Last week, we presented a table showing what 26 centuries of global financial innovation, which incidentally is the main reason why the Fed is now stuck in a corner and forced to keep the system from collapsing using every possible means, looked like. It looked as follows:
The source of the table, Deutsche Bank, had this to say: "financial innovation is a major positive driver of the money multiplier as it determines, among other things, the amount of leverage the banking system runs." It is indeed a positive driver until the point when the leverage in the system becomes unsustainable, and in the absense of yet another paradigm step function in innovation, leads to such catastrophic events as the Great Financial Crisis of 2008, whose aftermath is still very tangible today, five years later.
We concluded our post with a question directed to readers: "we ask: what is the next, perhaps final, can-kicking "financially innovative" milestone? If any." Overnight the answer appears to have presented itself.
China.
From Market News:
The People's Bank of China will encourage financial innovation and improve its policy to allow the financial services sector to better serve more people, focusing mainly on the agriculture sector and small and medium sized companies, said PBOC Governor Zhou Xiaochuan. In an article published in the official Qiushi magazine, Zhou said the central bank will ease market access control to support development of small financial institutions, including setting up private banks. Zhou repeated that the PBOC will encourage more financial support for the agriculture and smaller firms, including supporting allowing qualified SMEs to issue bonds to raise funds. For the property sector, Zhou reiterated his support for mortgage lending demand for the purchase of first homes and also urged banks to support public housing programs and slum area rejuvenation.
Because, unlike the rest of the developed world, China does not have a record bond bubble already and what it really needs is some more debt. Oh wait...
