Thursday, April 14, 2016

Instant Collapse, Just Add Panic

Tonight the Madoff Dynasty will reverse engineer a GDP figure that will ensure continuous Ponzi flow...

First, some Minsky aka. commonsense:
"For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations...if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. The financial instability hypothesis is a model of a capitalist economy which does not rely upon exogenous shocks to generate business cycles of varying severity..."

In commonsense terms: Instant collapse, just add panic...

"Chinese debt has been expanding at an ever-faster rate. China’s total debt levels grew to about 300% of GDP last year from about 250% of GDP in 2014 and set a new record for a single month in January, growing at roughly 5% of the size of the economy. Problems have been covered over as the Chinese banking regulator is forcing banks to lend to companies that can’t pay their interest and would otherwise default."

"The February collapse of the $7.6 billion Ezuabo online lending platform is thought to have ensnared up to 900,000 Chinese “investors”. It was followed by the $3.9 billion collapse of Zhongjin Capital Management earlier this month. This week, the state-owned China Railway Materials Co Ltd. has halted trading on $2.6 billion of debt, including commercial paper, as it investigates options for restructuring its debt."

Interest payments / Operating Profits. Black horizontal line is 1:1