The scary reality of China’s debt crisis

By Gwynn Guilford. The headlines today were awash with relief that China’s liquidity crisis has subsided, as the central bank, the People’s Bank of China (PBOC), finally came to the aid of banks after a week-long standoff. But it’s hard to look at this chart and see cause for relief:
“Keep in mind 8-9% is right on the edge of the market breaking down,” says Patrick Chovanec, chief strategist at Silvercrest Asset Management. Even as the overnight rate came down, he notes, the 14-day and 1-month rates spiked today. “It’s kind of like how in Beijing…[the pollution has] been off the charts for so long that when it goes back down to ‘hazardous’ we’re like, ‘Oh, it’s great.’”
That’s because the core problem isn’t simply a seize-up in liquidity. Rather, it’s that rolling over the piles of debt amassed over the last few years requires ever-increasing amounts of liqudity, and that’s becoming harder and harder to perpetuate. Read more...