conducted by the BlackRock Investment Institute, the ratio of household debt to personal income in the United States is now 154 percent.

#16 As the economy has slowed down, so has the number of marriages.  According to a Pew Research Center analysis, only 51 percent of all Americans that are at least 18 years old are currently married.  Back in 1960, 72 percent of all U.S. adults were married.

#17 The U.S. Postal Service has lost more than 5 billion dollars over the past year.

#18 In Stockton, California home prices have declined 64 percent from where they were at when the housing market peaked.

#19 Nevada has had the highest foreclosure rate in the nation for 59 months in a row.

#20 If you can believe it, the median price of a home in Detroit is now just $6000.

#21 According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant.  That figure is 63 percent larger than it was just ten years ago.

#22 New home construction in the United States is on pace to set a brand new all-time record low in 2011.

#23 As I have written about previously, 19 percent of all American men between the ages of 25 and 34 are now living with their parents.

#24 Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.

#25 According to the Bureau of Economic Analysis, health care costs accounted for just 9.5% of all personal consumption back in 1980.  Today they account for approximately 16.3%.

#26 One study found that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt.

#27 If you can believe it, one out of every seven Americans has at least 10 credit cards.

#28 The United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

#29 It is being projected that the U.S. trade deficit for 2011 will be 558.2 billion dollars.

#30 The retirement crisis in the United States just continues to get worse.  According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

#31 Today, one out of every six elderly Americans lives below the federal poverty line.

#32 According to a study that was just released, CEO pay at America's biggest companies rose by 36.5% in just one recent 12 month period.

#33 Today, the "too big to fail" banks are larger than ever.  The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.

#34 The six heirs of Wal-Mart founder Sam Walton have a net worth that is roughly equal to the bottom 30 percent of all Americans combined.

#35 According to an analysis of Census Bureau data done by the Pew Research Center, the median net worth for households led by someone 65 years of age or older is 47 times greater than the median net worth for households led by someone under the age of 35.

#36 If you can believe it, 37 percent of all U.S. households that are led by someone under the age of 35 have a net worth of zero or less than zero.

#37 A higher percentage of Americans is living in extreme poverty (6.7%) than has ever been measured before.

#38 Child homelessness in the United States is now 33 percent higher than it was back in 2007.

#39 Since 2007, the number of children living in poverty in the state of California has increased by 30 percent.

#40 Sadly, child poverty is absolutely exploding all over America.  According to the National Center for Children in Poverty, 36.4% of all children that live in Philadelphia are living in poverty, 40.1% of all children that live in Atlanta are living in poverty, 52.6% of all children that live in Cleveland are living in poverty and 53.6% of all children that live in Detroit are living in poverty.

#41 Today, one out of every seven Americans is on food stamps and one out of every four American children is on food stamps.

#42 In 1980, government transfer payments accounted for just 11.7% of all income.  Today, government transfer payments account for more than 18 percent of all income.

#43 A staggering 48.5% of all Americans live in a household that receives some form of government benefits.  Back in 1983, that number was below 30 percent.

#44 Right now, spending by the federal government accounts for about 24 percent of GDP.  Back in 2001, it accounted for just 18 percent.

#45 For fiscal year 2011, the U.S. federal government had a budget deficit of nearly 1.3 trillion dollars.  That was the third year in a row that our budget deficit has topped one trillion dollars.

#46 If Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.

#47 Amazingly, the U.S. government has now accumulated a total debt of 15 trillion dollars.  When Barack Obama first took office the national debt was just 10.6 trillion dollars.

#48 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

#49 The U.S. national debt has been increasing by an average of more than 4 billion dollars per day since the beginning of the Obama administration.

#50 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.

The root of the problems?

Of course the heart of our economic problems is the Federal Reserve.  The Federal Reserve is a perpetual debt machine, it has almost completely destroyed the value of the U.S. dollar and it has an absolutely nightmarish track record of incompetence.  If the Federal Reserve system had never been created, the U.S. economy would be in far better shape.  The federal government needs to shut down the Federal Reserve and start issuing currency that is not debt-based.  That would be a very significant step toward restoring prosperity to America.

