Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

China And Fracking: The Pillars Of “The Recovery” Are Crumbling

Economics / China Economy Mar 09, 2016 - 10:21 AM GMT

By: John_Rubino

Economics

When historians sort out this era of once-a-decade financial bubbles, they’ll marvel at how dissimilar the drivers of each boom were. The junk bonds of the 1980s were essentially leveraged tools for extracting wealth from companies. The dot-coms of the 1990s were vehicles for exotic new technologies and untested business models. The sub-prime mortgages and credit default swaps of the 2000s were semi-fraudulent fee-generation schemes.

All, in retrospect, were strange, unsteady foundations on which to build a global economy. But they look positively sane compared to the pillars of the current expansion: China and fracking.


As the true extent of China’s debt binge becomes apparent, the only reasonable reaction is awe. To cook the story down to its essence, the world’s biggest developing country decided to become developed in the space of a few years, borrowing nearly as much money as the entire rest of the world and using the proceeds to buy up every conceivable kind of industrial commodity. The result was a natural resources boom that, for a little while, floated the global economy on a rising tide of leverage. For much more detail, see this long Zero Hedge analysis.

Then, as all debt binges eventually do, this one ended in a tangle of malinvestment and evaporating cash flows. China’s excess capacity in basic industries like steel and cement is now epic. Mass layoffs are being announced daily. Its velocity of money — a measure of the tempo of economic activity — is the lowest in the world. And external trade is collapsing, with February imports and exports falling 13.8% and 25.4%, respectively.

Now in damage control mode, China is spending its foreign exchange reserves in a probably-futile attempt to keep its currency from plunging, while capital is pouring out of the country in search of safe havens and hedge funds are placing billion-dollar bets on a big yuan devaluation.

China, in short, has become a drag on the global economy rather than its savior. And much, much worse is coming.

Now on to fracking, which involves pumping toxic industrial chemicals into the ground to free up hard-to-reach oil and gas reserves. For a while, this was the Internet of the energy business, captivating bankers and entrepreneurs and igniting a scramble for prime drilling rights.

Between 2006 and 2014, US natural gas production rose from 64 billion cubic feet a day to 90 billion while oil production rose from 5 million barrels a day 9 million. Along the way, fracking produced millions of well-paying jobs, lifting whole US regions from bust to boom and generating massive tax windfalls for favored states.

But this too was a leveraged mirage. The surge in supply swamped a global market that was already slowing due to China’s bursting credit bubble. The result was a crash in oil and gas prices and a bloodbath in the US oil patch.

All those now-idle rigs cost someone a lot of money, much of it borrowed from banks and junk bond investors. So unless oil and gas return to 2012 levels in short order, the year ahead will see a rolling wave of bankruptcies and huge write-offs for lenders, pension funds and yield-seeking retirees. All of which, like China, constitute a drag on growth.

In a system that seems incapable of functioning in the absence of bubbles, the question now becomes: What can the monetary authorities convert into the next bubble? And the answer is not at all clear. A case can be made that the rush into negative-coupon German and Japanese bonds is bubble-like. But this doesn’t seem to be generating jobs or income for anyone — just the opposite. Buying a negative interest rate bond is a bet on shrinking capital.

In the US, cars were hot for a while but subprime auto lending is already hitting a wall and will likely go the way of China and fracking in the year ahead. Solar power? Maybe, but growth there comes at the expense of coal and natural gas, so it’s a wash in the short run. Finance? Forget it. Negative interest rates are an existential threat to traditional lending, and the big banks are all retrenching. Government funded infrastructure? That’s a liberal politician’s dream, but it sounds a lot like what China just did, and bubbles tend not to repeat in this way.

The terrifying conclusion is that other than a major war, there’s nothing out there capable of generating another global bubble. And absent another bubble, there’s nothing between us and the abyss.

By John Rubino

dollarcollapse.com

Copyright 2016 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules