MALTDOWN 2016?.....China Set To Implode GLOBAL Economy LATE SUMMER (Again)

By Ambrose Evans-Pritchard

Nobody rings a bell at the top of the credit supercycle, to misuse an old adage. Except that this time somebody very powerful in China has done exactly that.

China watchers are still struggling to identify the author of an electrifying article in the People's Daily that declares war on debt and the "fantasy" of perpetual stimulus.

Written in a imperial tone, it commands China to break its addiction to credit and take its punishment before matters spiral out of control. If that means bankruptcies must run their course, so be it.

The 11,000 character text - citing an "authoritative person" - was given star-billing on the front page. It described leverage as the "original sin" from which all other risks emanate, with debt “growing like a tree in the air”.

It warned of a "systemic financial crisis" and demanded a halt to the "old methods" of reflexive stimulus every time growth falters. "It is neither possible nor necessary to force economic growing by levering up," it said.

Most think the author was either President Xi Jinping himself, or his right-hand man Liu He - who handles daily operations for the 'Leading Group', China's version of the White House National Economic Council.

Capital Economics says budgeted funds must be disbursed by the end of this quarter under new finance ministry rules, implying another $310bn of bonds by late June.

The fiscal boost will be 'front-loaded'. The money will pile up in accounts and flood the economy over the late summer. If the usual time-lags hold, the mini-boom will last for a few more months. Then the trouble will start.

Needless to say, markets may roll over long before the economy itself. This year the China bears may get their revenge, if they have any money left to play with. The rot in the country's $7.7 trillion bond markets is metastasizing.

"The experience with the stock market shows how difficult it can be to contain a reversal in leveraged bets. In our view, a bond market crisis would be much more destructive," he said.

With luck, the rest of us outside China will have three or four more months to order our own affairs before the storm gathers. Whether it is bumpy landing, a hard landing, or a crash landing, depends on who the "authoritative person" in Beijing turn out to be.

Read entire article @ [link to www.telegraph.co.uk]

Last Edited by PANIK on 05/23/2016 09:03 AM