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How China Just Implemented A Stealth Bailout Bigger Than One And A Half TARPs

Tyler Durden's picture


While the rest of the world is transfixed by the latest pocket change bailout of the Eurozone, China has stealthily conducted an economic rescue bigger than than one and a half TARPs. Dylan Grice's latest note focuses on the key news out of China from last week which oddly received very little media attention, namely the onboarding by the Local Government Financing Vehicles (LGFV) of $463 billion in bad loans made to various infrastructure and development projects as part of the Chinese stimulus package. This is nothing short of a bailout the likes of TARP when Paulson transferred billions of toxic debt to the government's balance sheet. The reason why this is actually a much bigger deal than perceived is that as Grice notes, a "bail-out of $463bn is half the size of the TARP, introduced by Paulson at the nadir of the 2008 crisis, for an economy which is only one-third the size of the US. So adjusted for GDP, China has just announced an emergency bail out of one and a half TARPs!! If we calibrate the magnitude of the economic crisis with the size of the bail-out, one and a half TARPs implies a financial crisis one and half times the order of magnitude of 2008." In other words, China very quietly and stealthily buried a massive bailout with just one passing Reuters mention. And nobody cares... Or more specifically, those who have long held a very bearish view on China, should certainly care, as what happened is that the unwind catalyst, so critical for most China bearish theses, was just pushed back by several years. And since China is full to the gills with excess dollars, all that happened was that the government effectively diverted money that would have been otherwise recycled to purchase US paper, in the form of a government fund to bail out it own. Crisis averted as another centrally planned regime managed to do what the Fed and the ECB have been doing so well for nearly 3 years now.

From SocGen's Dylan Grice:

Last week saw perhaps the starkest example yet of China's "Great Suppression." Reuters reported that China's central government was taking on responsibility for up to $463bn of bad loans made to Local Government Financing Vehicles (LGFV) which had been made to fund various infrastructure and development projects as a part of the stimulus package. It's not clear yet how this will be done, but I suspect the template will be similar to that used during the recapitalisations of Chinese banks in the 1998-2005 period. Asset management companies buy the bad assets, which they pay for with non-tradable government guaranteed bonds which don't show up in the official measures of government debt. Maybe this is why the story didn't get much attention: China's government throws money at a problem - problem goes away - boring story - move on.

But the problem hasn't gone away. Think carefully about what's just happened. A bail-out of $463bn is half the size of the TARP, introduced by Paulson at the nadir of the 2008 crisis, for an economy which is only one-third the size of the US. So adjusted for GDP, China has just announced an emergency bail out of one and a half TARPs!! If we calibrate the magnitude of the economic crisis with the size of the bail-out, one and a half TARPs implies a financial crisis one and half times the order of magnitude of 2008.

"The critical issue in both cases is the artificial suppression of volatility - the ups and downs of life - in the name of stability. It is both misguided and dangerous to push unobserved risks further into the statistical tails of the probability distribution of outcomes and allow these high impact, low-probability "tail risks" to disappear from policymakers fields of observation. What the world is witnessing in Tunisia, Egypt, and Libya is simply what happens when highly constrained systems explode."

This is all China has done with its bail-out of local governments. It has upped the ante. While we can't predict where complex systems will go, we know that the longer their volatility is artificially suppressed, the more emphatic will be its release when it does come. It is more likely that China has one and a half times (and counting) the 2008 financial crisis ahead of it.


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Tue, 06/07/2011 - 12:24 | 1347164 oogs66
oogs66's picture

At least they never pretended to be anything other than centrally planned, and they had the money on hand to do the bailout.  They didn't have to borrow money to bailout someone.

Tue, 06/07/2011 - 12:25 | 1347182 Ahmeexnal
Ahmeexnal's picture

Bilderberg are so protective of the Euro because it is a powerful symbolic pillar of their agenda for global government. The Euro was also a brainchild of the Bilderberg Group itself, with Bilderberg-chairman Étienne Davignon admitting last year that the single currency was formulated by Bilderberg in the 1990?s.

Indeed, The foundations for the EU and ultimately the Euro single currency were laid by the secretive Bilderberg Group in the mid-1950’s. Bilderberg’s own leaked documents prove that the agenda to create a European common market and a single currency was formulated by Bilderberg in 1955.

As we first reported in 2003, a BBC investigative team were allowed to access Bilderberg files which confirmed that the EU and the Euro were the brainchild of Bilderberg.

Tue, 06/07/2011 - 12:45 | 1347245 66Sexy
66Sexy's picture

Unemployment over 9%, wages are not going up. Rates at 0, and immediate liquidity will result in the opposite of the "intended" result of inflation... we will get deflation.

What we see is the speculation of inflation by the state and corporate america... an illusory effect, yet not real inflation. 

What we see is a (purposefully?) futile attempt by the fed to battle deflation. Margin debt is transient.. what other debt/money is being created besides margin? Margin debt is destroyed almost as soon as it is created due to immediate liquidity and the fact there is no longer a defined 'long position'.

If the debt is destroyed, and wages are not increasing bottom-up to support the speculative, corporate dictated 'inflation prices'... then inflation is unsustainable. 

This could be part of the Bilderberg agenda as well... a sudden and destructive dollar rally. NO ONE would see it coming; we've all been trained to expect a dollar collapse.

Tue, 06/07/2011 - 12:46 | 1347259 SheepDog-One
SheepDog-One's picture

The FED only cares about battling 'deflation' in THEIR holdings. They dont give a shit if 200 million people cant afford to buy food and starve to death. In fact they want that too.

Tue, 06/07/2011 - 15:26 | 1347884 Slim
Slim's picture

You are not off at all nor do I think it contrarian outside of ZH which has many hyperinflation/precious metals fans here.  This is base case and it explains just about every action taken to fight this and why the Fed isn't overly worried about speculatively driven commodity increases (as long as they price in QE3, we will have no QE3 so welcome to brinksmanship).  Look at the M3 chart at Shadowstats, it was negative forever and just barely went positive.  We wiped out and continue to wipe out massive debt/money.  IMO people put far too much focus on M1 and forget, or overly discount due to lack of understanding, the damage done to velocity and how much the continual destruction of the former shadowbank system has and is draining. 

