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Trump Tariffs NOT China's Biggest concern. Chinese Shadow Banking Bigger. What is Shadow Banking ?

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(edited)

It's the Shadow financing.  Not Government Debt.  

* CHINESE SHADOW FINANCING OVER 9 TRILLION DOLLARS

If you remember the U.S. 2007/2008 worldwide economic crash that started in the U.S. Banking System, that's what could happen again, only caused this time by different actors as in the Chinese Communist Party and the People's Liberation Army.

What is SHADOW Financing

In 2000 thru 2007 the U.S. packaged loans and mortgages and sold them to "non-bank" entities.  Got them off the Banks balance sheet. Mortgage Backed Securities (MBS) , Asset Backed Securities . Economy was going Great.  Great returns until everything goes south.

Like the U.S. Banks the Chinese Banks (owned or partially owned by Chinese Communist Party) have amassed NINE TRILLION DOLLARS OF OFF BALANCE SHEET FINANCING, "SHADOW BANKING".  YES NINE TRILLION DOLLARS. 

On top of that Chinese TOTAL DEBT IS 330 % OF GDP !

The doubters say the Chinese government will bale out their banks. After all they own most of them. China bailed out two banks a few years back to the amount of 45 Billion dollars.  

That's tiny compared to current total debt. China has over one Trillion dollars in cash reserves. (9 Trillion dollars Shadow Financing! ).

Well China is in a similar precarious position.  We are talking over 9 Trillion U.S.dollars in "Shadow Banking" loans ! Yes 9 Trillion dollars.

China outstanding Debt/Loans to GDP ratio is 3.2 to 1.0 

Where U.S. total Debt to GDP ratio is 1.2 to 1.0 The U.S. not over leveraged.

Even with China's One TRILLION in reserves that pales compared to NINE TRILLION OF SHADOW OFF BALANCE SHEET BANK LOANS.

Could the world see repeat 2007/2008 ?

Your China is not invisible.

Tariffs , Hong Kong , Shadow Banking .

Maybe , China should play fair with U.S. 

China banish NBA over a tweet.  That is what the world is dealing with.  

Now even partial trade deal looks unlikely until after election.  Thank your Democratic Party.  

What if U.S. Investment Banks did stop Financing People's Liberation Army's Banks, Companies, Economic Growth and Military Build Up.

China is not a Market Economy.  Should never been allowed in WTO.

https://www.nytimes.com/2019/10/03/opinion/china-xi-jinping.html

Oil trades in range 

Edited by Jabbar
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(edited)

If China's economy crashes, say goodbye to the S&P and the ability of the US to finance its gigantic debt.  The US has a debt problem of catastrophic proportions, too.  As does Japan, which will most certainly crash (along with the rest of Asia) if China crashes.  

Then this contagion will spread overseas to Europe and US because, you know, finance and economics are now internationally connected to one another.  The algos will start selling like crazy, the repo market tanks into oblivion and: 

Say hello to Great Depression 2.0.  

Edited by Zhong Lu

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If China econ crashes, this just makes their labor cheaper.  RMB are not traded outside of China so not a world problem.  China is not consuming internally other than concrete and steel which they produce domestically and are NOT importing as much as they have already switched to domestic low grade iron ore except for southern steel mills which do import.  Everything up north where majority of China lives?  All domestic.  Down south where all the manufacturing for the rest of the world is?  Imports but is used 100% to create the goods to export.  If that manufacturing moves, the imports of the raw materials MOVES with the goods manufactured. 

Now will this create a lull while things move?  YES.  Another reason for flat lining Oil.  The question is WHEN of course.  If later and still VERY little $$$ spent exploring to replace diminishing reserves around the world, then I could see rising oil prices.  If sooner?  flat line. 

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You hit the nail on the head when you mentioned the lack of exploration recently. The world MAY be over supplied with oil (take a look at the numbers and where they come from), but eventually this over supply will dry up (trade wars resolved, demand up, etc...) and everyone will realize that there are essentially no ‘replacement barrels’ to replace those being used! With no ‘new’ oil coming into play, global storage will dry up in a heartbeat.

