Chinese mortgage fraud touted too large for authorities to clamp down on; Bitcoin now bigger than New Zealand; Government to urgently establish committee to fix health system; UST 10yr yield at 2.39%; oil and gold down; NZ$1 = 68.5 US¢, TWI-5 = 71.3

Here's my summary of the key events overnight.

Sky-high property prices are spurring “widespread” mortgage fraud in China. Reuters reports that unqualified borrowers are using fake documents to secure mortgages, while loans obtained for other purposes are being funnelled into property. The frauds often require buy-in from brokers, valuers and banks. The concern is that the situation leaves banks dangerously exposed. In its report, Reuters quotes a lawyer who says: “When everyone is doing it, you can’t put everyone in jail.” has heard of similar rings operating in New Zealand - particularly a few years ago before banks tightened their lending. In fact, two property developers, a banker and lawyer accused of committing at least $50 million of mortgage fraud are due to go on trial in February.

Staying in New Zealand, the Government has announced it will “urgently” establish a new advisory group to look into improving the health system. The announcement follows the Director-General of Health, Chai Chuah, yesterday resigning, and the Waikato District Health Board chair, Bob Simcock, last week resigning in the wake of a scandal over spending.

The value of bitcoin is being touted as exceeding the value of New Zealand’s entire economy in a Bloomberg report. With US$190 billion of bitcoin said to be in circulation at the moment, its market capitalisation is around US$5 billion more than New Zealand’s GDP. Bitcoin is also said to be bigger than Boeing and Warren Buffet.

Data shows new orders for US-made goods fell less than expected in October. Factory goods orders dipped 0.1% amid a drop in demand for civilian and defence aircrafts. Meanwhile shipments of core capital goods, which are used to calculate business equipment spending, advanced 1.1% in October instead of the previously reported 0.4% rise.

Progress made on US tax reform has given equities and yields, as well as the US dollar, a boost.  

The UST 10yr yield has risen overnight to 2.39%.

The price of crude oil is down to just under US$58 a barrel, while the Brent benchmark is just under US$63.

The price of gold has fallen to US$1,274 an oz.

The New Zealand dollar is weaker at 68.5 US¢, 90.1 AU¢, and 57.8 euro cents. The TWI-5 has dropped to 71.3.

If you want to catch up with yesterday's changes, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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China's house of cards
Australia's house of cards
New Zealand's house of pick up sticks

Wool prices in decline as Chinese demand falls off.



China threatens reprisals on NZ dairy, wool and kiwifruit if government doesn't back off cheap steel inquiry

Yep, some supposedly smart people have made our beds.
Time for us to sleep in them.

The sorts of things politicians naively assure citizens will never happen.

oops out of context comment deleted.

I'm sure my sister still has a Pet Rock somewhere in her draw......

Perhaps I should start selling virtual "Crypto Kitty-Litter"

Brilliant may I suggest another couple of names: Kitty Poop Pay, or Litter-al Kitty Poop

So from pets to gardening to tulips... Even the neopets fad was not this limited and bad. Sure millions has been lost in Eve online battles and WoW but as least you could thinly rationalise them as international competitions of ego and skill like the Olympics. Owning a pet picture for ether is worse than pokemon, there is no functional usefulness outside of a cheap doodle and the financial value beyond the original coinbase is questionable. However compared to Eve and WoW, perhaps it is more healthy peacocking than the games which alongside money also take large quantities of the gamers time & is often highly addictive. Perhaps the games are already looking to integrate cyrptocurrencies into design. While they are at it they can use the gamers computer processing power for mining, it's not like the games would look any more bloated or that silently running in the background is not already accepted practice to a degree.


Well looks like Labour will have absolutely have to go a head with that Foreign Buyers ban. I knew that there is a lot of mortage corruption in China but didn't realise that it was that huge a scale!
Everyone needs to read that Reuters article.

As the article points out type of corruption through coordinating ' liar loans' is what essentially caused the global financial crisis, the only difference is the banks tried to disguise them and packaged them in to toxic assets.

Think how many of these loans were used to buy up overseas property and you'll realise the huge impact this is having on us all! So glad that we now have a Government that willing to do something about this.

Wow Chinese mortgage fraud, now there's a shock! Who would have thought it? Good job none of that money ended up over here.....