The bottom line is that the powers that be are desparate for sustainable demand driven inflation (not speculative flows driven in anticipation of said demand, which will have the effect of stifling said demand before it ever gets going).  They don't want it to be uncontrollable but they want to get it positive including wage/labor increases to help dig out of this mess.  So far they have not had much luck getting into positive territory but have slowed the decline. 

Arguably, this policy has been in place since the tech bust with housing bubble efforts and bank deregulation (remove leverage limits on banks) purposefully done in order to help drive private sector wage and labor growth as the US and most of the developed world were deflating even then.  Unfortunately the double down using the consumer's (70% of the US economy) largest source of wealth with huge leverage on it failed, and we have a much worse problem.  Central planning at its finest.

Tue, 06/07/2011 - 15:45 | 1347947 disabledvet
disabledvet's picture

thirty years of massive speculation in the property market ran its course in 2008.  Bernanke saved the day by lowering rates going into an epochal collapse in that space.  Anyone who has argued for anything other than further contraction in the real estate space has been flat out wrong two years running--and it's now confirmed "you screwed in year three, too."  a more accurate assessment at this point would look at this space as being in something of a 30 year bear and in that sense i agree with the Great Depression talk.  We love ZH because "dey been all over dis sheet" since day one.  ON THE OTHER HAND ZH has been totally wrong in the equity space which has doubled in two years and shows no signs of collapsing ala the property bubble is doing again right now.  DATA PLEASE!  With interest rates at record lows "they can finance their business with stock buybacks" apparently!  GOVERNMENTS on the other hand...

Tue, 06/07/2011 - 21:10 | 1349231 QQQBall
QQQBall's picture

Right, the risk-adjusted yields are insufficient. When prices reach a clearing level (lower) people will step in and invest b/c at the lower prices the cash flows yields are better and the appreciation  rate (yield on reversion) could be greater. Plus, buying at a lower price, while not eliminating risk, reduces it & provides a greater margin for safety. The FED buys toxic paper at face value, the banks turn-around and get a risk free yield with the money. The banksters reduce loan loss reserves and claim record profits - and then pay themselves huge bonuses with the free money and loan loss reserves.


The same asshats that caused this shit are now charged with fixing.... Another "whocuddanode" moment is right around the corner after anoth episode of bal-us-out more or the whole world will end.





Tue, 06/07/2011 - 12:52 | 1347270 Cheeky Bastard
Cheeky Bastard's picture

OT much?

Tue, 06/07/2011 - 13:00 | 1347295 Cognitive Dissonance
Cognitive Dissonance's picture

OMG.....Cheeky sighting alert.

Is that you Cheeky? You Bastard, how have you been? Nice to see you haunting the web pages of Zero Hedge.

Old school bitches. :>)

Tue, 06/07/2011 - 14:12 | 1347553 The Profit Prophet
The Profit Prophet's picture

HarryW made a brief appearance this morning, although there was something eerily strange about his was brief and sort of made sense???

T.E.I.N. everyone!

Tue, 06/07/2011 - 14:30 | 1347619 The Profit Prophet
The Profit Prophet's picture

False Wanger alert...I just checked the article and it was Harry Wanqer.

T.E.I.N. everyone!

Tue, 06/07/2011 - 14:39 | 1347672 TheTmfreak
TheTmfreak's picture

Can the real Harry Wanger please stand up, please stand up?

Tue, 06/07/2011 - 14:10 | 1347535 dark pools of soros
dark pools of soros's picture

China is just spending that money to copy iCloud so they can view their Weiner photos from all their knockoff gadgets

Tue, 06/07/2011 - 15:19 | 1347858 earnyermoney
earnyermoney's picture

Voice from the past. Nice to know you're still lurking.


Have not seen Bazooka post in a couple of weeks. Had the same avatar as Cheeky.

Tue, 06/07/2011 - 15:44 | 1347943 Oh regional Indian
Oh regional Indian's picture

B for bilderberg, might be much worse than is even commonly acknowledged.

With senses honed, dive by if you care:


Tue, 06/07/2011 - 17:44 | 1348601 Orly
Orly's picture

Palingensia, bitches!


Of course they are losing control of it.  I think they assumed that all would be well as long as they controlled the media.  Instead, they had no idea of this "internet" thing and were caught off guard by the instantaneous way real information can travel throughout the world.

Now, a good friend in India is telling me and giving me information that backs up the case I have been making for years.  This must scare the bejeesus out of them.

Since they set up the system to rape the public and transfer money into private hands, the truth has caught up with them.  Waving a piece of paper in front of the US Congress, threatening martial law, only demonstrates that they have had to expedite their plans on an exponential basis.  When that happened, things inevitably got sloppy.  Someone, somewhere, like this brave gentleman, will squeal.

What the Bilderberger, Trilateral Commission and on and on Luciferians may not realise is that the truth, like a Borg ship, feeds on the speed of the spree of crimes, such that as they move faster and faster toward their plans, the truth gets that much closer to being exposed.  The only way to contain it is to try to contain the truth-tellers.  In that way, they are really out of luck because too many people like the internet.  What was done to sedate the masses has instead enlightened them.

They are in a box.

Not only that but I am convinced that Gaia-Sophia will see that good always triumphs over evil.  Lucifer?  Fer rillz?  Sorry but that's just idiotic.  (But they do, indeed, believe it.  Believe...)

I am no longer a fringe kook- and that feels pretty good.  I just hope the whole kit and kaboodle falls apart and these criminals get exposed for what they are before GHW Bush, Heinz Kissinger and daZbig kick, so that we can see the pain of human justice on their faces.


P.S.  I think I am making some progress on my journey.  I have been given the knowlege that we are all put here, as individuals, to live out our individual destiny along our own certain agendae.  Of course, the average person would say, "Of course we are individuals."  But they don't quite get my meaning.


Wed, 06/08/2011 - 00:21 | 1349665 Oh regional Indian
Oh regional Indian's picture

Awesome all around Orly! :-)

Tue, 06/07/2011 - 12:31 | 1347203 Hedgetard55
Hedgetard55's picture



Someone who understands the truth.