Yes, there has been a few discoveries in the news, but these have been in areas where the seismic has been acquired and processed years ago. The amount of actual exploration activity for the past 5 years, onshore and offshore, has been minimal.

Keep in mind that it can easily take 5-10 years before a deepwater find actually produces oil and gets it to a refinery onshore. Obviously an onshore find from exploration well, through appraisal, into development, and into a pipeline is quicker, but there is still a definite time lag from discovery to production.

Things will get very interesting during this lag time once exploration actually begins in earnest again.

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This entire discussion is economically illiterate.

Unemployment during the Great Depression peaked at 25% in the US. This means that 3/4ths of the workforce kept their jobs, although my mother's recollection of this time period is that a lot of those workers worked reduced hours.

Many workers in S. Korea work a 68 hour workweek. Jack Ma 'saw no problem' in a 60 hour workweek in China. The S. Korean government is trying to reduce the weekly hours worked there to 52. By American standards, this is certainly still too many hours.

Here's a chart of the hours in one week in the US:

|----------------------------------------|----------------------------------------------|------------------------------------------------------------------------|

                  Working (40)                      Sleeping (7*8) or (56)            Consuming (includes commutes and lunch hours) (72)

Here's a chart of the hours in one week in the S. Korea:

|--------------------------------------------------------------------|----------------------------------------------|--------------------------------------------|

                  Working (68)                                                       Sleeping (7*8) or (56)                          Consuming (46)

What might become evident from this is 'overproduction and underconsumption'. In short, people are working their ass off, going home and crashing in bed, and pretty much tuning out their spouses (if they're married) or their social lives (if they're not). Long hours spent producing widgets is hours not spent eating out, vacationing, amusing one'self with a hobby, or arguing with belligerents on social media.

A 'depression' might see all this pressure ease up. People would work less. It's unlikely that they would consume much more, but they would have more time for social interaction.

China had 17 million babies in 2017, and 15 million in 2018, a drop of 2 million in one year. The US has slightly less than 4 million babies in a year. This suggests that the eventual decline in China's population will be equivalent to the entire present population of the US. 'Default' in the sense of not being able to pay back one's loans is relatively small potatoes - there is so much cash floating around in the financial system that a bunch of defaults might simply reduce asset values back to long term 'normal'. 'Default' in things like marriage, raising families, and civic responsibilities is literally equivalent to nuking one'self. This is where the '$trillions' of damage is occurring in the real world.

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11 hours ago, Zhong Lu said:

If China's economy crashes, say goodbye to the S&P and the ability of the US to finance its gigantic debt.  The US has a debt problem of catastrophic proportions, too.  As does Japan, which will most certainly crash (along with the rest of Asia) if China crashes.  

Then this contagion will spread overseas to Europe and US because, you know, finance and economics are now internationally connected to one another.  The algos will start selling like crazy, the repo market tanks into oblivion and: 

Say hello to Great Depression 2.0.  

Yes,probably. 

Look what U.S. 2008 Shadow Financing did to world economy.  Brought to standstill.

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5 hours ago, Douglas Buckland said:

You hit the nail on the head when you mentioned the lack of exploration recently. The world MAY be over supplied with oil (take a look at the numbers and where they come from), but eventually this over supply will dry up (trade wars resolved, demand up, etc...) and everyone will realize that there are essentially no ‘replacement barrels’ to replace those being used! With no ‘new’ oil coming into play, global storage will dry up in a heartbeat.

Yes, there has been a few discoveries in the news, but these have been in areas where the seismic has been acquired and processed years ago. The amount of actual exploration activity for the past 5 years, onshore and offshore, has been minimal.

Keep in mind that it can easily take 5-10 years before a deepwater find actually produces oil and gets it to a refinery onshore. Obviously an onshore find from exploration well, through appraisal, into development, and into a pipeline is quicker, but there is still a definite time lag from discovery to production.

Things will get very interesting during this lag time once exploration actually begins in earnest again.

BP said good amount of their reserves will never see the light of day. 

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21 hours ago, Jabbar said:

If you remember the U.S. 2007/2008 worldwide economic crash that started in the U.S. Banking System, that's what could happen again.

