BIS: China facing full blown banking crisis

The Bank for International Settlements (BIS), Basal, Switzerland, has just issued a chilling warning on China, and warns of global implications.

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China facing a full blown financial crisis, world’s top financial watchdog warns 

The Telegraph – 19 September 2016 (excerpts):

China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog.

A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late.

The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.

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China’s total credit reached 255pc of GDP at the end of last year, a jump of 107 percentage points over eight years. This is an extremely high level for a developing economy and is still rising fast .Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP, and it is this that is keeping global regulators awake at night.

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“It is becoming increasingly evident that central banks have been overburdened for far too long,” [Claudio Borio, BIS Chief Economist].

The BIS said one troubling development is a breakdown in the relationship between interest rates and currencies in global markets, what it describes as a violation of the iron law of “covered interest parity”.

The concern is that banks are displaying a highly defensive reflex, and could pull back abruptly as they did during the Lehman crisis once they smell fear. “The banking sector may become an amplifier of shocks rather than an absorber of shocks,” said Hyun Song Shin, the BIS’s research chief.

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Yet it is China that is emerging as the epicentre of risk. The International Monetary Fund warned in June that debt levels were alarming and “must be addressed immediately”, though it is far from clear how the authorities can extract themselves so late in the day.

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Preemptive action to insulate U.S. citizens is needed – now.

The global banking system danced the world into the Great Financial Crisis of 2007-2010, at which time global Central Banks ‘created’ trillions of dollars of liquidity to bail them out of their massive capital holes. And now, another major credit crisis is erupting, and another  massive financial storm is brewing.

It is time to grant U.S. citizens direct access to liquidity – the same direct access that was provided to Wall Street’s financial sector during 2007-2010 – to eliminate debt at ‘ground level’ in America, before the next financial shock waves tear into the U.S. economy.

The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens.  It is a comprehensive plan with long-term economic and social benefits for citizens and government.

The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.

The Leviticus 25 Plan 2017 –  $75,000 per U.S. citizen                                                   The Leviticus 25 Plan 2017 (1673)

“He who will not apply new remedies must expect new evils.” – Sir Francis Bacon

 

 

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