China Hikes Bank Reserve Requirements By 50 bps, Ninth Time Since Last October, RRR Now At Record 21.5%

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Tue, 06/14/2011 - 07:25 | 1367204 Josephine29
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Weren't Goldmans only telling us yesterday that the overheating and boom in China was over? A 5.5% inflation rate and industrial production rising by 13.3% puts the lie to that. More reliable is this analysis.

Also if we look at the breakdown of inflation we see that food prices rose by 11.7% which reminds me of the way that the current burst of inflation around the world is hitting the poorest hardest and my contention that such rises are at the bottom of the unrest in the Middle East. I wrote on this subject on the 11th of February on my “old” Notayesmanseconomics blog.

 

Also it is my contention that raising reserve requirements is likely to prove ineffective and explained my reasons for this on the 6th of April. Let me put that another way, the fact that this is now the eleventh increase in reserve requirements I think makes my point for me. Reserve requirement increases are a weak policy tool. China should be raising her interest-rates further if she really wishes to cool her overheating economy.

 

http://www.mindfulmoney.co.uk/wp/shaun-richards/inflation/

 

 

Tue, 06/14/2011 - 07:24 | 1367205 hugovanderbubble
hugovanderbubble's picture

Morning Zh readers,

 

Just look Italian,Belgian and Spanish CDS....

 

Not just pure Piigs in troubles...Belgium too

 

*Short KBC,DEXIA;Credit Agricole, SocGen,BNP,

 

http://www.rankia.com/respuestas/819209/images/46233

Tue, 06/14/2011 - 07:35 | 1367215 hugovanderbubble
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+1

Thanks Tyler,

 

Tue, 06/14/2011 - 07:38 | 1367224 Quinvarius
Quinvarius's picture

They almost have reserves to the point where they can order banks to back their reserves with gold once they get enough and the price rises.

Tue, 06/14/2011 - 08:26 | 1367282 Re-Discovery
Re-Discovery's picture

My question for the last two months has been "How are they going to keep stocks up while printing money and popping commodity 'bubble'?"

Let me peface this by saying I hate these central planning megalomaniacs.  The game plan seems to be

1) Reduce 'inflation expectation' by talking it down, i.e. calling it transitory.

2) Avert equity collapse by blaming bad results on supply chain disruption, not consumer deleveraging.

3) On a relative basis, ignore the housing market, by far the biggest impediment to growth.

4) Understand that emerging economies will need to battle inflation and tighten their own monetary policies.  Use this as a thesis to have market conduits attack commodity prices on lower international demand.

5) Castigate Congess for deficit spending and debt levels.

6) Use the debate on raising the debt ceiling -- which will unfailingly look like bad sausage making to the public -- to ride to the rescue and re-establish QE.  Thereby raising all markets and hopingthat commodities have deflated to such an extent that their next rise wont choke out the economy.

Please comment or add as necessary.

 

 

 

 

Tue, 06/14/2011 - 08:36 | 1367301 spanish inquisition
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I think the FED is going to manipulate the market to appear like they are not manipulating the market. Letting it stay stable over the summer, a little up and a little down. The game is to try to build confidence and make it appear the markets are returning to normal, it is an election year after all.

Based on the previous ZH articles, I am guessing there will be a return of foreign buyers (with FED money) offering stability in the short term. Edit: foreign buyers selling commodities and buying stocks.

I am a believer in a false flag back up plan if things go south, but not if we get too far into the election cycle. I don't think a building will be blown up again, everyone knows what to look for now.

Tue, 06/14/2011 - 08:43 | 1367305 Re-Discovery
Re-Discovery's picture

Agreed.  They do not want disorderly equity market breakdown.  Today is a perfect exampl.  Slight expectation beat on horrible print is enough to rev futures.  Entire action is government generated information.

Tue, 06/14/2011 - 08:33 | 1367291 MarketTruth
MarketTruth's picture

So China near 5:1 leverage (22% reserves) and USA banks at 50:1 (2% reserves). Which would you have more faith in surviving a loss of 4% in asset valuation?

Tue, 06/14/2011 - 09:50 | 1367459 Tekrunner
Tekrunner's picture

Reserves aren't really relevant for this. After all, a bank does not necessarily own its reserves, it can just borrow them from other banks / the central bank. Capital ratios are what really matter for solvency.

Tue, 06/14/2011 - 08:31 | 1367295 partimer1
partimer1's picture

Don't forget they make up numbers to go alone with what they want to do. 

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