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Coming Global Economic Collapse: China’s Debt Defaults, Trust Failures, & Carry-Trade Unwind
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InvestmentWatch |
Like a metastatic cancer, the amount of non-performing, bad loans within the Chinese financial
system is growing at an exponential pace.
Two massive, and unresolvable forces, are coming to a head, the first cracks in the facade are starting to appear as first one then another shadow-banking Trust product failed and had to be bailed out in the last minute.
The default party in China is only just beginning as Trust failures in the coming months are set to accelerate at a breakneck pace.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/02/BAC%20Trust%202_0.jpg
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But what could be the catalyst for this outcome which inevitably would unleash the long-overdue Chinese hard landing, and with it, a new global depression?
Ironically, the culprit may be none other than the Fed with the recently instituted taper, and the gradual, at first, then quite rapid unwind of the global carry trade.
Bank of America explains:
QE and the Emerging Markets carry trade
The QE channel has worked through Emerging Markets and China is a key vehicle. By lowering the US government bond yields to a bare minimum, and zero –ish at the short end, a search for yield globally ensued. Emerging market banks and corporates have gone on an international leverage binge, yet another carry trade, the third in 20 years. The first one was driven by European banks, financing East Asian capex – that ended in 1997. The second one was global banks and equity-FDI supporting mainly capex in the BRICs. That ended in 2008. This time, it is increasingly non-equity: commercial banks and more importantly, the bond market – often undercounted in the BoP and external debt statistics that conventional analysis looks at.
