Malinvestment Rising

Even if you’ve studied macroeconomics 101 back in the day, you may not have heard the term.  Keynesian theorists bread from state sponsored academia are not oriented to hypothesize that investments can go wrong and can be counter-productive to a long term economic benefit.  Today China faces the financial effect of amortizing vacant industrial complexes financed through non-transparent means as eloquently described by Jim Rickards in his book “The Death of Money”.  Mr. Rickards claims that this phenomenon is not in and of itself a financial risk of devastating proportions to the Chinese banking sector but when matched up with other elitist transgressions in stimulating economic growth, perilous conditions have become beset.  Mr. Rickards goes on to exemplify the flight of capital out of China by those instinctive purveyors of wealth who have concluded that all is not well in the Chinese banking system.

Apparently, it’s not only the western world which endorses the free flowing off balance sheet derivative market but the Chinese have become adept at putting it to work in helping Chinese savers acquire better returns than the near zero bank rate offered today.  In spite of the 2008 financial crisis, now reports that the notional outstanding derivative book is twenty per cent higher now than it was back in 2008 and that Goldman Sachs alone carried $48 trillion dollars in derivatives at the end of 2013.  The mortgage variety of derivatives were largely the cause of the 2008 financial crisis.