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| This could hurt a bit |
“Men!” announced the baneful god of Pannon memory
"I give to you a joyous land; yours to fight for, if necessary”
So great, brave nations fought determinedly for her
Until the Magyar finally emerged as the bloody victor
Oh, but discord remained in the souls of the nations: the land
Can never know happiness, under this curse’s hand"
19th century Hungarian romantic poet Mihály Vörösmarty, expounding on the ill fortune that has so frequently cursed his native land.
Hungary has been getting a lot of press lately as its looming debt and balance of payments crisis continues to intensify, with Fitch lately joining S&P and Moody’s in downgrading the former Republic of Hungary (now just Hungary) to junk. I've taken an interest in Hungary in the past few months as it offers an interesting play on European deleveraging while its increasingly erratic and isolationist administration has provided some of the most exciting political theater to date in the Euro crisis.
With the situation beginning to spiral out of control after a disastrous bond auction and an ever-weakening domestic currency, Hungary will likely need outside assistance similar to what it received in 2008 in order to arrest its slow but steady downward trajectory. In light of the potentially dire economic consequences, the analyst community seems to regard an IMF/EU deal as a foregone conclusion, having taken at face value the government’s recent comments on its willingness to negotiate in good faith.
About a year ago I began compiling a slide deck on the short case against China in an effort to formalize my thought and form an actionable thesis. This proved to be fairly all-consuming endeavor and led to a substantial amount of highly enjoyable work that I summarized in a rather long-winded, sometimes polemical (and now slightly out of date) PowerPoint presentation. My focus is towards the most misunderstood elements of the modern Chinese economy and reflects a perspective sharply at odds with the Western consensus. Of the ‘soft landing’ camp I am not.
In my first of what will hopefully be many, if irregularly published, pieces I’d like to briefly touch on my perspective of the Chinese slowdown and its prospects for 2012.
To bring readers up to speed, the situation has recently taken a turn for the worse. The Chinese debt cancer has continued to metastasize. Loathe to loosen in the face of vast demand from local government clients for stimulus, the center has been forced into action by the potential of a looming global slowdown; the Chinese economy, and especially the property markets, however, had already been showing signs of strain. The domestic outlook has been increasingly poor with even the heavily massaged official domestic data looking worse and worse. However, the Chinese policy elite remain trapped between a very real economic (and increasingly pressing social) need to cool inflation driven by unchecked credit growth and the demands of Ponzi growth targets (to be achieved by the aforementioned credit growth). Absent genuine reform and liberalization, the inherently inflationary tilt of China's managed economy will continue to plague policymakers even as economic activity slows; it is endemic to the model. Unfortunately, such a fundamental change requires an autocratic oligopoly of the ruling elite to voluntarily relinquish their total control of a massive wealth-generating machine.
Increasing cognizance of the fact that the $3+ trn of dollars of spoils from mass economic manipulation and top-to-bottom accounting fraud may already be largely spoken for has begun to percolate in the western media. The scale, opacity, and complexity of China's closely held financial system will limit comprehension of the full extent of the problems for most Western observers before it is already well underway.
