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China’s Economic Growth Slows Sharply as Covid Policy Takes a Toll
New York TimesDec 24, 2022
The Facts
The Bank for International Settlements (BIS) published on Monday its quarterly review, stressing that more than $80T in "outstanding obligations to pay US dollars in foreign exchange (FX) swaps and forwards and currency swaps" are missing from standard debt statistics.
This hidden leverage comes due to accounting conventions on how to track derivative positions and was found based on data from a survey on global currency markets earlier this year.
The Spin
Establishment-critical narrative
The world is heading toward the mother of all stagflationary debt crises and there is little policymakers can do to prevent this from happening after years of ultra-loose fiscal, monetary, and credit policies that have encouraged debt over equity. Governments do not want to raise taxes or cut spending to reduce the deficit, and they will eventually give up fighting inflation in the wake of the looming crash.
Pro-establishment narrative
Ultra-low interest rates, along with the aggressive tact of investors, have indeed driven leverage higher, but rising rates would only make it more dangerous because it would likely promote further instability across the global financial system. Solving this hidden debt challenge requires more transparency in the exposure of the banking system.