On a similarly joyous note -

Who'd a thunk it, was the first thing I thought as well

Trump hijacked the Republican Party, defied the Party’s fervent desire to nominate another android candidate, and then compounded his crime by winning when everyone said he’d lose. The American political Inquisition couldn’t cope with such a level of wicked heresy, and so it has variously filibustered, sabotaged and emasculated every potentially useful thing The Donald suggested….and then let through a piece of econo-fiscal antimatter purely to make the batting average look better. Why, you might therefore wonder, has the Tax Bill passed into Law? Donald Trump has a vision of the American economy’s architecture that is at least forty years out of date. That’s not me jumping on the DNC/Antifa Nutwagon; rather, it is the outcome of listening to what the President has been saying for the last two years. When forty percent of the Nation earns less than the minimum tax band – and, whatever “the data” say, a further 18% are either under (or un) employed – any radical tax cut is, by definition, going to give zero benefits to three citizens in five. Yes folks, that’s how focused on the citizen’s best welfare the political class is.

(John Ward)

Good comment, but all politicians are guilty of this. Who is listening who can change it?

in this country we are having a huge debate on mental health, which is the direct consequence of Helen Clark dismantling the mental health system because she was ideologically opposed to the "institutionalisation" of the mentally ill. Now instead of places like Kimberly, or Lake Alice, they go to places like Rimutaka, Paremoremo which are singularly ill equipped to manage and treat them. There is no doubt that the system needed a shake up, but politicians who refuse to listen to expert advice should be held to account for the consequences of their actions. Trump's actions will only entrench the divide, and his support from the Republican Party will mark them all for the consequences.

"Widespread mortgage fraud in China"

But there's "negligible" laundering activity going on here in NZ according to some.

Oh yes, all the Chinese buyers that have bought over here in the last 5 years have used 100% honestly earned money.

For much of this year, going back to March, primary dealers are hoarding about the same as they did during the worst parts of 2011 and the 2012 slowdown as well as the “global turmoil” resulting from the “rising dollar.” The question is why.

The answer is scarcity, as in both collateral as well as liquidity preferences that institutions simply refuse to let go of. The lack of quality collateral is as remarkable as, and related to, the lack of recovery. A real economic advance would create its own collateral on increasingly generous terms, at least further greasing the wheels for it as it spins all around the world under redistribution of dealers (both domestic as well as foreign). When you all you have are UST’s, you don’t have much, let alone enough.

It is as consistent a projection as there can be in any market right now, but one practically no one recognizes. Instead, the mainstream continues to be mesmerized, if still disappointed, by all the “money printing” done, and still being done, by central banks. It is therefore never considered as to why the interest rate fallacy continues forward a whole decade later. Low interest rates, as in the thirties, tell us money is tight not loose (and certainly not stimulus; prolonged low interest rates are evidence of failed stimulus).

What’s notable for the intermediate term is that repo fails, and therefore the unnatural dearness of collateral instruments like T-bills, are escalating again. For the second time in less than three months, repo fails for a single week added up to $400 billion. That is a rarity even for a repo market that going back to 2011 (unsurprisingly) can’t ever seem to get out of the Fed’s way. Transitory factors indeed. Read more

Pending banana republic status for the US?

Last week, rating agency DBRS raised a red flag when it calculated that in the past decade average US wages have risen by only 5.7%, while consumer debt over the same period rose 60% more, or 9.3%. However, while the US household's reliance on debt to fill in the income gaps is hardly news, on Monday JPMorgan found another, even more concerning debt inflection point: household debt, fast as it may be rising, is about to be eclipsed for the first time ever by the even faster rising federal government debt.

As JPM writes in its weekly market recap, prior to the Financial Crisis, household debt relative to federal government debt hit a high of 3 to 1 times. Since then, a combination of bank credit tightness and consumer prudence has sharply limited the growth in household debt, with liabilities increasing just 4% since 3Q 2008. However, JPM adds, "the same cannot be said of the federal government, with liabilities increasing almost 150% over the same period and nearly reaching household debt levels for the first time in modern history." Read more

Yep. Literature imitates reality;


The problem with Mortgage borrowers in China fraudulently gearing to the hilt is that they have no "skin in the game" , so they can simply walk away from the debt .

The consequence is that the Bank finds itself without sufficient provisions for such debts, insufficient value in the property , and little recourse to a man of straw .

This can lead to banks collapsing

Or just more government payouts to cover the banks.