Tue, 06/07/2011 - 16:18 | 1348207 Urban Redneck
Urban Redneck's picture

I think Dylan Grice is being a bit melodramatic and drawing a false analogy.  The Chinese CNY4T stimulus plan was directly analogous to the $787B ARRA (American Recovery and Reinvestment Act of 2009) - 1000 pages of pork and shovel-ready projects, that wound up being a bailout of state and local governments, not the bank bailout.  The CNY4T was financed by CNY1.2T in central government funds and 2.8T in spending decrees to the political subdivisions.  Of the CNY4T, CNY1.5T was directives to the subdivisions to find (not-so) shovel ready projects and get them financed, CNY1T for earth-quake reconstruction CNY500B for subprime housing (SERIOUSLY CHINESE SUB-PRIME HOUSING LOANS IN 2009), and CNY1T for Chinese green jobs and pork.  So the current reality isn't living up to the politicians original sales pitch.  It wound up being worse than the Build America Bonds (so far) and no where as bad as the Freddie/Fannie nationalization.  Ironically, John Perkins replacement found work in China- selling local governments on unrealistic project ROIs, only now instead of the IMF/WB coming to collect, it is the PBoC that is acquiring domestic infrastructure.  At least the Chinese got some stuff for their money, instead of the US where we got tax breaks and continued employment for state & local government employees, so everyone could run to Walmart and send the US stimulus dollars straight to Chinese exporters, instead of the shovel-ready projects and green jobs in the USA.  At the end of the day central planning is still an economic efficiency joke, but the joke is on the US since the Chinese are apparently more adept at it, or at least copying and somewhat improving on some of the more odious aspects (IMF/WB/CRA/GSE) of US capitalism.

Tue, 06/07/2011 - 12:25 | 1347165 RobotTrader
RobotTrader's picture

China's stock market has been rebounding the last few days.

FXI nowhere near as weak as SPY.

Tue, 06/07/2011 - 12:22 | 1347168 Ahmeexnal
Ahmeexnal's picture

But adjusted on a per capita basis??

Tue, 06/07/2011 - 12:28 | 1347169 plocequ1
plocequ1's picture

"nobody cares"... I care.... Does that help?

Tue, 06/07/2011 - 14:07 | 1347534 NotApplicable
NotApplicable's picture

Not to be rude, but you're likely 'nobody.'

(as am I)

Tue, 06/07/2011 - 12:26 | 1347171 baserunr
baserunr's picture

I guess now we will get to see a test of Krugman's idea that the US Taxpayer sponsored bailout was not big enough.  If this doesn't fix China's problem, I guess he can always counter that it just wasn't big enough...still.


Tue, 06/07/2011 - 12:23 | 1347173 Alcoholic Nativ...
Alcoholic Native American's picture

Are they going to bail out mainstreet? Let's see if they can do it better than the U.S.

Tue, 06/07/2011 - 12:40 | 1347229 Michael Victory
Michael Victory's picture

Reckon this is bullish for gold?

James Turkey presents to a bunch of hungry dinner guests.


Tue, 06/07/2011 - 13:11 | 1347348 Bay of Pigs
Bay of Pigs's picture

I have been lucky enough to see James Turk speak several times. His knowledge and command on PM's is amazing.

I would imagine a bunch of Germans got onboard the Gold Train after that presentation.

Tue, 06/07/2011 - 13:59 | 1347478 Michael Victory
Michael Victory's picture

hanging with turky.

in espana?

Tue, 06/07/2011 - 14:05 | 1347518 Bay of Pigs
Bay of Pigs's picture

He used to come speak in Vancouver, BC at the Cambridge House Resource Conferences.

Used to be a great lineup with the likes of Casey, Willie, Grandich, Embry and many others speaking. Not nearly as good these days.

Attendance was moderate this past weekend. Hardly the sign of tops. Sadly, I didn't get the chance to heckle Jon Nadler. I'll get him one of these days. Maybe at the Silver Summit in Spokane, WA this fall. 

Tue, 06/07/2011 - 14:20 | 1347591 Michael Victory
Michael Victory's picture

nice part of the world.

my wife and i (b4 kids) were on holiday in vancouver and other parts of the pac northwest.

rented bikes and cruised through stanley park, beautiful.

Tue, 06/07/2011 - 14:02 | 1347504 jus_lite_reading
jus_lite_reading's picture

Haha yes it is... yes it is... but also the FTSE to gold ratio says gold is gonna go up a LOT!

Tue, 06/07/2011 - 12:48 | 1347265 TheTmfreak
TheTmfreak's picture

Mainstreet isn't exactly a saint either.

I guess so much for the Yuan being "undervalued"

Tue, 06/07/2011 - 13:39 | 1347460 ratso
ratso's picture

No, they are not bailing out main street.  The banks and local governments that are being bailed out are always going to be bailed out  by the central government.  The real question for China is who is going to foot the bill and how will that play out.

Tue, 06/07/2011 - 14:30 | 1347618 laomei
laomei's picture

"Main street" as it were, has already been "bailed out", we saw a healthy increase in minimum wages, an increase in checks and balances to counter speculation for the benefit of common people, a massive cut in taxes for the lower and middle class and a proportional increase in taxes for the upper middle and upper classes.  We have plenty of cold hard cash to do with as we want here and in all honesty, inflation is not that bad considering CPI is tied to an actual basket instead of the bullshit in the US.


The epic subway projects will help cut down inner-city commute times in a big way and pay off quickly in increased productivity.  All of Beijing is being wired for FTTH this year with internet prices being lowered.  And the (actual) high speed rail network throughout all of China will reduce reliance on jet fuel (our air fare prices are dirt cheap already just in anticipation of the growing competition).  Top that off with the extensive nuclear plants being planned and built as well as the additional funding being pumped into molten salt thorium reactor technology (short term payoff) and fusion reactor technology (long term payoff) and it becomes perfectly clear that China is making the right moves for its future.


What great things are going on in the US or the west in general?  Other than rising healthcare costs and increased reliance on food stamps (which the states can no longer afford to provide... seeing as they are all bankrupt) of course.

Tue, 06/07/2011 - 16:11 | 1348146 mkkby
mkkby's picture

We've got a bill of rights... um, nevermind -- bill of suggestions.  But hey, we've got the best reality tee vee in the world.  We are number one!

