Toxic Loans Around the World Weigh on Global Growth

Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output.

.. China’s financial sector will have loans and other financial assets of $30 trillion at the end of this year, up from $9 trillion seven years ago, said Charlene Chu, an analyst in Hong Kong for Autonomous Research.

“The world has never seen credit growth of this magnitude over a such short time,” she said in an email. “We believe it has directly or indirectly impacted nearly every asset price in the world, which is why the market is so jittery about the idea that credit problems in China could unravel.”

.. Ms. Chu estimates that at the end of 2016, as much as 22 percent of the Chinese financial system’s loans and assets will be “nonperforming,”

World faces wave of epic debt defaults, fears central bank veteran

Mr White said Europe’s creditors are likely to face some of the biggest haircuts. European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed.

The European banking system may have to be recapitalized on a scale yet unimagined, and new “bail-in” rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.

.. The error was compounded in the 1990s when China and eastern Europe suddenly joined the global economy, flooding the world with cheap exports in a “positive supply shock”. Falling prices of manufactured goods masked the rampant asset inflation that was building up. “Policy makers were seduced into inaction by a set of comforting beliefs, all of which we now see were false. They believed that if inflation was under control, all was well,” he said.

In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style “Fisherite” debt-deflation.

.. But Mr White said it would be a good start for governments to stop depending on central banks to do their dirty work. They should return to fiscal primacy – call it Keynesian, if you wish – and launch an investment blitz on infrastructure that pays for itself through higher growth.

 

Debt and the Racial Wealth Gap

The modern roots of the racial wealth gap can be traced back to the post-World War II housing boom, when federal agencies blocked loans to black Americans, locking them out of the greatest wealth accumulation this country has ever experienced. More recently, the bursting of the housing bubble and subsequent recession slammed minorities. In 2013, the median wealth of white households was 13 times the median wealth of black households, the widest gap since 1989.

.. In a 2009 national survey of lower-income households by the federal Energy Information Administration, 9 percent of blacks reported having their electricity disconnected in the previous year because they had been unable to pay. For whites, the number was less than 4 percent, according to an analysis of the survey by the National Consumer Law Center.

.. In its report on the Ferguson, Mo., Police Department, the Justice Department found that officers disproportionately stopped and ticketed black citizens. For a “manner of walking” violation, it was $302; for “high grass and weeds,” $531.

.. the typical black household earning between $25,000 and $50,000 reported having emergency savings of $400. The typical white household in that range had $2,100.