Ben Bernanke: "China Is Contained"; Ray Dalio Agrees

Tyler Durden's picture

On Wednesday, Ray Dalio joined CNBC’s Andrew Ross Sorkin and Becky Quick for the Davos edition of Squawk Box which is inexplicably being filmed outdoors next to some snow-laden conifers despite the fact that it’s 19 degrees in Switzerland.

The “zen master” - whose “All Weather”, risk parity portfolio got caught in the rain without an umbrella during the flash crashing madness that unfolded in late August - weighed in on a number of topics, including the outlook for US rates.

The Fed, Dalio claims, is destined to abandon liftoff and the nascent tightening cycle in favor of more QE.

Why? Well because there’s an “asymmetric risk on the downside” for markets thanks to the fact that the Eccles cabal has spent seven years going “full-Krugman”, as it were. More specifically, by pumping trillions of dollars in fungible liquidity into the system, the FOMC has managed to inflate bubbles in virtually all financial assets meaning there’s really nowhere to go but down from here.

When those bubbles burst, Bernanke’s fabled “wealth effect” will reverse and the virtuous circle wherein Americans supposedly spend more because their 401ks look better will cease to go round, triggering a downturn and forcing Janet Yellen into a humiliating mea culpa.

More QE, more Keynesian insanity, and more leverage. Got it.

So much, we said, for Dalio’s “beautiful deleveraging.”

For those who needed MOAR Ray, you got it on Thursday when Dalio participated in a Davos panel discussion that touched on, among other things, China.

Although Beijing has a “balance of payments challenge,” Dalio says China’s problems are manageable. 

Ben Bernanke agrees. "I don't think China's economic slowdown is that severe to threaten the global economy," the former Fed chair said at the Asian Financial Forum this week, before insisting that "the U.S. and China are not as closely tied as the market thinks."

Back in Davos, Dalio called the fact that Chinese debt is growing faster than incomes "unsustainable but understandable". Debt restructurings have been managed “superbly” in China, he adds.

Yes, a “superb” management of debt restructurings, where “superb” means simply refusing to allow banks to report real NPL numbers and stepping in to prop up SOEs and pseudo-SOEs when they miss a bond payment.

Dalio also weighed in on Beijing’s out of control shadow banking system which, you’re reminded, is responsible for the creation of the 8 trillion yuan, maturity mismatched black swan that we all know as China’s WMP industry. “China has developed its shadow lending system with a lot of balance,” Dalio supposes. Here's what "a lot of balance" looks like:

But the real punchline came when Dalio opined on the folks running the show in China's runaway markets. China is "not being run by loose cannons," he insists, adding that the country has a "real commitment to market reform."

Right. So bascially, "move along, nothing to see here." 

We wonder if Dalio will change his tune once the "weather" (so to speak) worsens and China finally buckles under the weight of its $28 trillion debt burden, which Bernanke said on Tuesday is merely an "internal problem."

Check back in six months once the "beautiful" restructurings multiply.

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pods's picture

Contained like a chemical storage facility in Tianjin.

"Are we dangerous here?"

Thought Processor's picture

 

 

"It's true, I'm Lying"

 

 

 

 

(watch the hands, not the mouth)

Richard Chesler's picture

Shit I always suspected it'd have an impact but I had no idea it was so bad.

 

Ham-bone's picture

Why the projeced "millions of middle class Chinese consumers" are never coming.  A quick examination of the engines of China's growth should answer why this is highly unlikely and why "when things are really bad, you just have to lie".

1- population...China's core population (15-64yr/olds) begins outright declining this year and is projected to decline indefinitely. What was an addition of up to 20 million adults every year (more buyers) is now a decline every year of a few million but ramping downward quickly in a nation with net emigration (ie, there will be fewer home buyers, fewer consumers, for China's 50+ million oversupply of apartments, for China's ghost cities, China's massive retail build-out, China's massive overcapacity across the board).