Tue, 06/07/2011 - 12:33 | 1347174 SheepDog-One
SheepDog-One's picture

I see this as a big 'fuck you yankee' from China, after just divesting itself of 98% of US treasury debt China bails itself out, leaving the US dangling on a meathook, covered in flies. OK so whats next?

Tue, 06/07/2011 - 12:55 | 1347280 LongBalls
LongBalls's picture


Tue, 06/07/2011 - 13:20 | 1347383 I_ate_the_crow
I_ate_the_crow's picture

In my humble and somewhat tinfoily opinion, China-US economic war is simply the international version of the Republican-Democrat hegelian game that we witness in the USA domestically.

Zhou Xiaochuan is on the BIS board of directors. Do you really think China isn't a part of this? I suppose anything is possible these days, but I doubt they sit him in the corner and force him to wear earplugs whilst the rest of the world's central bankers scheme against China during the 6 (at least) annual meetings.

Tue, 06/07/2011 - 14:20 | 1347572 NotApplicable
NotApplicable's picture

Given how Bush the first double-crossed the ROC gov. in Taiwan by recognizing the PRC in the UN*, I don't see how it's possible that they are an opposing force to the global banksters.


Of course, Bush's role isn't mentioned. That would be here.

Tue, 06/07/2011 - 14:33 | 1347635 SilverDosed
SilverDosed's picture

Another "Cold War" that's mutually beneficial to both ruling classes but keeps the workers attentions diverted as they boost both manufacturing sectors to build 100 billion dollar death machines for our populaces to kill each other with? It could work, but not with Japan in its current state.

Tue, 06/07/2011 - 15:06 | 1347812 I_ate_the_crow
I_ate_the_crow's picture

On that note....some "journalist" was on CNBC today talking about the possible suspects in the Lockheed Martin hack. China, of course, was at the top of his list. After a lot of "research", he brilliantly concluded that China wants US military technology to build a super power and conquer the world and thus would go to great lengths now and in the future to hack that technology.

It has nothing to do with the NJ Supreme Court decision and honest alternative media exposing their lies on the internet, I'm sure. Just another bullet point on the growing list of "security reasons" that we need government internet intervention in the USA.

Tue, 06/07/2011 - 12:27 | 1347177 RobotTrader
RobotTrader's picture

USO now at the LOD.

Amazing how "oil shortages" can be cured by:

- "Words" out of the Fed

- Paper shorting of oil contracts

- Margin hikes

Even when China is employing its own version of "Quant Sleaze" and car sales are still higher than the U.S. and gasoline is still subsidized.

More proof that inflation can be "whipped" by mere paper.

Tue, 06/07/2011 - 12:26 | 1347185 SheepDog-One
SheepDog-One's picture

USD now at LOD.

Tue, 06/07/2011 - 12:34 | 1347201 HelluvaEngineer
HelluvaEngineer's picture


Tue, 06/07/2011 - 12:39 | 1347237 Frank N. Beans
Frank N. Beans's picture

don't forget to CTRL-S

Tue, 06/07/2011 - 12:40 | 1347213 66Sexy
66Sexy's picture

But it is not really inflation; It is real asset speculation, and the expectation of inflation.

Tue, 06/07/2011 - 16:10 | 1348138 disabledvet
disabledvet's picture

where is the asset speculation?  ye olde standby "real estate" is dead in the water.  commodities?  risk asset for sure--maybe, maybe not.  ag (as in AGriculture, not silver) is off to another rip-roaring start to the season.  (not that silver is doing all that bad of course.)  oil?  Cramer says "raise margin requirements"--easy to manipulate the price higher because demand is basically "as inelestic as Ford Motor plastic."  i still say "bring on the alternatives" because the ruthlessness with which a market deals with a glut far outpaces anything a government agency can imagine--plus you get the "tax collection kicker" since "da USA got dat sheet."  as a caveat however "i do overwhelmingly agree with Cramer's macro-views" which basically i can't say that about...well, anybody actually.  "He's like using test-pilots for your space program" is how i look at using a stock broker as your chief economimst.  "If there's a problem you'll hear about."  memorably so in the case of "THESE PEOPLE ARE NUTS!" back in 2008.  "that's language i understand."  i'm a little slow on the upside with all that other stuff.  just ask the girls!

Tue, 06/07/2011 - 12:25 | 1347180 Xibalba
Xibalba's picture

Monkey see, monkey do. 

Tue, 06/07/2011 - 12:25 | 1347181 Note to self
Note to self's picture

So I'm a little slow . . . does this mean China is more likely or less likely to buy US Treasuries after QE2 expires?

Tue, 06/07/2011 - 12:29 | 1347188 SheepDog-One
SheepDog-One's picture

China just rid itself of 98% of its US Treasury next theyll buy it all up again? Why, due to the new super-sound US economic and monetary policy?

Tue, 06/07/2011 - 12:35 | 1347207 Note to self
Note to self's picture

Yeah - I get that.  Just wondering about the timing of this action after the Geithner trip there etc.  I expect they know that if the Fed cuts off uncle Sam, and they cut off Uncle Sam (and Japan is belly up on the beach) - none of us will be able to buy China's cheap crap.

Tue, 06/07/2011 - 12:43 | 1347246 SheepDog-One
SheepDog-One's picture

Hi and dry.

Tue, 06/07/2011 - 12:44 | 1347252 A Man without Q...
A Man without Qualities's picture

"China just rid itself of 98% of its US Treasury debt"

Seriously, why do people keep on repeating something that they know to be untrue?

Tue, 06/07/2011 - 14:14 | 1347546 rufusbird
rufusbird's picture

The headline you are referring to was only discussing short term T bills., not the note and bond portfolio...

Tue, 06/07/2011 - 12:31 | 1347204 Dr. No
Dr. No's picture

If QE expires, there will be no demand.  Prices will drop.  Who would buy in a declining market?  Not someone interested in profit.  Governments are not interested in profit, so perhaps China may buy some if they there is some sinsiter reason to which buying declining value assets is a means to some end.

Tue, 06/07/2011 - 12:41 | 1347241 Note to self
Note to self's picture

It seems like China and the Fed are playing suicidal chicken by threatening not to buy US treasuries and crash us after June.   Hell - - - its June now, isn't it!

