Tuesday, September 20, 2016

GDP to Credit Gap




(Credit to GDP Ratio by country)

I think this is explaining that you have an economic recession when when you have decrease in GDP rate (business) and decrease in money supply/credit or overall negative (financial) during the same period.  

So, by Keynesian Economics, big government can minimize recessions by expanding the money supply, lowering interest rates, and supplying credit during periods of a negative business cycle. (Giannini Loans following San Fransisco EQ/Fire-- Bohemian Grove member) 

So, I guess that China is exhibiting an over-expanded credit/money supply and if there is any contracture in GDP rate, they won't have the room to financially buffer against recession. 

Interesting how this will play out with China Yuan/Renminbi joins the SDR.  BIS Basel 3 has strict credit and capital requirements to join the club.  I suppose IMF is promising China greater longterm inflows of capital if they join up but I'm not sure what China can and will do about its GDP/Credit Gap.

Bank of International Settlement Basel 1 Accords implementation clamped down on Japan triggering their "Lost Decade". 

BID Basel 2 Accord implementation popped the US housing bubble in 2008. 

Will Basel 3 pop China's bubble?  Or, did Basel 3 create the credit to GDP ratio as Chinese banks were required to hold 10.5% -11.5% reserves (CAR)?  Basel 3 requires 8%.  These banking reserves likely are held in the form of domestic bonds which may explain the credit gap. 

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