2- credit...China grew their credit / debt by 15x's over the past 15yrs ($2 T --> $30+ T) to grow GDP 9x's ($1.2 T to $10 T)...pulled demand forward for a population that's never coming???

3- wages...the growth in credit, rising population, and a strong export engine were the primary drivers in rising wages. All three have come to a screeching halt and are not likely to be coming back in our lifetime.

4- technology / outsourcing...the huge wage increases spurred manufacturers, etc. to turn to means to reduce their primary cost, labor. The implementation of labor reduction methods via mechanization, robots, etc. and an army of MBA's cleaning up process to streamline and maintain profit margins. Plus, labor intensive jobs have been leaving to relatively low cost Vietnam, Indo, etc.

5- slowing global growth = slowing export markets. Factories are shutting down, imports and exports are decelerating and/or outright declining.

All of this is in fact, highly deflationary (just like Japan, just like most of the rest of the advanced and many in developing world).

I have written about much of this in the links below...but the idea China's or India's wages will pull millions into middle class consumerism is just another very poor, unexamined extrapolation of past into future. Unfortunately, I think the opposite is far more likely and that China's middle class will begin to recede.

http://seekingalpha.co...
http://seekingalpha.co...

BTW - all this data is public data easily pulled up...funny CNBC wouldn't raise these points...pure propaganda

Master_Blaster's picture

"I don't understand the premise of the question"

https://youtu.be/INmqvibv4UU

 

 

tc06rtw's picture

Ben Bernanke: “China Is Contained”
   
Thank Heaven!…  NOW  I can relax !!

BuddyEffed's picture

Contained???

China is containedgeous!

Master_Blaster's picture

"I don't understand the premise of the question"

https://youtu.be/INmqvibv4UU

 

 

Divided States of America's picture

Wasn't bernanke thr same tool who said subprime was well contained?

Thought Processor's picture

 

 

Yep.  Also said several times that that QE was not an option that they were looking at.  In fact they laughed it off.

 

 

Ha ha ha, ha ha ha ha ha ha ha ha

 

 

Joke's on us I guess.

new game's picture

hey there mr. bersnake-it is demand?, and that comes from where, merica. soooo, what say you, no sound, say you there snake with fork tongue?? fucken ivy league looooooooooosr, all of them...

ali_baba's picture

Can't believe people fall for this joo bullshit. First they tell us the oil price is low bcos Saudi are trying to break the shale market. Then, that the global slowdown is because of China. Joo neocons running the govt and trying to bankrupt Russia, and joo bankers running the fed raising interest rates has nothing whatsofuckinever to do with anything.

Nobody stands a chance against these baby-dick suckers.

knukles's picture

Afterwards:  Nobody saw this coming!
Andrew Ross Sorkin and Becky Quick should be dunked in cucking stools as witches. 
"Oh, poor babies, they drowned.  Must have been innocent."

For the life of me, I don't understand why Becky just doesn't have on a full length Mink Coat to fit in with her audience....

Amish Hacker's picture

She does. She's hiding it under the parka.

Pinto Currency's picture

 

 

Dalio proves smart people can say really dumb things.

Maybe he's feeling potent in Davos and just needs to say things.

Fuku Ben's picture

Tianjin, you mean China's ground zero?

This whole thing is about to blow. It's gonna make Tianjin and WTC ground zeroes look like party poppers.

I love the winter jackets and scarfs with the fake digital screen backdrop. At least CNN uses real fake palm trees.

https://www.youtube.com/watch?v=jTWY14eyMFg

BullyBearish's picture

As in..."we will continue to raise rates, coming in March to a location near you..."

MayIMommaDogFace2theBananaPatch's picture

 

Contained like a chemical storage facility in Tianjin.

That's a pretty good definition for "loose cannon."

Fish Gone Bad's picture

China is doing a heck of a job.

-G.W.Bush

The Wizard's picture

The West has to have someone to blame other than themselves. China is not in good shape. However, the problem is with continual debt in Europe and the U.S. The question is if there are any more tricks in the bag for a treat.

