Wealthy Nations Daily Update - Financial Armageddon

Fears for “financial Armageddon” in China may be alleviated by a report today which says that China’s total assets in 2013 were 900% of GDP with debt of just 220%. That is a big pick up from the last report which looked at the 2008 balance sheet showing total assets at around 700% of GDP. Corporations have assets of 550% of GDP but the interesting number comes from the household with assets of around 340%. Bank deposits and real estate are the largest household assets accounting for 24% and 70% respectively, while stocks accounted for only 2% and with a household debt level of just 17% of real estate assets, house prices would need to fall 80% to push households under water the report says.

Sticking with China, overseas shipments fell 5.5% in August while imports fell 13.8% in US dollar terms resulting in a trade surplus of USD 60.2bn. Yesterday the market, with the US out for Labour Day, fixated on the release of China’s reserves with the headline number dropping USD 93.9bn month on month to USD 3.56tn. It won’t take China long to build up reserves again with this expanding trade surplus.

Elsewhere, for much of 2015, San Francisco Fed President John Williams has painted a picture of a strong US economic outlook, with vibrant output growth and continued unemployment improvement which equates to a need sooner than later for a Federal Reserve rate hike. However, yesterday in an interview he sat firmly on that fence, non-committed either way, in the great debate of “will they won’t they” at next week’s meeting. John Williams was research director at the San Francisco Fed from 2009 to 2011 when Janet Yellen was the president and so is often thought of as reflecting the views of the inner sanctum of the committee. Sitting on the fence after previous outspoken views reflects, we think, how close a call the Fed have to their “shall we” conundrum.

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