China Surpasses U.S. In Debt Creation Since 2008

Published March 17, 2014

Since 2007, the amount of credit outstanding — that is all debts public and private — has increased a whopping $30 trillion to $100 trillion in mid-2013, according to the Bank for International Settlements.

Half of that increase has occurred in China, with an increase in total bank assets by $15.4 trillion since September 2008, reports the popular financial blog, to a total of $24 trillion. That’s a 171 percent increase, or about 34 percent a year.

“They have replicated the entire U.S. commercial banking system in five years,” Fitch senior director in Beijing Charlene Chu told the UK Telegraph’s Ambrose Evans-Pritchard.

Pullback In U.S.

In the meantime, credit outstanding in the U.S. during the same period has increased $7 trillion for a total of $58 trillion, just a 7 percent increase, or about 2.4 percent a year. That compares to a postwar average of 8.4 percent growth a year as the U.S. underwent an unbridled credit expansion.

As a result, the U.S. owes about 58 percent of the world’s debt yet makes up only about 23 percent of the global economy. That is down from 2007 when it owed almost 73 percent of debt worldwide. Meanwhile China has risen from 13 percent of world debt to 24 percent.

345% Debt Ratio

Put another way, the U.S. still has an eye-popping debt-to-GDP ratio of 345 percent, but China is rapidly catching up at 255 percent debt-to-GDP.

However, it may be peaking, Evans-Pritchard warns. Europe, he writes, risks deflation “as China attempts to extricate itself from [its] $24 trillion credit misadventure.”

That feedback is likely to be everywhere, if China’s credit bubble is indeed popping. Meaning, there could be more headwinds in the global economy as the financial crisis enters into a new phase.

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