Drowning

Not that it likely matters much to those tuned in to Boris’ blustering on 5 LIVE, but the owls over at Moody’s Investor Services, the very same ones that famously air-shotted the GFC, have dimmed their outlook on China. They took their rating down from a somewhat fruity ‘stable’, what with all the high profile defaulting that has been going on amongst the country’s bloated property groups; to a more ominous sounding ‘negative’. The WSJ carry the news alongside a piece that highlights the colossal amount of ‘off-balance-sheet’ debt that is hiding somewhere in the attic. They have a stab at the amount, saying it could be $7 trillion, or it could be $11 trillion, but pick a number, nobody knows. Either way, it’s quite a lot and Moody’s and indeed, the Chinese government are increasingly worried. So too, perhaps, anyone with a vested interest in global financial stability. Pan Gongsheng, the top dog at the People’s Bank of China, whispered to reporters that he’s ready to provide emergency funding if needed. So that’s good. When asked about Moody’s downshift in view, his general tone was one of ‘disappointment’. And it’s not just local governments in China who are suddenly finding themselves in the sticky toffee pudding. Apparently one in five councils in the UK are going to declare bankruptcy. There’s not enough money. As one Chief Executive admitted, “the link between funding and need is completely broken.” Cripes. Albeit not new news. Not since that nasty man George Osbourne introduced the nation to austerity. Or living within one’s means. Charts flying round X show that the interest payment on US debt is now north of $1 trillion, and it’s only going up. The Congressional Budget Office are forecasting that gross federal debt in the US is going to hit $50 trillion by 2033. That’s another $20 trillion on today’s already steaming pile. In ten years. The numbers are obscene. It can appear then, to the layman, that all this borrowing is not going to end well. Debts, after all, must be repaid. In 1935 the American historian, Frederick Lewis Allen, in describing the Great Depression, wrote about waves breaking, about the tops seemingly about to topple, but then not; and then finally breaking into a “a thundering welter of foam.” It is a description that could be used to describe any one of the credit bubbles before, and since. There are two options to reduce debt: inflate it away, or default. Unless, that is, there is a third option somewhere up in there in the attic. Fingers crossed the wave keeps cresting.