Submitted by David Stockman via Contra Corner,
Our point yesterday was that the Fed and its Wall Street fellow travelers are about to get mugged by the oncoming battering rams of global deflation and domestic recession.
Two weeks ago, when looking at the latest import price index data, we showed something disturbing: China has become an all out exporter of deflation. As the chart below shows, In November, import prices from China decreased 1.5% over the past 12 months, the largest year-over-year drop since the index declined 1.7% for the year ended in January 2010.
When it comes to explaining why the post-crisis world has been defined by lackluster aggregate demand and a deceleration in global trade, all roads lead to China.
Indeed, the country’s attempt to mark a difficult transition from an investment-led, smokestack economy to a consumption and services-led model has contributed mightily to an epic downturn in commodities which has in turn conspired with an expected Fed tightening cycle and a laundry list of country-specific political risk factors to push EM to the brink of disaster.
Ever since 2010 we have explained that one of the biggest risks facing the world is China's gargantuan mountain of debt, seen in its consolidated state in the following McKinsey chart...
... a mountain which has doubled from its 2007 levels of 158% of GDP and which as of Q4 2015 is well over 300%, as China races to catch up with world-record holder Japan and its 400%+ total debt/GDP.
It has been a seesaw session with U.S.