Quotable – China debt comments
“Indeed, high gross debt in an economy indicates sophistication of its financial and capital markets as well as overall indebtedness. Moreover, gross debt is a useful indicator in assessing macroeconomic risks to the extent that a potentially serious asset price deflation does not allow selling assets to pay off debt, as has been the case during the Great Recession as well as other major financial crises in history.
“However, in the absence of a serious asset price deflation, a more relevant concept of indebtedness for a country as a whole should be its external debt level, because domestic debt tends to be offset by domestic assets. Given the same level of indebtedness, external debt tends to make a country more vulnerable to the vagaries of international interest rates and exchanges that are beyond the country’s controls. And a country needs to generate sustainable foreign currency revenue (i.e., through exports) in order to service its external debt.
“Measured by external debt, China’s indebtedness is one of the lowest in the world. This substantially reduces the risk of a ‘macro margin call’ on China due to potential negative external shocks. While the relevant risks would be less to the extent that a country is able to issue the external debt denominated in its own currency, this has been the privilege for only a handful of economies in the world (e.g., G3).” – Qing Wang, Morgan Stanley
FX Trading – Zoom-zoom growth: Comdols supported, but we like Euro-block pairs
Well, if true, stocks did it again. They forecasted a recovery. The optimists have been right; piling into stocks with confidence as they climbed the proverbial Wall of Worry. The worry warts (guilty as charged) look like they were wrong; especially if the China credit bubble concerns prove untrue.
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