Monday, August 6, 2018

2008 Deja Vu: Breaking The China

2008 was a non-event. U.S. policy-makers have a much better collapse planned for this time...

Ten years later, what have we learned? Less than nothing was apparently the objective...By some accounts the U.S. is 80% of the way towards collapsing China, however I suggest that is a very modest assessment. Closer to 99% more likely...

“Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run and we’re 80% of the way there"

"80%? Why is this taking so long? You guys are incompetent. We need to wrap this up well before the mid-terms, my approval rating depends on it"

The crash in 2008 was obviously not caused by the singular collapse of investment bank Lehman Brothers. It was caused by the cascading domino collapse across risk markets which ultimately collapsed the world's fastest growing consumer economy: China. It then ricocheted off of developed markets and commodities.

China never fully recovered from 2008. The great global deflation that ensued post-2008 mostly emanated from China. 

This can primarily be seen in commodity markets which are languishing below their 2009 nadir. Each bounce has been more anemic and solely a function of Chinese authorities allowing their mega credit bubble to reflate risk assets. At the risk of an even greater collapse in the "future". Which is what U.S. policy-makers are putting the finishing touches on now.  

As it was in 2008, in this cycle the Chinese stock market rolled over ahead of commmodities:

Deja vu of 2008, the most dangerous delusion the Trump Administration lives under - among many others - is that China can collapse without any impact to the U.S. 

“China is the real strategic threat. They’ve coopted much of the US political and financial system,”

 In 2008, China’s total debt-to-GDP was 140%. It is now roughly 300%, while GDP is slowing"

“Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run...we’re 80% of the way there – we instigated a trade war, implemented a massive fiscal stimulus, which created the room to raise interest rates”

I suggest 80% is a modest figure

"J.P. Morgan said China's stock market will not rebound until the trade war is resolved."

"The gap between US's demand list and China's offer list is very large, and the back-and-forth of the negotiations in recent months suggests that neither side would make major concessions"

The Yen carry trade is the mechanism by which global risk is transmitted to the S&P futures. 


It's been edging for the exits for quite some time now...

"Another week of this and we win"