Do people forget the statistics being used for analysis purposes are warped since they are based on a debt ridden reserve currency.

TideFighter's picture

Contained liked Hillary's irritable bowel syndrome at a debate?

Kirk2NCC1701's picture

"China is contained" means: "China will not back Yuan with Gold.  Hence they are screwed, and dance to our fiat tune".

Mazel tov, China.  ROTF, LMAO. /s

orez65's picture

Our leaders never lie!!!

I have not sent nor received any emails marked "classified", Hilarynochio.

PS: That's because "Classified" is not one of the categories of "Classified Material". They are:

"Confidential", "Secret", "Top Secret" ...

squid's picture

Subprime is contained.....

 

Squid

Tom Servo's picture

We're not going to monetize the debt...

 

Bay of Pigs's picture

Did someone yell FIRE!!!!!

SillySalesmanQuestion's picture

You're raising my interest Miss Quick, therefore. I may have to pull out my liquidity before maturation, so that the end result, does not become something, which you do not desire any longer...does that satisfy your question Becky?

jcaz's picture

Classic shit to refer back to AFTER the wall breaks.......

db51's picture

Something that hasn't been contained, is the damage done to humanity by the antics of this fucking evil asshole and his cabal of criminals  rot in Hell Bernanke.  Don't you just love the visuals of these fuckwits in their designer snow suits licking the boots of the elite.   Gag me.  Death to the MOneychangers!   Phony fucking assholes with their staged props.   

knukles's picture

Those of the Power Elite at Davos Are The Problem.  They Are the 0.01%, alongside their enablers.
They should be euthanized as per Bill Gate's proscriptions .... Karma, motherfuckers ....  Karma

                                          Aaarraraaagggghhhh!

besnook's picture

it is the dollar everyone should be worrying about.

jakesdad's picture

ultimately it isn't even the dollar - it's shipping containers & tankers.  one day china & middle east will google "sunk cost" & realize a hell of a lot of next tuesdays have passed w/o payment for past burgers...

besnook's picture

the silver lining is shipping containers make great homeless shelters and housing for fema camps.

astoriajoe's picture

what do you mean I can't unlock the door from the inside? 

Amish Hacker's picture

When a barn catches on fire, get the horses out, and be sure to tie them up. Otherwise, there's a good chance they will try to run back into the barn. Why? Because they're not all that smart, and they have always associated the barn with safety.

Likewise with the dollar. We could see a panicked run back into the dollar in spite of the flames. Then it will be time for everyone to worry about the dollar.

besnook's picture

greta analogy. that is exactly what is happening now. that's why early smart money is looking for the short signal...like 2005 in the real estate market.

DormRoom's picture

lmao,  it's like 2009 when he said the housing market was contained. de ja vu.

I woke up's picture

Beauty is in the eye of the beholder

Dr. Engali's picture

The Bernank says China is contained? Of fuck this is going to be bad.

beemasters's picture

Reading between the lines...Bernanke just conceded the US is a loose cannon, tanking much much harder and the impacts will be colossal. By comparison, yes, China is "contained".

Haole's picture

Contained like a 600 pound shut-in who's been force-fed cheddar cheese for seven years...

tarabel's picture

 

 

I have an idea. Let's put all of Ben's life savings into Chinese WMPs since he's so sure that everything is cool over there.

Seal's picture

life savings? these a$$holes don't need life savings - they've been sucking off the USG teat all their lives. Not one of these turkeys ever had an 'at-risk' job in any markets. How did the US end up getting run by idiots like this. 

aliki's picture

i don't understand where dalio sits on this entire QE experiment.

this is the same guy who made an animated clip to explain $$$ printing and how it destroys future generations, savers, seniors; basically anyone but risk-asset holders and does NOTHING for the real economy or to help the middle class.

my only conclusion is that dalio went full-on-board david tepper, rode this shit all the way, got caught holding too many longs, & now realizes he & his PMs are completely trapped without central banks pouring on the juice.