Tue, 06/07/2011 - 12:49 | 1347258 Dr. No
Dr. No's picture

If by "us" you mean the US Government, then it is not really a game of chicken.  China and the FED's primary interests are not the health of the US goverment, rather they have their own self interests.

Tue, 06/07/2011 - 13:33 | 1347417 dracos_ghost
dracos_ghost's picture

There is no China/Fed distinction. They are the same animal. It's always been a joke that China is the 13th Fed District. It was one of the covenants of their WTO sponsorship. Since the yuan is basically a food stamp, the Fed had to guarantee their trade account balances. Everyone focuses on the US/China trade deficit but I believe China on net had trade deficits the past two reports when all trading partners were considered. So doesn't that mean they have to 'deficit spend'. Oh wait, this post verifies that.

I'll say it again, the World shit a BRIC and they are trying to restart this globalization circle jerk. The Gold Rush euphoria with Globalization is over with the 'Global Labor Arbitrage' crap and now everything has seized.

It's interesting that posters on this site will talk trash about the Bernank(rightfully so mind you), but when China does the same thing in spades, they are poor victims caught up in failed Western economic thought.

China has been the problem with the world economy since the sponsorship in WTO in 2001. They have self handicapped via currency manipulation and still have to do bailouts larger than the 'evil West' -- and then come off as superior to the other idiot central banking monkeys.

The West should show some balls and tell them to honor their WTO agreements, stop walking away from their counter-party agreements, and float their currency and show all us dumb-ins how great they are.

Walk the walk and stop talking the talk. And I'm including the Western dilletentes in that statement.

Take 'Fight Club' to a new level. War is inevitable.



Tue, 06/07/2011 - 22:43 | 1349509 chindit13
chindit13's picture

How did this post got unnoticed? Why don’t you post more?

China is hardly the “economic miracle” they like to portray themselves as. The only thing they have going for them is that their “sheeple” are much more sheepish than the West’s sheeple. One could write books on it, but the easiest way to show this is to see whose bloated mug is on all of their fiatscoes, and remember that this pederast had an economic record that makes Mark Zandi look like he should be on the short list for the Nobel.

China is a debt fueled bubble, built largely on ignoring the agreement it signed to join the WTO. China’s on balance sheet debt is 125% of GDP. In an economy a third of the size of the US, China’s money supply is larger than Americas. Money supply growth has dwarfed anything Bernanke has done, and the reason why is simple: every dollar Chinese firm’s take in selling its melamine based exports gets traded for brand spanking new yuan. The government, who takes the dollars, then gives them back to Bernanke or Geithner. Thus, the dollars, for the most part, are being recycled, while every dollar of trade surplus with the US becomes new rice paper yuan.

From a report I recently read: 60% of Chinese loans to local and municipal governments cannot be serviced by current cash flow; only via new borrowings. Sound familiar? Thirty percent of total system bank loans are NPL, whereas merely a 12% NPL level that eventually loses 20% wipes out the entire bank system’s equity.

While I’m not sure the US’ future is rosy, China’s is bleak. Big Brother’s control might be increasing in the US, but compared to China the US is still the land of the free. Despite “fluoridation”, etc. in the US, the land, water and air of the US is a “breath of fresh air” compared to the cesspool that is China. Finally, perhaps not by choice, but by economic necessity, the Western world will “go Galt”, which would leave the key tenet of China’s economic “miracle”---industrial espionage, theft and completely ignoring IPRs---dead in the water as it will leave China with nothing to steal.

Many on this site are waiting for the roving hordes as the sheeple awaken in the US. Whatever the result of that possibility, it will be a schoolyard brawl compared to what China will face. Let’s not forget China has a relatively recent history of Mad Max, which they affectionately refer to as The Cultural Revolution.

Wed, 06/08/2011 - 02:25 | 1349782 M.B. Drapier
M.B. Drapier's picture

Actual war with China is close to being genuinely unthinkable.

Tue, 06/07/2011 - 12:27 | 1347186 Cognitive Dissonance
Cognitive Dissonance's picture

China seems to know how to throw a really good party. This is what......the second or third time China has out stimulated the king of stealth stimulus, the good ole USA?

Bottoms up fools because they are drinking our milkshake.

Tue, 06/07/2011 - 12:50 | 1347268 Greater Fool
Greater Fool's picture

I've heard people who are significantly more expert than I opine that the Chinese know nothing about monetary policy, but it seems to me that purging the system of bad assets before they can cause a panic makes a pretty good amount of sense from a planning perspective.

But, Jesus, think of the moral hazard and invitation for rampant fraud such a policy represents. In that sense I think the commentary is right: This is "kicking the can down the road" in a different way. They can afford it from a pure monetary perspective now, but a culture of impunity on the scale these actions invites is bound to get them in the end. It makes bailing out Fannie, Freddie, Citi, and AIG look like the work of amateurs.

Tue, 06/07/2011 - 12:58 | 1347301 trav7777
trav7777's picture

no; this just means that even as bad as our situation is, theirs is worse.

Worse is conclusively demonstrated by the scope of their bailouts, each of which is backstopping defaulted debt.

Anyone thinking the yuan is a reserve currency when it's being underpinned by empty cities and negative ROI "investments" is a fool

Tue, 06/07/2011 - 13:36 | 1347428 Cognitive Dissonance
Cognitive Dissonance's picture


Forgot the sarcasm tag.

Tue, 06/07/2011 - 15:54 | 1348039 trav7777
trav7777's picture


Tue, 06/07/2011 - 14:22 | 1347582 NotApplicable
NotApplicable's picture

Our milkshake brings all the Chinese to the yard?

Tue, 06/07/2011 - 12:31 | 1347190 bigwavedave
bigwavedave's picture

they didnt have to borrow the money. major diff

Tue, 06/07/2011 - 22:44 | 1349503 chindit13
chindit13's picture


On balance sheet borrowing are 125% of GDP.

Debt fueled bubble.

You might be making the mistake of thinking reserves are savings.  They are not.  Reserves in China represent a portion of their monetized trade surplus;  that is, every dollar of trade surplus was turned into a new yuan, and then the government sent most of these same dollars back to Bernanke and Geithner.  China's money supply, in an economy 1/3 the size of the US, is larger.  Their monetary growth exceeds Bernanke on his most prolific day.

