US jobless claims low; air travel booms; PC shipments slump; German growth inches up; China bank lending soars; UST 10yr yield at 2.32%; oil and gold higher; NZ$1 = 71.3 US¢, TWI-5 = 77.2

In conclusion, the Chinese miracle is built on a pile of debt with only an unconstrained printing press to support it. As use of the printing press now is heavily restricted, the balancing act of supporting the Yuan and supplying enough money to local markets, will be nigh on impossible. Some argue that there will not be a funding crisis in China, simply because the PBoC can always fund a highly centralized credit system. The problem with this line of thinking is that the exchange rate target will have to be abandoned if they do. Either there will be large scale devaluation or alternatively a domestic financial crisis.
http://bawerk.net/2017/01/03/chinese-philosopher-kings-losing-their-yua…

Hold on a minute .......... if China is increasing Money supply through bank lending and spending it on infrastructure , it will surely be inflationary and DEPRECIATE the Yuan over time ?

Maybe China actually wants some inflation ? It helps weaken the Chinese currency ( if it were freely traded which it is not )

Maybe its part of a plan :-

Get the Yuan way down in value and then it will compensate for any tariffs or trade restrictions the Trump Administration may impose .

Lets also not forget that China has , apart from nearly 1/3 rd of the worlds population, got a managed currency , not a freely traded one , so they are far more able to do as they please than the rest of the world

Before we move on it is of utmost importance to understand that many of the dollar liabilities accumulated outside the United States are not backed by actual dollars, but are rather claims to dollar proper. This is the infamous Eurodollar market whereby banks, mostly international European ones, fund various economic activities by issuing claims to dollars, but for which no such dollars exists. Think of it as another layer of fractional reserve lending on top of fractionally created money in the first place.

When risk metrics stray too far from what is considered prudent, investors start to pull money out from emerging markets, and obviously demand that their investments are paid out in dollars. To comply, international banks scramble to get hold of as many dollars as they can in the shortest time possible in order to fulfil their part of the bargain. The value of the dollar jumps as demand suddenly outstrips supply. Financial conditions in emerging markets tighten significantly and it becomes impossible to fund further expansion. Emerging market banks, with dollar liabilities and LCU assets are particularly vulnerable. The boom turns to bust as the Eurodollar market breaks. If the cycle gets out of hand, as it did from 2008 onwards, banking solvency is not only limited to local emerging market banks, but to the international banking community at large.
http://bawerk.net/2016/12/26/how-to-invest-in-the-new-world-order/

In New York, the UST 10yr yield is lower again today, now at 2.32%. Markets are suffering some sort of Trump-deflation following a press conference yesterday where it became clear very little detail is coming soon about the plans of the new American administration.

The folly of economic growth optimists? - Read more

In the rush to price in firming economic data and the seemingly inflationary policies of President-elect Donald Trump, bond bears might have gotten ahead of themselves.

That's how analysts are reading the most recent report of trader commitments, which shows investors are making record bets on higher yields. In the first week of the year, futures positioning for U.S. Treasuries was at an all-time high of 1.2 million ten-year Treasury contract equivalents, according to Macro Risk Advisors head derivatives strategist Pravit Chintawongnavich.

Based on past episodes when shorts swelled to extremes, Bespoke Investment Group says the rally in Treasuries since Dec. 16 may be poised to accelerate. "Historically, large duration shorts have typically led to bond rallies," the analysts write in a Jan. 11 note, referring to the pessimistic positioning on longer-maturity debt. "In our view, the pain trade in bonds is no longer higher yields." Read more

China’s Credit Bubble is completely out of control – and it’s become deeply systemic. We’re numb to how dangerous circumstances have become.

The banking system continues to balloon uncontrollably, as does so-called “shadow banking.” Reported bank assets have reached $30 TN, having more than tripled since 2008. According to Moody’s, shadow banking has expanded from from 40% to 78% of GDP - in just the past two years. Contemporary Chinese finance is nothing if not incredibly convoluted.

October 12 – Financial Times (Gabriel Wildau): “What is the true size of China’s debt load, and how fast is it growing? The answer has significant implications for the global economy. Global watchdogs including the International Monetary Fund and the Bank for International Settlements… have become increasingly shrill in their warnings that China’s rising debt load poses global risks. Estimates of Chinese debt based on official figures are frightening enough — an FT analysis put the figure at 237% of GDP at the end of March — but an increasing number of analysts now believe that the true figure may be higher. The reason is not… that China’s government statisticians are intentionally cooking the books. Instead, financial engineering and rising complexity in the shadow banking system are outstripping the ability of traditional indicators to track debt flows from all sources. In focus is a once-obscure data series that tracks bank lending to non-bank financial institutions (NBFIs)… Bank claims on NBFIs… have increased massively, from to Rmb11.2tn at the end of 2014 to Rmb25.2tn at the end of August.”

As the banking system self-destructs, the problematic local government debt situation only worsens. What's more, Corporate Credit continues to expand rapidly, in the face of an increasingly hostile pricing and earnings backdrop. Corporate debt has ballooned to $18 TN, or to almost 170% of GDP (from Reuters).

Meanwhile, real estate finance is today a full-fledged “Terminal Phase” disaster in the making. Various government efforts over recent years to rein in an aged Credit cycle have failed, repeatedly shoved to the back burner by fear of an unacceptable bust. Last month from the WSJ (Anjani Trivedi): “More than 70% of new loans in August were to households, much of that in the form of mortgages… a remarkable shifting of the fire hose of credit… China’s stock of mortgages stood at 16.9 trillion yuan ($2.5 trillion) as of June 30. Almost a quarter of that was built up in just the past year…”

http://creditbubblebulletin.blogspot.co.nz/2016/10/weekly-commentary-pe…

After all, China was the primary global beneficiary of the eurodollar standard, and so was at great risk of becoming the primary victim of its possible end.
The eurodollar is written all over Chinese money, though even today nobody seems able to recognize it. No great effort is required to demonstrate this fact, as the PBOC’s balance sheet need only be separated, on the asset side, into forex on the one hand and everything else on the other.
http://www.alhambrapartners.com/2017/01/12/the-great-monetary-mistake/

Re China, it seems to me there is one overriding political/economic concern, which is energy and, in particular, securing energy security while avoiding the geopolitical and other entanglements involved in Middle Eastern/Central Asian oil - and, secondly, achieving this security without further poisoning its population and environment.

They're big questions, which - in one way - we all face. As we also face the implications of a debt-fuelled economy and debt-dependent social stability. It may be that China, seeing itself as restoring its historic eminence in 21st century power, and being unbeholden to prevailing 'Western' models, will answer these questions in ways to fundamentally alter the global order.