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Third Chinese Bill Auction Failure In 2010
As the Chinese economy overheats yet again (when did it ever stop?) and inflation accelerates to an annual 3.1% pace as reported earlier by Bloomberg, one unfortunate side effect, which the US will become only all too familiar with in due course, is today's most recent failed Bill auction, as China failed to attract enough bidders to cover the total offering amount of 15 billion yuan in 91-day bills. This is now the third failed auction for China in 2010 alone. Luckily, that particular country does not have to roll $150 billion in debt every week or so. The reason for the failure: the inability of the government to compensate investors for surging inflation risk, as demand for higher yields keeps bidders away. This once again is forcing the country to reevaluate its interest rate policy - being pegged not only to the dollar but the US Fed's monetary policy, is no longer a viable option. Of course, should a failed bill auction ever happen in the US, it is game over.
More from Bloomberg:
China failed to draw enough bids at a sale of treasury bills for a third time this year as banks sought higher returns from longer-dated debt to protect against inflation.
The finance ministry issued 11.45 billion yuan ($1.7 billion) of the 15 billion yuan of 91-day securities on offer at an average yield of 1.9062 percent, according to traders at BOC International Holdings and Agricultural Bank of China, who asked not to be identified. It sold 17.75 billion yuan of the 20 billion yuan of 273-day securities at an average yield of 2.0511 percent, the traders said.
“The yields on shorter-dated debt are too low to attract investors as inflation quickens,” said Liu Junyu, a Shenzhen- based fixed-income analyst at China Merchants Bank Co., the country’s fifth-largest lender by market value. “Also, there is a shortage of cash in the financial system.”
Additionally, as we cautioned previously, the 7-day Repo in China is once again surging. Keep a very close eye on this metric as it could show that the European liquidity scarcity is moving over to Shanghai.
China failed to draw enough bids at a sale of treasury bills for a third time this year as banks sought higher returns from longer-dated debt to protect against inflation.
The finance ministry issued 11.45 billion yuan ($1.7 billion) of the 15 billion yuan of 91-day securities on offer at an average yield of 1.9062 percent, according to traders at BOC International Holdings and Agricultural Bank of China, who asked not to be identified. It sold 17.75 billion yuan of the 20 billion yuan of 273-day securities at an average yield of 2.0511 percent, the traders said.
“The yields on shorter-dated debt are too low to attract investors as inflation quickens,” said Liu Junyu, a Shenzhen- based fixed-income analyst at China Merchants Bank Co., the country’s fifth-largest lender by market value. “Also, there is a shortage of cash in the financial system.”
We hope more than just a handful of people read that last sentence.
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bye bye carry trade...
So much for those who believed the yuan would revalue *upward* against the dollar.
This is the difference between real economic growth and a ponzi. Currencies of ponzi economies go down versus reserve.
Well if China revalues upward
Raising interest rates --- their debt will sell
But then what about US debt -- at lower interest rates
Bullshit, they will be moving the peg downward not upward. Decoupling is a myth like the toothfairy. China unpegs and you will see a huge rise and the biggest implosion you have ever seen.
"The world's biggest expected swings in foreign-exchange markets and the euro's record depreciation are prompting Asian exporters to seek currency controls."
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/06/10/bloomberg137...
China started complaining about a lower Euro like 3 weeks ago. Let the Yuan rise and see how long that works out, not long I suspect. If they want to keep the game going on a little longer they will have to drop prices.
End game is moving into view, less and less musical chairs, eventually there will be no musical chairs left.
ALSO? That's some throw-away line there.
The problem is the steep decline in consumer credit...that was the source of their monetary expansion as the PBOC was sterilizing every dollar inflow.
Now, without that source, China is facing inflection in their ponzi economy. This is causing deleveraging and some type of flight of capital.
The yuan should be revalued downward, and the PBOC will have to conduct unsterilized monetary interventions if they are to continue to grow money supply. It won't come from the US.