Tue, 06/07/2011 - 12:30 | 1347202 Cognitive Dissonance
Cognitive Dissonance's picture

Time to go to the Depends.

Tue, 06/07/2011 - 12:36 | 1347211 Ahmeexnal
Ahmeexnal's picture

Holy shit....or is it Shitty hole?

Tue, 06/07/2011 - 12:43 | 1347248 Franken_Stein
Franken_Stein's picture


I've bought some nice silver eagles today.

Werry,werry NEISS.

I also uploaded on my noodle stack.


Is it more likely to make the COMEX default,

if one buys Eagles instead of, say, Philharmonics, since it drains the U.S. mint which is geographically closer to the COMEX, or is this totally irrelevant  ?


Another question: If they fear silver so much, and if the PTB wield so much power as they claim they do, why don't they just stop silver eagle minting and close the mint down ?


Tue, 06/07/2011 - 13:05 | 1347314 trav7777
trav7777's picture


The mint doesn't buy from COMEX and the mint doesn't sell TO Comex.

Comex is a futures exchange, do you get that?

Tue, 06/07/2011 - 13:42 | 1347467 Franken_Stein
Franken_Stein's picture


COMEX owns warehouses, where they store silver for physical delivery, if the holder of a future demands it instead of cash settlement.


The counterparty who went short silver has to deliver it to COMEX who then relays it to the long contract holder demanding delivery once expiry month has arrived.

And where does the shortie get the silver from ?


From miners and 2nd hand owners.

Which would drain local, in that case New York, availability.

At least that's my assumption (and hope).

Tue, 06/07/2011 - 14:05 | 1347522 Bam_Man
Bam_Man's picture

To be eligible for Comex delivery, the silver must be in 1000 oz bars and bear the mark of an approved refiner.

Buying coins will not have an impact on the Comex deliverable inventory.

Buying 1000 oz bars on the other hand would theoretically.

Tue, 06/07/2011 - 14:30 | 1347641 NotApplicable
NotApplicable's picture

If Silver Eagles were minted to meet demand (as the law states) then over time, coin sales would start to affect Comex, as those 1000 oz. bars are turned into 1 oz. blanks.

Even without the US Mint meeting current demand (due to suspension notices/quotas/etc.), on a long enough time line, coin and other retail sized demand could still deplete the Comex. (Not that I think they have any more metal in any given delivery month than they can beg, borrow or steal. JIT, indeed!)

Tue, 06/07/2011 - 16:02 | 1348085 trav7777
trav7777's picture

no, it wouldn't.  The retail demand is met by mints that DO NOT get their freakin silver from Comex.

NOBODY who needs a significant amount of real ANYTHING goes to a futures exchange.  They negotiate with a miner or refiner.

You guys think Valero buys its crude for refining off of NYMEX or something?  No, they negotiate supply contracts with oil producers for that.

COMEX should simply SHUT DOWN its legacy warehousing function as it serves no real purpose anymore.  Exchanges like this might have worked back when small suppliers came to trade but that's just not how shit is now.

The miners who sell futures contracts forward to hedge production are not EVER going to send all their product to COMEX nor would XOM actually deliver its barrels to NYMEX, nor would either of the futures exchanges want to incur the hassle of actually storing shit.


Tue, 06/07/2011 - 14:26 | 1347600 Dr. No
Dr. No's picture


I think you ment "requests". 

Tue, 06/07/2011 - 13:32 | 1347429 dogbreath
dogbreath's picture

I hope the euro takes a hit because its 1.42 : 1 recently and the last time i was in europe the rate was 1.22ish.

Tue, 06/07/2011 - 12:31 | 1347192 Re-Discovery
Re-Discovery's picture

Bad news for treasuries.  I-rate sensitive assets.

Tue, 06/07/2011 - 12:31 | 1347206 AldoHux_IV
AldoHux_IV's picture

China successfully inheriting the poor economic thinking of western central bankers-- not a good sign whatsoever when the masses wake up to the tomfoolery over there.

Tue, 06/07/2011 - 12:33 | 1347212 swissinv
swissinv's picture

well, better bailout itself that all other countries...

Tue, 06/07/2011 - 12:38 | 1347219 Comrade de Chaos
Comrade de Chaos's picture

More fuel for Skyscapers for everyone policy. Their urban jungle skyline is amazing though, on those days when one can see it (pollution. ) 

Tue, 06/07/2011 - 12:38 | 1347224 citta vritti
citta vritti's picture

Monty Python perspective on debt stuffing (Mr. Creosote, from Meaning of Life):


Tue, 06/07/2011 - 12:44 | 1347250 mayhem_korner
mayhem_korner's picture

Big difference - US public debt-to-GDP ratio is 75%; China's is 17%.


Tue, 06/07/2011 - 12:46 | 1347257 rajat_bhatia
rajat_bhatia's picture

why's noone satisfied with a simple peaceful life?

Tue, 06/07/2011 - 14:58 | 1347760 I did it by Occident
I did it by Occident's picture

Because simple & peaceful usually means "boring." 

With riots and defaults and wars happening, it is much more entertaining.  I think it goes back to Roman times, people liked the arena because at least they weren't bored.  And God forbid people find something to entertain themselves.

Tue, 06/07/2011 - 12:49 | 1347271 Franken_Stein
Franken_Stein's picture


A famous American poet once sang:


Where do the bad folks go when they die ?

They don't go to heaven where the angels fly.

They go down to the lake of fire and fry.

See them again on the 4th of July.


Tue, 06/07/2011 - 13:02 | 1347303 MrTrader
MrTrader's picture


Tue, 06/07/2011 - 13:20 | 1347369 Orly
Orly's picture

It would seem that your analysis- the nutshell that it is- is correct.

What should the US have done with our TARP?  Bail out the richest on Wall Street so that Jamie Dimon and friends can install solid-gold toilet seats, as opposed to the plated ones already in the office?

Maybe we should have done what China just did: recognise the problem and go in and fix it.  They recognised that there was a problem with their municipalites (like the US...) and they realised that their banks were lending like mad to madmen hell-bent on prospering from pouring concrete.

