China has decided to follow in America’s footsteps and export some of its bad debt. And why not? If we can export crap and we were responsible for fraudulently marketed Sub-Prime mortgages as AAA mortgages and triggered one of the worst financial crisis in History, then why should other nations sit down and do nothing. We continue to create dollars out of thin air and use this money to create the illusion that all is well; another massive fraud being purported on the world and one that has forced central bankers worldwide to embrace negative rates.
A very local problem in China is being exported at an alarming rate.Debt from special-purpose vehicles linked to municipal and provincial governments — leverage that central authorities are trying (unsuccessfully) to extinguish — is becoming more common in overseas markets. What’s worse, lately it’s been the weakest cities and provinces panhandling to international investors.Since June, as many as six local government financing vehicles have sold dollar bonds, bringing the total issued by such entities to at least $4 billion this year, just shy of the record $4.1 billion logged in all of 2015. Three offerings were scored below investment grade by Fitch, whereas prior to 2016, only one junk security of its kind had surfaced internationally.Investors should ask why these localities are going abroad when all their revenue is onshore. Could it be that they’re having a harder time raising funds domestically? Full Story
China is using lessons it learned from the US when we wrapped up junk subprime mortgages with AAA rated mortgages but then sold the bundle as if the whole package carried an AAA rating. As people speculate, they start to embrace riskier and riskier investments in their quest for higher yields. The more sinister take from this is that the negative rate experiment is working; it’s pushing more people to speculate, and negative rates have yet to debut in America. One can only imagine the feeding frenzy negative rates will create when they hit us; Americans are the biggest risk takers in the world and when we speculate we “really” speculate. Case and point “housing bubble”, dot.com bubble, etc.
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