The Jig is Up

......the scope of global policy interventions over the past two decades (and especially since 2008) makes 1920’s policy measures look rather microscopic in comparison...........There is overwhelming evidence supporting the view that European policymakers have lost control of their debt crisis .... the sovereign and banking system nexus has become only more toxic. And with the ECB today highly exposed to Greece and Portugal, there are myriad issues that will have the European Central Bank treading cautiously when it comes to accumulating Spanish and Italian debt. The Europeans will have to use the “firewall” they had hoped was fashioned only for show...

If the European debt fiasco wasn’t enough, it is increasingly clear that China is faltering. Recent economic data confirm the Chinese economy has commenced a meaningful downturn. Housing markets continue to weaken, and there has been increased focus on rising inventories of apartments, automobiles, steel, raw materials, commodities, etc. Shanghai News this week reported that China’s four largest banks essentially had zero net loan growth in the first two weeks of May, confirming that April’s sharp lending slowdown gained momentum. It is also apparent that, despite recent reductions in bank reserve requirements, finance has tightened throughout important markets for non-bank finance (including securitizations and corporate bonds). I don’t see China’s economic and financial systems responding well to an abrupt Credit slowdown......

                                     ..................... Doug Noland