In 2000 thru 2007 the U.S. packaged loans and mortgages and sold them to "non-bank" entities.  Got them off the Banks balance sheet. Mortgage Backed Securities (MBS) , Asset Backed Securities . Economy was going Great.  Great returns until everything goes south.

The doubters say the Chinese government will bale out their banks. After all they own most of them. China bailed out two banks a few years back to the amount of 45 Billion dollars.  

That's tiny compared to current total debt. China has over one Trillion dollars in cash reserves. (9 Trillion dollars Shadow Financing! ).

Well China is in a similar precarious position.  We are talking over 9 Trillion U.S.dollars in "Shadow Banking" loans ! Yes 9 Trillion dollars.

China outstanding Debt/Loans to GDP ratio is 3.2 to 1.0 

Where U.S. total Debt to GDP ratio is 1.2 to 1.0 The U.S. not over leveraged.

Could the world see repeat 2007/2008 ?

Your China is not invisible.

Tariffs , Hong Kong , Shadow Banking .

Maybe , China should play fair with U.S. 

China banish NBA over a tweet.  That is what the world is dealing with.  

Now even partial trade deal looks unlikely until after election.  Thank your Democratic Party.  

What if U.S. Investment Banks did stop Financing People's Liberation Army's Banks, Companies and Economic/military Growth

https://www.nytimes.com/2019/10/03/opinion/china-xi-jinping.html

Oil trades in range 

Will their massive debt catch up to them or cause a problem. 

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49 minutes ago, Jabbar said:

BP said good amount of their reserves will never see the light of day. 

Makes the situation re exploration worse then...

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18 minutes ago, Douglas Buckland said:

Makes the situation re exploration worse then...

I think BP was saying because it wouldn't be needed.

What does exploration have to do with Shadow banking ?  You are off topic. 

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(edited)

Yeah Doug come on mate.

This forum is famous for staying on topic.

Shame on you. 

So Jabbar says this ... 

''BP said good amount of their reserves will never see the light of day.''

You REPLY!!

He says try and stay on topic. This forum is incredible.

 

Edited by DayTrader
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(edited)

4 hours ago, DayTrader said:

Yeah Doug come on mate.

This forum is famous for staying on topic.

Shame on you. 

So Jabbar says this ... 

''BP said good amount of their reserves will never see the light of day.''

You REPLY!!

He says try and stay on topic. This forum is incredible.

 

I was replying to Doug's original response that talked supply and was totally off topic.

I wanted him to feel appreciated and part of the Oil Price family community.   

Just thought continuing this line of discussion takes away from the very important topic of China and it's massive loans/debt accumulated.  

DayTrader, speaking of off topic you are not really a trader are you ? Forensic graphology of your writing shows you are not even British mate. You are an alter ego of another member.  Am I correct ?

Edited by Jabbar
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I have been a trader for 7 years ... or I am Doug's secret second account ... you decide ...

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(edited)

9 minutes ago, DayTrader said:

I have been a trader for 7 years ... or I am Doug's secret second account ... you decide ...

No not Doug. 

Who then ?  

Doesn't matter.

Edited by Jabbar
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Level of debt to GDP according to the authoritative Bank of International Settlements in Basel

You can find the country you want.

@Jabbar Nearly all (about 97-98%) Chinese debt to non financial sector is in national currency RMB.

So it will be also repaid in RMB. Every sovereign country can print whatever amount of currency it wants.

Foreign reserves is sth totally different and not applicable here.

Increase in shadow banking started about 2013-2014 when credit to private sector tightened.

It was a lender of last resort for small & medium private companies.

But systemic risks to the banking sector were growing to large so China started crackdown on

shadow banking in 2017. Some say it is ok, some say it is better to have larger shadow banking

than lower growth because credit for private sector too small.

At present shadow banking is not a big problem for China lack of growth

in private sector is, as far as I remember growth in private industrial enterprises for
August 2019 was only 1.3% yearly , I think the lowest at least since 1997.

If you want to delve into details there is a book by Nicholas Lardy and also some lectures by the guy

on you tube.

