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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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.

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.

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.

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.

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.

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...

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.





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. :>)

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!

The Profit Prophet's picture

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

T.E.I.N. everyone!

TheTmfreak's picture

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

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

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.

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:


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.


Oh regional Indian's picture

Awesome all around Orly! :-)

Hedgetard55's picture



Someone who understands the truth.

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.

RobotTrader's picture

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

FXI nowhere near as weak as SPY.

Ahmeexnal's picture

But adjusted on a per capita basis??

plocequ1's picture

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

NotApplicable's picture

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

(as am I)

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.


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.

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.

Michael Victory's picture

hanging with turky.

in espana?

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. 

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.

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!

TheTmfreak's picture

Mainstreet isn't exactly a saint either.

I guess so much for the Yuan being "undervalued"

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.

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.

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!

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?

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.

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.

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.

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.

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.

66Sexy's picture

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

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!

Xibalba's picture

Monkey see, monkey do. 

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?

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?