1 economic summit 2012 roadmap to hong kong success excessive leverage: root cause of financial...
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Economic Summit 2012﹕ Roadmap to Hong Kong Success
Excessive Leverage: Root Cause of Financial Crisis
Norman ChanChief Executive of
the Hong Kong Monetary Authority
9 December 2012
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Rising indebtedness of major industrial economies
Source: Bank for International Settlements
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Market failure: the Greek example
Sources: EcoWin and AMECO
0
500
1000
1500
2000
2500
3000
3500
basis point
0
50
100
150
200
250
300
350
400
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Jan 2001:Greece joined euro
ECU/EUR billion
Greek 10-year sovereign yieldspread over German bund (lhs)
Greek governmentdebt (rhs)
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US balance sheet recession: household deleveraging still ongoing
Source: CEIC
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
50-year long run average = 0.8
Debt to disposable income ratio Debt to disposable income ratio
Home mortgage debt
Other consumer debt
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US balance sheet recession: huge quantity of housing inventory to be cleared
* Case-Shiller 20-city home price index is set at 100 for January 2000
** Shadow home inventory is estimated by Standard and Poor’s which includes the total number of homes with mortgage loans more than 90 days delinquent, currently or recently in foreclosure and those that are real estate owned (REO).
Sources: CEIC, Standard and Poor’s
100
120
140
160
180
200
220
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
10
20
30
40
50
60
70Months to digest inventoryCase-Shiller index*
Existing home inventory
Shadowhome
inventory**
Case-Shiller 20-cityhome price index (LHS)