Total credit to the non-financial sector (core debt)
As a percentage of GDP
«  Q1 2019 › »
Year Quarter
2014 2015 2016 2017 2018 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19
Argentina 64.6 74.2 73.7 79.7 111.8 81.6 103.2 124.7 111.8 118.7
Australia 224.9 238.3 240.8 235.3 235.2 236.2 235.3 235.2 235.2 235.3
Austria 238.7 237.4 238.7 229.8 221.4 227.7 226.3 224.1 221.4 222.3
Belgium 335.3 335.2 357.1 338.4 333.5 341.2 342.3 339.2 333.5 339.0
Brazil 133.0 148.6 148.3 151.2 157.5 152.3 153.3 154.1 157.5 156.8
Canada 274.5 294.9 301.1 299.0 302.2 298.5 300.4 298.7 302.2 303.9
Chile 152.4 165.0 165.9 162.1 171.9 160.9 163.2 166.6 171.9 172.8
China 227.9 239.3 249.7 253.4 254.0 255.3 255.1 254.8 254.0 259.4
Colombia 98.7 109.9 112.0 112.2 116.2 111.9 113.5 114.0 116.2 116.5
Czech Republic 141.6 134.4 130.9 125.0 122.8 125.7 125.5 125.0 122.8 124.6
Denmark 291.4 283.4 280.1 269.4 265.5 267.8 268.3 268.1 265.5 264.1
Finland 250.0 259.5 249.5 250.9 239.8 246.1 246.8 244.9 239.8 244.9
France 295.1 300.8 308.2 309.5 310.6 310.5 311.1 311.6 310.6 315.5
Germany 190.1 186.4 183.8 180.1 177.9 177.6 177.9 178.3 177.9 178.9
Greece 303.0 299.2 300.0 296.6 295.1 294.1 293.0 297.2 295.1 291.5
Hong Kong SAR 338.0 344.9 352.0 373.5 357.9 376.7 369.4 360.5 357.9 358.1
Hungary 189.2 180.3 175.0 165.4 158.9 163.4 164.9 161.8 158.9 157.9
India 126.1 128.5 124.1 122.6 123.2 124.5 122.7 123.4 123.2 125.0
Indonesia 64.2 68.2 68.9 68.8 70.1 68.7 69.3 70.7 70.1 70.0
Ireland 418.1 408.5 383.3 328.1 301.5 312.7 311.1 306.1 301.5 307.5
Israel 184.1 180.8 178.9 177.4 176.5 179.4 178.2 178.0 176.5 177.8
Italy 273.5 270.6 264.8 259.6 253.0 261.1 255.7 252.6 253.0 254.2
Japan 369.3 362.0 370.9 370.8 375.3 369.8 370.8 370.4 375.3 378.4
Korea 216.0 218.9 219.5 217.9 224.2 219.4 221.4 223.2 224.2 228.0
Luxembourg 425.7 438.3 449.6 426.2 413.9 426.5 420.0 418.0 413.9 406.1
Malaysia 185.5 190.0 188.6 182.7 187.7 184.4 188.2 187.5 187.7 189.5
Mexico 69.2 74.7 79.9 77.8 77.1 76.9 78.2 76.9 77.1 77.3
Netherlands 364.9 358.5 356.7 339.3 328.1 338.4 334.0 330.9 328.1 324.5
New Zealand 208.2 208.8 209.7 205.5 208.6 206.1 206.6 206.8 208.6 205.2
Norway 258.0 282.5 293.8 282.6 273.0 281.7 277.7 270.7 273.0 269.5
Poland 136.2 137.8 142.8 134.0 131.6 134.9 134.5 132.7 131.6 131.1
Portugal 349.6 336.4 320.6 313.5 300.7 311.8 307.1 305.5 300.7 302.8
Russia 87.8 90.5 83.0 79.2 77.3 77.5 78.4 78.0 77.3 77.7
Saudi Arabia 50.3 68.2 78.6 77.9 73.7 76.8 76.0 74.9 73.7 75.4
Singapore 262.6 267.5 273.1 276.5 280.9 277.3 273.6 278.3 280.9 283.8
South Africa 118.8 124.9 125.0 126.1 131.0 126.5 128.2 130.5 131.0 133.5
Spain 299.5 285.6 278.0 267.0 259.6 266.9 265.3 263.0 259.6 263.3
Sweden 284.0 281.8 278.3 281.6 284.4 286.4 286.9 287.0 284.4 286.0
Switzerland 257.3 260.4 267.5 277.6 278.6 278.5 278.9 278.6 278.6 279.8
Thailand 149.7 154.0 150.1 149.3 150.9 148.7 149.1 149.9 150.9 150.4
Turkey 105.6 108.0 113.6 114.6 114.0 114.1 117.1 127.5 114.0 115.7
United Kingdom 269.7 267.1 282.8 283.1 279.3 278.8 280.4 278.0 279.3 275.0
United States 248.6 247.0 250.2 250.0 249.2 249.6 248.6 247.2 249.2 249.3
widget_open.gifMemo:                    
Euro area 272.0 271.9 270.2 263.2 258.4 262.8 261.7 260.6 258.4 259.9

