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3 Charts To Prove That 'Shadow Banking' Could Collapse The Entire Financial System
Despite seeing the world economy and global financial system experiencing a total meltdown and despite multiple pledges from policy makers all over the world to ban shadow banking procedures, no steps have been taken at all. In fact, the world of shadow banking continues to expand and the total size of the shadow banking sector is expected to reach 100 trillion USD before the end of this decade (and very likely even sooner).
According to the number one of Hong Kong’s securities and futures commission in a Reuters article, more and larger players have entered the shadow banking market as in the current low yield environment more groups (think private equity) are looking to increase their returns. Consumer lending is obviously a preferred choice as it’s also quite easy to get into. It also causes some sort of Catch 22 problem. On the one hand are these new credit providers adding additional oxygen to the local economies as it enables families to keep or increase the consumption pattern. That’s also the main reason why regulators aren’t too keen on taking strict measures to shut these ‘enablers’ down.
And the culprits don’t necessarily have to be searched for in the Western world, not at all. The previous chart shows that it’s actually China that is causing the huge increase in the shadow banking sector. Whereas the total size of shadow banking was just 15 trillion RMB in 2010, this number has increased (not just increased but it truly EXPLODED) to 50 trillion RMB last year. That’s a Compounded Annual Growth Rate (CAGR) of a stunning 35% per year. If this growth rate continues for three more years, the total size of the shadow banking-style business in China will have grown to in excess of 130 trillion RMB.
This shouldn’t be a surprise as for instance AliBaba is being pointed out as one of the main facilitators of this system as it regularly teams up with lenders so consumers are more enticed to buy the products on the website. But wait, it doesn’t end there. Looking at the official numbers for 2014, no less than 87% of China’s GDP is fueled by shadow banking as the total size of the latter stood at in excess of 8 trillion USD vs the total size of the Chinese economy of $9.24T.
An earlier article on ZeroHedge pointed out the ‘conventional’ financing markets are still contracting and this obviously paves the way for new entrants on the shadow banking scene. Does this also mean the solution could be found in expanding the conventional credit markets again? Well, yes, but the main problem there is that there’s no incentive at all to do so. All Western currency areas have been trying to pump more oxygen in the economy and there really isn’t much more that could be done.
Source: IMF data
But you should also look at the other side of the equation. As the shadow banking sector in the USA is larger than the conventional financial sector you don’t even have to look at China to start to get worried. As the previous chart shows, there’s a disaster in the making and a collapse of the shadow banking system will drag entire fully-developed economies down. It’s time to start preparing yourself.
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A banking system based on debt with bankers making the rules can only lead to one thing.
>You are here<
The darker the night...the brighter the llight.
When the shadows show the sun is rising.
Figure 1 Scale on left side is wrong. Should say Billions not Millions. $7.6 Trillion Shadow banking in 2008.
The only reason why regulation has constrained banking effort and it has switched to shadow banking is because there is no risk to bankstering any more. They are guarenteed success and bailout so why not assume more risk?
You add risk back to the system and order will be restored. Start arresting banksters (like the 80s) and order will be restored!
Laws are nothing without enforcement.
China is in Trouble, don't we have Chinese ZH Readers:
"If this growth rate continues for three more years, the total size of the shadow banking-style business in China will have grown to in excess of 130 trillion RMB."
Perhaps the Shadow Banking in China is exclusive for the Ruling Party Officials. Corruption was the reason for the Chinese Revolution.
Corruption might be the reason for the next Chinese Revolution.
The shadow knows!
This may demonstrate the possibility, and even indicate a considerable probability. But as for proof? Nope.
It is just another indication that the system is extremely fragile and absolutely unmanagable.
And to what the cause of the domino effect of the collapse will be?
There are a myriad of possibilities.
But what it will ultimately reduce to is a lack of faith and confidence in the credit markets, if not in China, then perhaps elsewhere. Perhaps in currency markets or elsewhere. Who knows?
Thus we must work to erode the faith and confidence to bring this fraud and corruption to an end. Then, afterwards, we must work to replace it with a system based upon honesty and integrity with a Rule of Law.
The emperor has no clothes!!!
Personally I sort of crashes lots of systems, so I think it might be me just through my adding confusion and being outside the box. My existence will crash everything within next 5-10 years. No way they get 20 years out of war in the Middle East using FED Money before I crash it.
And there is this in other news from the Guardian and Telegraph:
- PAPER: Fears of new global crash as debts and dollar's value rise...
- BOND GIANT: EUROZONE CAN'T SURVIVE...
Total—Department of the Treasury Outlays 2014 = $570.86 Billion
Total—Department of the Treasury Outlays 2013 = $550.1 Billion (IRS Surge in spending)
Total—Department of the Treasury Outlays 2000 = $409 Billion
Total—Department of the Treasury Outlays 1998 = $401.7 Billion
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Total--Interest on the Public Debt, under Treasury, 2014 = $429.57 Billion
Total--Interest on the Public Debt, under Treasury, 2013 = $415.7 Billion
Total--Interest on the Public Debt, under Treasury, 2000 = $362.1 Billion
Total--Interest on the Public Debt, under Treasury, 1998 = $363.8 Billion
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IRS, Total Outlays—Internal Revenue Service, under Treasury, 2014 = $116.01 Billion
IRS, Total Outlays—Internal Revenue Service, under Treasury, 2013 = $103.3 Billion (Boom)
IRS, Total Outlays—Internal Revenue Service, under Treasury, 2000 = $38 Billion
IRS, Total Outlays—Internal Revenue Service, under Treasury, 1998 = $33.2 Billion (??? What? For what??)
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IRS, Payment where earned income credit exceeds liability for tax Outlays 2014 = $60.09 Billion
IRS, Payment where earned income credit exceeds liability for tax Outlays 2013 = $57.5 Billion (?What?)
IRS, Payment where earned income credit exceeds liability for tax Outlays 2000 = $26 Billion
IRS, Payment where earned income credit exceeds liability for tax Outlays 1998 = $23.2 Billion
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IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 2014 = $21,49 Billion
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 2013 = $21.6 Billion (?What?)
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 2000 = $806 Million (Million)
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 1998 = Zero.....