What did they do?  They took their savings, shored up their cities and said no mas!  Then they told banks that they had to have a 21% quality reserve on lending.

Hmmm.  Who is bullish now on the US and EU, eh?

Tue, 06/07/2011 - 13:56 | 1347487 vocational tainee
vocational tainee's picture

Thank you ..leap 2020

Tue, 06/07/2011 - 13:18 | 1347377 Greater Fool
Greater Fool's picture



(with no tenants; in a town with no citizens)

Tue, 06/07/2011 - 12:59 | 1347307 Bam_Man
Bam_Man's picture

And our "leaders" will keep crying that "The Yuan is undervalued!"

It's a race to the bottom and the Chinese are not about to be left in our dust.

That's what this move tells me.

Tue, 06/07/2011 - 13:04 | 1347323 trav7777
trav7777's picture

and the Chinese like it just fine undervalued.

Their growth mandates are the same as those for .com companies.  The people at the top don't care what needs to be fudged or cooked to make that target.

Tue, 06/07/2011 - 13:14 | 1347330 ThirdCoastSurfer
ThirdCoastSurfer's picture

Big difference between paying off bad loans in cash and paying them off with borrowed debt.

The bigger problem is that these bad assets are unproductive and potentially maintenance intensive as wasting assets. To keep the masses employed, you must continue building. Maintenance is less labor intensive but potentially expensive unless simply abandoned.  

It's sad really, think of how many great things could have been built or constructed with all that labor and material instead of on cities and shopping centers that will never be used.

Only when China begins to run an account deficit will all this economic "digging holes to fill them in" may come home to roost.

Tue, 06/07/2011 - 15:19 | 1347867 FreedomGuy
FreedomGuy's picture

"Crisis averted as another centrally planned regime managed to do what the Fed and the ECB have been doing so well for nearly 3 years now.

All centrally planned economies fail over time. China will be no different even if they seem to be better at it in the short run. The provincial governors all have to hit GDP targets assigned by the central government geniuses. To do this they just keep building "stuff" to hit their goals. You end up with lovely empty shopping malls as you see on many of the news reports. You are not allowed to film them or talk to the mall cops, etc.

Part of our problem is that damn keynesian crap that adds government spending to GDP. Because of that little bullshit equation we get massive stupid decisions in two primary areas, government GDP and imports-exports.

It does matter what "geniuses" run our governments around the world because all nations including the supposed freedom loving USA are all run by central planners with bad theory and equations.

Tue, 06/07/2011 - 16:05 | 1348107 trav7777
trav7777's picture

the cool part is that everyone thinks the boom will stop and then commodities will crash...but we're at the top of the production curve.

China's demand decrease will be made up for by the world's supply decrease.

And good luck with maintenance on all that empty shit, China

Tue, 06/07/2011 - 19:54 | 1349015 FreedomGuy
FreedomGuy's picture

It's interesting to debate inflation-deflation for the future and how it will play out. There are good arguments on both sides. However, I am not sure that commodities, or all commodities do any worse than anything else in a deflationary environment. Deflation is usually just a settling of accounts and unwinding of government backed bubbles. What commodities DO have is an insurance policy aspect in times of inflation. 

Even in the Great Depression I think an ounce of gold would have carried you pretty far.

Tue, 06/07/2011 - 13:06 | 1347331 Eireann go Brach
Eireann go Brach's picture

So who is going to fund the US govt now for the next few years? Hewlett Packard?

Tue, 06/07/2011 - 13:15 | 1347364 Dr. No
Dr. No's picture

Cut spending or increase taxes.  If you cant borrow, need another way.

Tue, 06/07/2011 - 13:09 | 1347343 WFO
WFO's picture

Is the Chinese economy really one-third the size of the US economy? Everything I see says Made in China or Made in the PRC. Lots of articles out there saying the Chinese economy will be the #1 economy in 2 years, others say it already is.

Something I heard recently that seems about right "the business of America is war, the business of China is business".


Tue, 06/07/2011 - 13:26 | 1347407 Caviar Emptor
Caviar Emptor's picture

Is the Chinese economy really one-third the size of the US economy?


Yup, at least in Monopoly Money. In the new world calculus, the richest country is the one that actually owes the most. The size of it's debt is so scary that other countries simply can't refuse to extend even more credit and so it "grows" ever more. What could go wrong? 

Tue, 06/07/2011 - 13:48 | 1347474 mattwett12
mattwett12's picture

It seems logical. I mean, if you buy a mercedes in cash, and I buy a bentley with a credit card (because I have no cash), that means I'm richer right?

Tue, 06/07/2011 - 13:21 | 1347371 NERVEAGENTVX

Cheeky, good to see you again!

Tue, 06/07/2011 - 13:24 | 1347395 Caviar Emptor
Caviar Emptor's picture

Just another step in the China/US convergence: in each case the central government effectively transferred bad credit to it's balance sheet. Of course China can well afford even such a massive bailout due to its mass trade surplus with the US. Of course since it self-finances the US trade deficit, it in effect paid for the bailout with US debt. Debt bailing out debt. 


Tue, 06/07/2011 - 13:32 | 1347425 topcallingtroll
topcallingtroll's picture

Yep i gotta reassess my china bearishness and I am happy for this new twist!

I am relieved the can has been kicked down the road. I am not ready yet. I need more time.

Working several jobs now with barely enough time to post, sleep, and fuck, in that order.

Healthcare is a clear bubble. It will collapse at some point with a 50 percent reduction in physician incomes. Hopefully it will be time to quit then. That is the secret plan of the majority of physicians. Work like a maniac now. Quit when the government finally fubar's the thing and regulates and caps physician income. The deficit guarantees a catastrophic ending to the healthcare bubble and physician autonomy. We all want to be able to quit then.

Tue, 06/07/2011 - 14:18 | 1347566 lizzy36
lizzy36's picture

You do realize that getting your lithium prescription filled, doesn't make you a doctor....right?

Tue, 06/07/2011 - 15:39 | 1347938 falak pema
falak pema's picture

If you fucked more maybe you would think more clearly...think about it and change your priorities...leave post to the not bad either...

