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.
As we said earlier today, following today’s dramatic referendum result the Greeks may have burned all symbolic bridges with the Eurozone. However, there still is one key link: the insolvent Greek banks’ reliance on the ECB’s goodwill via the ELA. While we have explained countless times that even a modest ELA collateral haircut would lead to prompt depositor bail-ins, here is DB’s George Saravelos with a simplified version of the potential worst case for Greece in the coming days:The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.
All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card.
An article from 2009 that couldn’t be more relevant today:
Germany is conquering Europe without firing a shot.
Nov. 9, 1989, was a momentous day. It was the day the Berlin Wall came crashing down. The Soviet empire began to retreat from Europe, releasing the Continent from the clutch of communism.
Nineteen years later, another—possibly even greater—event shook the world, one that had a similar emboldening effect on Europe. The sudden collapse of America’s banking system in September 2008 opened the way for the emergence of a European economic superpower—and for the nation hijacking it.
Last fall, America stood in stunned silence as it witnessed the largest corporate bankruptcy in history (Lehman Brothers), the largest insurance company failure in history (American International Group) and the largest corporate seizure in the history of finance (Fannie Mae and Freddie Mac).
We are grateful to Alexander Giryavets at Dynamika Capital for pointing us to something which is far more troubling than even the Atlanta Fed’s collapse in Q1 GDP tracking: namely the latest Credit Managers Index for the month of March which “deteriorated significantly over the last two months and current readings stand at the recessionary levels not seen since 2008.”
To be sure, we have previously shown the collapse in consumer debt as reported by the Fed, which as we noted, just suffered its worst month for revolving credit since December 2010 and explains “why the consumer has literally gone into hibernation – it has nothing to do with the weather, and everything to do with the unwillingness to “charge” purchases, which in turn is a clear glimpse into how the US consumer sees their financial and economic future.” Continue reading