Is China’s Bubble the Next Financial Crisis?

By Mark Whitehouse – The Chinese credit boom has rapidly turned the country into one of the developing world’s most indebted, according to a new report (pdf) from London’s Centre for Economic Policy Research.

Such credit-fueled growth can’t be sustained for long without causing major distortions and setting the country up for a fall.

The stimulus is already running into diminishing returns. Over the five years through 2013, government and private debt grew by about 3 yuan for each added yuan of economic activity, a level of credit intensity that the U.S. exceeded only in the years leading up to the 2008 crisis. more> http://tinyurl.com/k5985du

Here Comes the Internet of Money

Bloomberg – Money and payment systems, the underpinnings of all financial activity, are still traditional in one respect: They rely on central third parties — banks — to record and vouch for transactions.

Digital currencies dispense with this. They create a decentralized record — a “distributed ledger” — which allows buyers and sellers to interact directly. more> http://tinyurl.com/mx4unrg

Your Debt, Our Nation’s Headache

By Barry Ritholtz – Assets purchased with cheap and widely available credit become worth significantly less once the bubble bursts. But the debt remains.

All of that leverage used to purchase all of those assets — regardless of whether it’s subprime mortgages or dot-com stocks — sticks around.

Hence, a post-credit-crisis recovery is dominated not by the release of pent-up demand, but by massive corporate, household and government deleveraging. more> http://tinyurl.com/pryw54s

Related>

• Warning Flags in the Stock Market, A. Gary Shilling, Bloomberg
• Rocket’s Fizzled IPO May Pop Europe’s Tech Bubble, Leonid Bershidsky, Bloomberg
• Wall Street Pays Its Workers to Suffer, Noah Smith, Bloomberg

American families are stuck in a lost quarter century

By Matt Phillips – Auto sales are booming—but that’s largely because it’s so easy for consumers to get loans.

In a consumption-dominated economy like the US, consumers need to spend.

And if consumers don’t have the wages to spend, the only way to keep the consumption engine going is by extending debt to people with extremely shaky finances.

That’s a recipe for a future full of financial crises. more> http://tinyurl.com/mf2obd3

When credit is too much of a good thing

By Edward Hadas – What does credit do after it has finished the job it was designed for?

The supply of credit ought to stop at funding productive activity.

But the reality is different. Surplus credit fuels dangerous asset price inflation and funds profligate governments.

Credit too easily goes astray and there is no natural force to rein it in. Without firm regulatory guidance, credit seems to expand indefinitely, until the financial system explodes. That has been the pattern since the end of the Second World War. more> http://tinyurl.com/pyl26kh