One presidential candidate wants to end the Fed and stop ridiculous Romanesque military forays to foreign lands (he's done military time having used his medical degree in a role as a flight surgeon in the USAF in the 60s)...

 

I doubt the Kleptocrats at the Fed and the banking cabal will allow the racketeering to end that easily, the propaganda campaign against Paul is fierce. Expect more of the same and the spiral to get faster and tighter.

Gold Since Late 2008 When The GFC/Depression Kicked Off

September and October 2008.

15th September 2008, Lehmann Bros fails - Gold Closes @ $785
10th October 2008, +$146 or 18.5% in  25 days - Gold Peaks @ $931
24th October 2008, -$250 or 27% in  14 days - Gold Closes @ $681 (as Institutional Funds liquidate everything to meet investor redemptions as panic sets in).

(click on chart to expand) 

And, since 24th October 2008 (note the dotted line of support)? Up $950 or 140% in 3years and 2 months.

(click on chart to expand)

Where to when the Eurozone slides into the abyss in 2012 and the ECB is forced to 'print' Euros? Closely followed by the US Fed with its printing aka QE3 as the global credit freezes and the depression is in full swing.

Peso del Pacifico #5

Will it stay in the declining channel with a run up to the mid 1.02s and back down to the mid 90s in January?

(click on chart to expand)

Worrisome Times For The Shortage Freaks And Shills

More nails in the coffin or the 'housing shortage' spruikers. This time from Deakin's Philip Soos.

This is often balanced by the by the shills in the mainstream media pretending to be journalists (see The Implant for an example or the SMH/Age property articles) but the message is slowly getting through.

Blowing away the bubble deniers

For over half a decade in Australia, a fierce debate has occurred over whether a bubble exists in the housing market. The vast majority of experts, institutions and the public believe that the idea of a bubble is nonsense. On the other side of the coin, a handful of individuals have contested this notion, pointing out the flaws in the bubble deniers’ line of thinking.

We will look over some of the common arguments made by the bubble deniers, to see how they stack up with the facts.

Recourse lending
One of the major arguments made by experts and industry is that a housing bubble cannot exist because mortgages are recourse in Australia, rather than non-recourse. This means that borrowers are liable for the full amount of the mortgage, whereas non-recourse means that borrowers have no legal liability to pay back the mortgage if they default.
 
This is often compared to the United States, which is alleged to have non-recourse loans. This line of thinking asserts that borrowers took upon irresponsible amounts of mortgage debt to speculate on housing, knowing that if they defaulted down the track, they would not be liable to pay back the full amount.
 
This has led to the popular term called ‘jingle mail’, referring to the notion of a defaulted borrower mailing back the keys to their lender, and walking away from the property. This typically occurs when the borrower is in a position of negative equity, that is, the property is now worth less than the loan. The lender thus makes a loss on their accounts, to the value of the difference between the loan and the current market value of the property.
 
As the argument goes, non-recourse lending in the US was a major factor in the run-up in housing prices, whereas Australia has recourse mortgages, and thus does not have irresponsible amounts of mortgage debt.
 
There is one small problem with this view: it is total nonsense.
 
A study by two Federal Reserve economists debunks the notion that the US has non-recourse loans. Out of the fifty states, 11 are non-recourse. All of the remaining 39 states are recourse. On top of this, in some of the non-recourse states, the first mortgage may be non-recourse, but all proceeding mortgages are recourse. Also, it often depends on the legalities and judges’ decisions as to whether a borrower is required to pay back the full value of the loan in a non-recourse state.
 
Worse yet, some of the states that experienced the largest housing bubbles have recourse loans, for instance, Florida and Nevada, whereas California and Oregon, similarly affected, have non-recourse loans. Overall, there is no real difference between states that have recourse and non-recourse loans, apart from recourse borrowers who tend, on average, to hold onto their properties longer before defaulting.
 
Ireland experienced a colossal run-up in prices over the last decade, resulting in a crash and subsequent debt deflation that has ruined the economy. What is not said is that Ireland has recourse mortgages, governed by strict rules, and non-payment may even result in imprisonment. Clearly, recourse mortgages did not prevent a bubble from forming in the housing market.
 
