Explaining January’s Volatility in One Chart

In a month of disturbing images from troubled countries in all parts of the developing world, the biggest threat to the global economy may have been lurking in the shadows:

For more on recent shenanigans in China’s shadow banking sector, click here.  Also, this link has an interesting account of excesses in the market for bankers acceptance notes, in particular.

Note that we excluded China from the conclusions of Thursday’s post, “Fear the Equity Bubble, but Don’t Sweat the Emerging Market Crisis.” It’s a little late for early-year predictions, but here’s one for sometime in the next few years if not 2014: Richard Koo becomes the most sought after economics pundit and possibly the world’s most famous economist after China’s epic balance sheet expansion morphs into the mother of all balance sheet recessions.