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The rest of countries debt to GDP (not everything was copied from BIS page),

the last column is Q1 2019 , the same as in the table above.

Data for all countries include (identified) shadow banking.

Generally when you want international statistics on credit etc.

BIS is the best, at least faculty during my Master studies in finance and  banking told me so.

Norway 258.0 282.5 293.8 282.6 273.0 281.7 277.7 270.7 273.0 269.5
Poland 136.2 137.8 142.8 134.0 131.6 134.9 134.5 132.7 131.6 131.1
Portugal 349.6 336.4 320.6 313.5 300.7 311.8 307.1 305.5 300.7 302.8
Russia 87.8 90.5 83.0 79.2 77.3 77.5 78.4 78.0 77.3 77.7
Saudi Arabia 50.3 68.2 78.6 77.9 73.7 76.8 76.0 74.9 73.7 75.4
Singapore 262.6 267.5 273.1 276.5 280.9 277.3 273.6 278.3 280.9 283.8
South Africa 118.8 124.9 125.0 126.1 131.0 126.5 128.2 130.5 131.0 133.5
Spain 299.5 285.6 278.0 267.0 259.6 266.9 265.3 263.0 259.6 263.3
Sweden 284.0 281.8 278.3 281.6 284.4 286.4 286.9 287.0 284.4 286.0
Switzerland 257.3 260.4 267.5 277.6 278.6 278.5 278.9 278.6 278.6 279.8
Thailand 149.7 154.0 150.1 149.3 150.9 148.7 149.1 149.9 150.9 150.4
Turkey 105.6 108.0 113.6 114.6 114.0 114.1 117.1 127.5 114.0 115.7
United Kingdom 269.7 267.1 282.8 283.1 279.3 278.8 280.4 278.0 279.3 275.0
United States 248.6 247.0 250.2 250.0 249.2 249.6 248.6 247.2 249.2 249.3
widget_open.gifMemo:                    
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(edited)

2 hours ago, Marcin said:

 

 

Marcin

China Debt to GDP at 330% is a problem.  Start printing RMB.

That 330% Debt to GDP = TOTAL DEBT. NOT CORE, NOT FINANCIAL, NOT NON-FINANCIAL.

Shadow Banking in China started in 2009/2010.

TRY PRINTING RMB YOUR WAY OUT OF THAT DEBT.  CAPITAL IS ALREADY FLEEING CHINA IN TRILLIONS.  THAT WILL TRIPLE. NOT GOOD FOR CHINA.

Having an MBA is commendable, but real world economics is what counts.

 

Edited by Jabbar
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3 hours ago, Jabbar said:

Forensic graphology of your writing shows you are not even British mate.

Where's this bit come from lol ? You edit your stuff all the time man, I always see little additions  :) 

How am I not English or a trader?

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5 minutes ago, DayTrader said:

Where's this bit come from lol ? You edit your stuff all the time man, I always see little additions  :) 

How am I not English or a trader?

What do they have edit for ? 

So you can edit.  

There are nuanced differences between the way Brits speak and write in English compared to other nationalities.

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(edited)

On 10/10/2019 at 10:19 PM, Jabbar said:

What do they have edit for ? 

So you can edit.  

Fair enough.

What can I say?   I'm a black sheep and proud. Where are you from by the way?