The idea that recourse mortgages enforce responsible and conservative behaviour cannot be upheld. A cursory search through Google on this topic provides information that debunks this notion (like the above study). Yet, this has not stopped the leading ‘experts’ within the RBA, Treasury, the banking and real estate industry, and academia from repeating this falsified argument again and again over the years.
 
Housing prices always go up
Another popular myth that abounds is that housing prices always go up and never crash. If a bubble denier reluctantly admits that past downturns did occur, it certainly won’t occur this time around.
 
Australia’s recorded housing price history, going back 131 years to 1880, easily debunks this myth. The nine major increases in prices have been met by eight resulting downturns, with the only exception during a small three year period from 1961-1964, where prices leveled off. The table below, from my Prosper Australia report, shows this.

We are supposed to believe that the largest increase in housing prices in Australian history will not result in the same fate as eight of the nine have.
 
The housing shortage

This is probably the most popular argument used by the bubble deniers. The story is that as Australia is suffering from a chronic deficit of properties to shelter a growing population, so demand is greater than supply, leading to rising housing prices.

 
The problem with this argument is it can’t explain why prices started to rise in 1996 and skyrocketed from 2001 onwards. Annual population growth between 1996 and 2005 registered at approximately 1 per cent, taking off between 1.5 per cent and 2 per cent from 2006 onwards. (Fundamental supply and demand issues explain rent prices, not housing prices, which is why rents have increased from 2006 onwards).
 
2007 was the first time since 1950 that the population increased faster than the number of dwellings. If the housing shortage argument was correct, housing prices should’ve started to rise from around 2006-2007 onwards, not 1996. The historical data shows that there is no correlation, let alone causation, between population growth, dwelling supply and housing prices.  
According to the 2006 ABS census data, there were 830,376 unoccupied dwellings during the time the survey was taken, out of a total of 8,426,559, or 10% of the dwelling stock. Unfortunately, no indication is given to the status of the vacant properties (derelict, holiday house, undergoing sale, renovations, speculative vacancy).
 
The Melbourne-based organisation Prosper Australia performed an innovative study of vacant properties using water usage figures. Applying a conservative methodology, it was found that almost 45,000 properties were lying vacant in the areas under study, and extrapolated across Melbourne, 61,000 properties were lying vacant for more than six months. This gives credibility to the idea that speculators are withholding properties from the market to capture capital gains rather than rental income.
 
Australia’s peak housing body, the National Housing Supply Council, had to include the homeless, caravan park residents, those sleeping rough and couch surfers into their figures in order to arrive at an undersupply of dwellings.
 
This is reminiscent of every other country affected by a housing bubble whose experts and authorities claimed that rising housing prices were caused by a housing shortage.
 
Australian banks have lent conservatively
This is one of the more ludicrous defences made by the bubble deniers. Our mortgage debt stands at $1.2 trillion, or 90 per cent of GDP. If personal debt is included as well, as some analyses do, it totals 100 per cent of GDP. A report by the Bank of International Settlements shows that a ratio above 85 per cent becomes damaging to the economy.

 
 
That Australia has such a high ratio is unsurprising considering the major banks have lent up to 97 per cent of the value of the property (called the loan to value ratio or LVR) and some non-banking lenders have lent out a staggering 125 per cent. The housing debt to disposable income ratio has reached 160 per cent.
 
Comparatively, Australia has a greater mortgage debt to GDP ratio than the US. Australians have taken upon an enormous debt load to speculate on housing prices. Why bother to work? Australia is not unique in having a disbelief in the idea of a housing bubble. By definition, a bubble requires that complicity of the majority of people and institutions to believe that there is no bubble. Otherwise, individual rational action would be promptly taken, which would result in bursting the bubble in the early stages or preventing the formation of one altogether.
 
The only difference between Australia and other countries affected by housing bubbles is that bubble deniers are as plentiful as kangaroos down under.

Kris Sayce, another sharp tack, chimes in...

Why the End of the Credit Boom is the Only Reason Stocks are Falling

The real reason is the end of the credit boom.

Not So Smart After All

Yes. It’s simple. For years, big business executives have been praised as geniuses. And the Aussie economy has been labelled a miracle economy due to 20 years of growth.

In reality, it’s all about the credit bubble. Remember, a bubble can make anyone look like a genius when the market is going up.

It’s the same as the housing bubble. An entire generation of 50-60 something’s still think it was their know-how and street-smarts that caused them to buy a house for $10,000 in 1971 and sell it for $2 million in 2011.

Where in reality they benefited from nothing more than a good old-fashioned easy-money credit boom.

But based on that brief 40-year period, an entire industry was born – property spruiking.

The good news is, slowly but surely the message is seeping through to the mainstream that asset prices don’t always go up. But boy is it slow. Yet we note a good article on the Business Spectator website by Phil Soos, a researcher at Deakin University.

Mr. Soos pretty much says everything we’ve said for the past three years.

He even mentions the ridiculous National Housing Supply Council (NHSC) report that counted the homeless as proof of a housing shortage!

By the way, we’re waiting with bated breath for the latest NHSC report. According to correspondence we’ve had with them, the 2011 report is due this month.

It’ll be interesting to see what the report says on the housing shortage (especially the impact of homeless people) and whether it acknowledges falling house prices.

But back to our point…

It’s the Credit Boom What’s Done It

Whether it’s slower retail sales or falling house prices, there’s one thing that links both – slowing credit growth. It was credit growth that fuelled the boom. And it’s lack of credit growth that has halted the boom and is set to send Australia into a recession.

Bottom line: the only reasons you go into debt is if you want to buy something now because you aren’t prepared to wait to buy it, or because you think it will be more expensive in the future.

And credit growth compounds that belief. The more people borrow, the higher prices grow, which requires people to borrow more.

That happens until credit growth reaches breaking point (where we are now). The fact is there just isn’t enough new credit to repay the old credit… let alone enough credit to increase the supply of credit.

That’s why Myer is downsizing and closing stores… it’s why JB Hi-Fi is set to post lower profit growth… and it’s why the Aussie housing market is heading down the toilet.

The era of the miracle economy is almost over. It’s now just a matter of “when”, not “if” the Aussie economy finally hits the skids.

Bravo Mr Sayce, bravo.

It pleases me no end that more and more commentators are throwing a few facts out there. The main stream media and the spruikers only will turn AFTER the shit has hit the fan, just like Ireland, Spain and the USA. Tassie RE Trouble has an excellent article on Dr David Lereah (former US Spruiker-in-chief) called Hiatus you google him and get 99,200 hits.

David Leareah, random three:
David Lereah Watch
Time - 25 people to blame for the financial crisis

I like this one from 2006 (just as she is rolling of the bubble peak)
NAR Housing Report: Declining Home Prices Induces Heavy Spin

David Lereah, NAR’s chief economist, said home sales appear to be leveling out. “After a stronger-than-expected drop in July, the fairly even sales numbers in August tell us the market is at a more sustainable pace,” he said. “It keeps us on track to see the third highest sales year on record, but we do expect an adjustment in home prices to last several months as we work through a build up in the inventory of homes on the market.”

The national median existing-home price for all housing types was $225,000 in August, down 1.7 percent from August 2005 when the median was $229,000. The median is a typical market price where half of the homes sold for more and half sold for less. “This is the price correction we’ve been expecting – with sales stabilizing, we should go back to positive price growth early next year,” Lereah said.

Total housing inventory levels rose 1.5 percent at the end of August to 3.92 million existing homes available for sale, which represents a 7.5-month supply at the current sales pace – the highest supply since April 1993.

and

"We've been anticipating a price correction and now it's here. The price drop has stopped the bleeding for housing sales. We think the housing market has now hit bottom.''

Date of that quote: September 25th, 2006.

It would be worth a laughing icon except its brought the USA into technical bankruptcy and teetering on the edge of financial Armageddon.

Next time you open a newspaper and read the journo shills just reproducing bullshit releases that the 'industry' and vested interests give them to publish, some bullshit on population growth and housing shortage or you read some 'Dr' vested interest industry insider proclaiming 'its a bottom' stop and remember Dr David Lereah.