Tue, 06/07/2011 - 14:10 | 1347512 Dr. Acula
Dr. Acula's picture

This is a very scary article and it's clear USA isn't the only country burdened by socialist shenanigans. One of the statements in the article bothers me, though:

"for an economy which is only one-third the size of the US"

This statement is absurd and is the kind of sloppy thinking that characterizes central planning. Unlike yardsticks, economies do not have sizes. Even if you adopt the dubious view that a price "measures" the value of something, there is no one in a position to purchase USA's or China's economy. There is no market for selling these economies. There is no means to assign prices to them. And how would you even "buy" an economy? How can you own people and their skills?

Tue, 06/07/2011 - 14:23 | 1347587 wombats
wombats's picture

Did China borrow from the Fed's discount window to pay for this bailout?  Any way the US taxpayers can be made to pay for this bailout?


Tue, 06/07/2011 - 14:38 | 1347665 laomei
laomei's picture

With any luck, they already have.

Back during TARP, the BoC and others transferred a good sized chunk of their toxic over to the US branches which got that eaten up by the fed at full face value.  My friends over here in banking were laughing their asses off for weeks at the stupidity of it all.

Tue, 06/07/2011 - 14:32 | 1347626 Missiondweller
Missiondweller's picture

So building empty cities in a massive Keynsian experiment is having adverse consequences?


Who knew?

Tue, 06/07/2011 - 14:56 | 1347767 madmax1965
madmax1965's picture

IMHO the PBOC and the FED are puppets to ?  the Rothschilds?  The guy that helped China set up the PBOC was William Lawton, where did he receive his advanced degree - Columbia University.  I have not had time to research the whole mess further, however, it is mind numbing.

Tue, 06/07/2011 - 15:11 | 1347829 rufusbird
rufusbird's picture

After reading all the comments and then rereading the article, I wanted to say that I disagree with this statement: "It is more likely that China has one and a half times (and counting) the 2008 financial crisis ahead of it."

If I buy a house and write a check for it, it has a totally different effect on my finances that if one of my children buys a house and has to borrow money to buy a house. China is able to write a check to do the bailout. It does not have the same effect on their potential for insolvency as a country having to increase the public debt, and borrowing funds to do the same thing.

Tue, 06/07/2011 - 15:37 | 1347924 Orly
Orly's picture

And isn't a wonderful thing that they got all this infrastructure built, wrote the check and said, "Thanks for the money, 'Merica.  Catch you on the frip."

I am beginning to think that maybe the best laid plans of the mice in charge have come 'round to bite Them on the ass.

May you live in interesting times?  No, may you live in extraordinary times!

This is going to get really interesting.

Tue, 06/07/2011 - 15:44 | 1347942 falak pema
falak pema's picture

did you like my chicken recipe? Especially the tender breasted kind!

Tue, 06/07/2011 - 17:57 | 1348647 Orly
Orly's picture

Actually, I am trying it tonight!

I am at a loss as to how to serve it.  I have the chicken and the sauce...but what?  Pasta?  Vegetables?

Tue, 06/07/2011 - 19:01 | 1348844 Orly
Orly's picture

I have decided to go with the southern-style hash browned potatoes and steamed green beans with a day-old ciabatta bread.

No noodles.  Just say...



Tue, 06/07/2011 - 17:18 | 1348497 Yen Cross
Yen Cross's picture

  The technical aspects of this thread are recorded.  I joked about Ghost Property in February!

Tue, 06/07/2011 - 19:37 | 1348956 Yen Cross
Yen Cross's picture

 Orly you are full of something!

Tue, 06/07/2011 - 17:45 | 1348608 huggy_in_london
huggy_in_london's picture

In the words of Billy Bragg "you're an accident ... waiting to happen" .....

Tue, 06/07/2011 - 18:06 | 1348681 thriftymost
thriftymost's picture

The genius of today's China is that they installed a people's government in 1949 and have never looked back.

Americans queue up to vote for evil, sinister vermin like Reagan and Clinton and Bush and Obama; then talk a lot of utter horseshit all day long about "left" and "right" and "conservative" and "liberal."  Cut the stupid talk and look at reality: America has a government beholden to special interests.  China has a government dedicated to pursuing the common good.

It really is just that simple.

Tue, 06/07/2011 - 19:06 | 1348846 Orly
Orly's picture

You have to admit that the whole right/left, repubican/democrat, good/evil paradigm had us fooled for quite a while.  I was addicted to it myself, once upon a time...

in a galaxy far, far away...

Tue, 06/07/2011 - 19:38 | 1348961 Yen Cross
Yen Cross's picture

 I think ORLY is lost in wonderland. Nice job on the usd/chf trade!

Tue, 06/07/2011 - 20:45 | 1349168 StychoKiller
StychoKiller's picture

I propose a new measure of destructive power, since kilotons and megatons are too small -- kiloTARPS and megaTARPS!

M.A.D. indeed!

Tue, 06/07/2011 - 22:50 | 1349521 Wolf in the Wilds
Wolf in the Wilds's picture

I tend to disagree that the unwind trigger in China has been deferred several years.  If anything, this will bring forward the issues at hand.  The meltdown will not come from local debt, but from the collapse of companies who have levered up expansion of production capacity that will have no take up when the local governments pull back from costly and unviable infrastructure investment.

Wed, 06/08/2011 - 00:28 | 1349680 PulauHantu29
PulauHantu29's picture

What a find! Great article. I was in that bearish camp but now it looks like their sotck market and RE will not drop much if at all.


Wed, 06/08/2011 - 01:28 | 1349744 laomei
laomei's picture

What too many seem to be missing is that this is not a case of the government bailing out the banks.  This is a case of the central government bailing out local governments who took out bad loans while building up massive infrastructure projects.  So in effect all that happened here is the central government paid for the projects rather than the local governments.  The hard assets are still there and still being used to the benefit of those who live there.  This is why we have things like nice roads that can easily handle 55 metric ton trucks, bridges that are not built like shit, cheap high speed internet, a growing high speed rail network and airports that don't look like a joke.  This is also why we have nice things like subway systems going in and renovations of run down city areas.


This "bail out" is hardly a blip on the radar, it's the kind of thing you would expect from a responsible government... correcting potential problems prior to them becoming serious.

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