http://www.zerohedge.com/news/2013-04-17/chinese-auditor-warns-out-control-chinese-debt-could-spark-bigger-crisis-us-housing-
Submitted by Tyler Durden on 04/17/2013 20:42 -0400
http://www.zerohedge.com/news/2013-04-16/most-disturbing-chart-todays-imf-outlook-revision
Submitted by Tyler Durden on 04/16/2013 15:53 -0400
Chinese Auditor Warns "Out Of Control" Chinese Debt Could Spark Bigger Crisis Than US Housing Crash
"This could be even bigger than the US housing crisis," warns senior Chinese auditor Chang Ke, as his accounting firm has all but stopped signing off on bond sales by local governments (as we warned most recently here). As the FT reports, Zhang's firm "audited some local government bond issues and found them very dangerous," as they don't have strong debt-servicing abilities. "It is already out of control," he continues, "the only thing you can do is issue new debt to repay the old," he said. "But there will be some day down the line when this can’t go on." With more than 2,800 counties having discovered the investment-vehicle-bond (a way to avoid the prohibition or directly raising debt), Zhang notes that this "frightening" evolution has led to a situation where he puts little faith in the government guarantee, advising that "when the time comes, it won’t be the government that assumes responsibility. It will be the accounting firms and the banks that do."
A senior Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash.Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governments as a result of his concerns.“We audited some local government bond issues and found them very dangerous, so we pulled out,” said Mr Zhang, who is also vice-chairman of China’s accounting association. “Most don’t have strong debt servicing abilities. Things could become very serious.”...“It is already out of control,” Mr Zhang said. “A crisis is possible. But since the debt is being rolled over and is long-term, the timing of its explosion is uncertain.”...Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles’ names to fund infrastructure projects.Investment companies owned by local governments sold Rmb283bn of bonds in the first quarter of 2013, more than double the total for the same period last year. Such an increase would normally be expected to boost the economy,but China’s growth unexpectedly slowed to 7.7 per cent in the first quarter of 2013....“The only thing you can do is issue new debt to repay the old,”he said. “But there will be some day down the line when this can’t go on.”Mr Zhang added that he grew alarmed when smaller towns and counties discovered that investment vehicle bonds were an easy way to raise financing. “This evolution was quite frightening,” he said. “China has more than 2,800 counties. If every county issued debt, it could lead to a crisis. It could be even bigger than the US housing crisis.”...But Mr Zhang puts little faith in official guarantees, ...: “When the time comes, it won’t be the government that assumes responsibility. It will be the accounting firms and the banks that do.”...
http://www.zerohedge.com/news/2013-04-16/most-disturbing-chart-todays-imf-outlook-revision
The Most Disturbing Chart From Today's IMF Outlook Revision
That the IMF is the most unwavering optimist despite fundamentals, facts and reality has been well-documented over the years. For those who still haven't seen the agency's perpetual upward bias in forecasting world growth, a quick scan of the charts below will cement the understanding that all the Washington-based serial bail-outer of insolvent countries is, is a dispenser of optimism and whose agenda is simply to preserve confidence that all is still well. The charts show how just over the past year's six outlook revisions, the IMF has been forced to downgrade, with quarterly precision, its overly optimistic forecast for virtually every part of the world, from the US, to the Euroarea, to China, and of course, the entire world: the black line is the most recent revision set - it also happens to be the lowest one.
US: expect the US 2014 forecast growth to tumble in the next several revisions - it only took 12 months for the IMF's 2013 US GDP growth forecast to drop from 2.4% to 1.9%. Obviously, the 2013 to 2014 hockeystick is laughable at best.
China: so much for the Great Chinese growth miracle:
Euroarea: over-under on how long until Europe's 2014 growth joins 2012 and 2013 in the negative column?
And the entire world:
None of the charts above are surprising. One needs to simply recall the hilarity that has ensued regarding the IMF's constantly changing forecasts of Greek GDP to know just how pathetic ebullient the Keynesian crew at the IMF is when it comes to foreseeing the future.
However, one chart which deserves particular attention not because it is accurate, but because the rate of deterioration is truly troublesome, is the IMF's view on global trade volume of goods and services. It is here that one can clearly see the disastrous impact of global central bank micro-mismanagement, capital misallocation and central planning. In short: global trade is collapsing - even from the point of view of one of the staunchest macro optimists - at a rate unseen since the Great Financial Crisis, and the Great Depression before it.
It is, or should be, very concerning to the Central Planning brotherhood , that where global trade one short year ago, as per the IMF's April 2012 forecast, was supposed to grow 5.6%, they only see a token 3.6% growth. And the year is not over yet: expect further downward revisions to this key metric as the quarters go by, with the 2014 data point also revised much lower when all is said and done.
Sadly, it is the collapse in global trade that is the most direct testament to the disaster that central planning is: because why trade when one's central bank is there to step in and create the perception of artificial growth, which is not really growth, but merely the dilution of money and the latent onboarding of future runaway inflation. At this pace, quite soon trade growth will halt or even turn negative as countries retrench focused entirely on what their central banks can do for them, instead of engaging in simple economics, comparative advantage and developing their own products and services which should otherwise be competitive on the global arena.
Expect this chart too to be ignored for as long as possible, until corporations once again do what they do best in the new Normal: fire thousands, contract CapEx, and focus entirely on short-term shareholder reward like dividends and stock buybacks, which extract as much value from the future of the enterprise and hand it over here and now, for one simple reason: not even corporate CEOs, CFOs and Treasurers harbor any hope that the long-run will bring any notable improvement.
Then again, in a world in which cash flows, and apparently, trade, no longer matter, and the Fed is backstopping literally every aspect of an otherwise normal and healthy global economy, why worry?
Ben's got it covered. All of it.
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