I'm English I promise. Don't be swayed by the way Americans have butchered our language.

Ours is betterer.

Edited by DayTrader
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12 hours ago, Jabbar said:

I think BP was saying because it wouldn't be needed.

What does exploration have to do with Shadow banking ?  You are off topic. 

You are the one that brought up BP and their reserves. That was the topic which I was addressing...

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8 hours ago, Jabbar said:

No not Doug. 

Who then ?  

Doesn't matter.

Speaking of ‘off topic’!

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9 hours ago, Jabbar said:

China Debt to GDP at 330% is a problem.

Curious, what is the source of this information ?

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China's official external debt is USD 2 Trillion.

https://tradingeconomics.com/china/external-debt
https://en.wikipedia.org/wiki/List_of_countries_by_external_debt

Internal debt does not matter much because the Chinese government completely controls that.
External debt matters because it must be paid in foreign currency (which china can not print).

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Transparent financial systems measure their debt in terms of dollars, which translates into 'committed work hours' - the amount of labor needed to pay off the debt, or the amount of labor needed to service it to keep it from defaulting. Opaque financial systems measure their debt in the effects on lives.

Lets say that China's foreign reserves are $3.1 trillion. Dividing this by the Chinese population of 1.4 billion yields $2214 per Chinese citizen.

If a US automobile owner drives 15,000 miles per year in a car that gets 30 miles per gallon, they burn 500 gallons of gas a year, at a cost of, say, $1250 (500 x $2.50). This creates a bit of perspective on how long Chinese foreign exchange reserves would last if China stopped exporting. Chinese don't drive anything like the way Americans do, but the combination of urban buses, railroads, and trucks consumes oceans of diesel that isn't produced domestically. The energy consumption profile may be different, but it still matters.

Government stimulus has various feedback mechanisms. If China 'prints money' to fund factories making cement, steel, and other building materials, and these are fed into domestic construction projects, then the Chinese citizen 'owns' a basket of built up real estate, regardless of whether they live in it, whether they have individual title to the property, and so forth. It makes up the national asset portfolio.

If that property isn't properly built or is left to fall apart, then the feedback loop is 'negative' - labor hours are applied to the production of assets that deteriorate without providing benefit to the citizen.

If the 'printed money' is used to fund research, then the R&D produces new knowledge and technology transfer that 'multiplies'. The US development of the Internet is a prime example, but there are plenty of others. China does spend money on research, with space projects being particularly visible examples.

If the US uses 'printed money' for a 'war on drugs' the feedback loop may well be negative - the more effort spent the worse the problem gets. Economists explain that this happens because tighter restrictions on supply drive up prices, creating progressively higher incentive for new actors to enter the market.

While it might not be possible to 'see the numbers' in things like the Beige Book or the money supply or other metrics, a 'zombie' corporate borrower is still expected to produce 'something'. Similarly, the government apparatchiks responsible for the industrial sector have to show that people remain employed, tons of goods continue to ship, and so forth. The whole reason the market is opaque is to keep citizens and foreign observers from explaining in objective terms why a given country is technically bankrupt.

Therefore, production continue with various associated costs: labor abuse, pollution, and the imposition of draconian policies on people with no capacity to fight back. 'Labor abuse' takes the form of excessively long workweeks, lack of child care for working mothers, interminable commutes, etc. Pollution means that production of finished goods takes precedence over environmental preservation - the economic system is basically 'borrowing' from a portfolio of resources that should remain stable over a long time period. 'Draconian policies' means continual surveillance, forced abortions, restrictions on internal migrations, etc. Since the market isn't honest, it's necessary to force people to act in ways counter to their economic best interests.

Over time, this increases all kinds of social pathology. People quit marrying, quit having kids, lose all interest in social interaction, try to emigrate if they can, and get their money out of the country by whatever means is available. These are the alternative measures that can be used to measure 'debt' when the financial books are cooked.

Note that the US has it's own basket of problems in this regard. The 'opioid crisis' is one example, another is urban gridlock, another is student debt, and a fourth is below-replacement birthrates. Declining life expectancy and below-replacement family formation are both 'real world' signs that the financial system is out of balance, and that there are hidden 'elephants' in the room.

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