China's credit bubble on borrowed time as inflation bites

[hedgetrimmer]

Source: The Telegraph

The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trade trades for 2011. This is a new twist.
Officially, inflation was 4.4pc in October but not many in China believes it is that low. Photo: EPA
It warns that the Communist Party will have to puncture the credit bubble before inflation reaches levels that threaten social stability. This in turn may open a can of worms.
"Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank’s emerging markets chief.
Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.

Read more: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8182605/Chinas-credit-bubble-on-borrowed-time-as-inflation-bites.html

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My favorite part is that hedge funders actually bet against economies stabilizing. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8166440/Hedge-fund-manager-Mark-Hart-bets-on-China-as-the-next-enormous-credit-bubble-to-burst.html
Check that out!

[rbixby]

1. So what does that mean for US T-bills bought by China

Will they suddenly be worth a lot less because they were bought with Chinese currency? Just wondering how this would effect them as our creditor.

[Johnyawl]

2. They weren't bought with chinese currency...

...they were bought with US Dollars, the dollars that we paid them for the worthless consumer goods they ship us.

[ixion]

3. "It warns that the Communist Party will have to puncture the credit bubble before inflation reaches

...


Now there's a sentence you don't read everyday. Credit and Communism. Who'd have thought?

[Fool Count]

4. Sovereign default by China? China has over 2.5 Trillion (that is with 12 zeroes)

in hard currency reserves. That's more than UK's GDP. Those RBS economists are a bunch of real geniuses. No wonder RBS got in such deep shit.

[No Elephants]

5. What happens to a red ink enterprise whose only lender is in financial trouble?

Will the rest of the world step in and bail us out because the U.S.A. is too big to fail?

Meanwhile, Obama tries to endgame Congress by agreeing to extend tax cuts even Republican voters oppose.

As Ebenezer said right around this time of year (according to Dickens), "I'll retire to Bedlam."