Today while scanning the world's press I stumbled upon Chinese analyst Li Changjui's overview on excess global liquidity. Li's analysis seems to reflect growing Chinese concern over the speculative risks of today's markets, especially those based on derivatives.
Details below the break:
Here is Li's key paragraph:
Global excess liquidity leads to the inflation of financial asset [sic]. According to figures provided by McKinsey Global Institute, the ratio of global financial assets to the global output soared from 109% in 1980 to 316% in 2005. In 2005, the global stock of "core financial assets" stood at US$140 trillion, over three times the stock value of the annual global GDP. Figures of the International Swaps and Derivatives Association show that as of 2006 the value of the products with interest rate swaps, currency swaps and interest rate options has surged from the $3.45 trillion in 1990 to over $286 trillion, almost six times the value of global output.
I haven't doublechecked Li's numbers, but they look to be well researched and credible. If just these categories of derivatives mentioned in the paragraph quoted above amount to six times global GDP, we may well have an entire cascade of speculative bubbles preparing to burst before our eyes.
What are the Chinese, who if nothing else tend to be rational actors, planning to do to insulate themselves from risks posed by such serially collapsing speculative bubbles? That is unclear from Li's article, but the Chinese are clearly paying close attention.