Trav I would love to hear your thoughts on how this affects the US and the EZ's monetary and fiscal policies.
Being pegged not only to the dollar but to the US Fed's monetary policy is no longer a viable option
Right on, Tyler. Trying to do chemistry without alchemy. Fed should issue "don't try this at home" warning.
Small cracks begin to appear in the Chimerica facade. Can't have one partner drowning and the other swimming before the risk becomes that both will get pulled under.
So more Chinese money will be going to their own bills rather than US debt.
FOMC Rate hike by the end of the year
No lucky!
I honestly can't see how China still feels safe with so much US debt. I'm living in China now and they are investing massively on the ground in almost every aspect of the country. From infrastructure to Agriculture the whole country is getting a face lift, but I feel this will all be for nothing if (should I say when?) the US defaults on its debt...
Captain O
What's tha anecdotal tone toward US ?
Captain Obvious, it's obvious... that is the game. They recycle dollars into USTs which then comes full circle and US concumers by their plastic crap products. This has resulted in 100s of millions of Chinese moving from the rice patties to the cities for work. One problem, credit system peaked ie the US consumer, now US consumers are no longer requesting new credit and use those said dollars to buy the Chinese crap.
Without those new dollars the factories started closing in late 2008 and early 2009, some stablization happened, why? because stablization happened in the US.
It was never about being safe holding USTs, it's about a system which they are a part of. It's game over.
They never held any US assets, those assets are just assets until the system collapses.
They know what the game is, they admitted last year that they had no choice or no good choice. They could start selling USTs, I have no idea who could buy those in mass, within days their would be riots in China as the factories start closing.
[quote]
It is a slow day in a small Florida town and streets are deserted. Times are
tough, everybody is in debt, and everybody is living on credit. A rich tourist
drives through town, stops at the motel, and lays a $100 bill on the desk
saying he wants to inspect the rooms upstairs to pick one for the night.
As soon as he walks upstairs, the motel owner grabs the bill and runs next
door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the
pig farmer.
The pig farmer takes the $100 and heads off to pay his bill to his supplier,
the Farmer’s Co-op
The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to
the local prostitute, who has also been facing hard times and has had to
offer her “services” on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner.
The hotel proprietor then places the $100 back on the counter so the rich
traveler will not suspect anything.
At that moment the traveler comes down the stairs, states that the rooms are
not satisfactory, picks up the $100 bill and leaves town.
No one produced anything. No one earned anything. However, the whole town is
now out of debt and now looks to the future with a lot more optimism.
And that, ladies and gentlemen, is how the United States Government [indeed, the entire World!] is
conducting business today[/quote]
Cannot remember where I got this, ZH perhaps?
"if (should I say when?) the US defaults on its debt..."
The US will do a partial default. They will pick and choose who gets paid and at what rate. No doubt there are negotiations behind the scenes on who gets to be in the front of the line... kind of like those first class security lines at the airport...
Middle class medicare and SS will be at the back of the line; all removing their shoes and belts and placing them in the trays, all while looking at their watches thinking they will miss the plane. They will get to the gate only to find the plane has left.
You are worried about government default, the system will be imploding and it doesn't matter whether the government defaults on it's debt or not... the US consumer is already defaulting, which is why credit creation is negative.
The problem was never too much debt/credit... the problem is a system that DEMANDS exponential growth of the debt/credit.
The federal government could stop spending tomorrow if it wanted, by next week you wouldn't have a system left.
SS and Medicare are not debt, they were and are a tax.
"SS and Medicare are not debt, they were and are a tax."
Agreed. However, currently they are liabilities of the government. At the end of the day when liabilities need to be paid out, they window will close with a sign saying "nothing left".
edit: the SS admin has three-ring binder of IOU's from the treasury. They IOU's are real. When the rush to the treasury for pay-out of IOU's starts, the SS admin will be there fighting for position just like China and everyone else. The gov will need to choose who gets paid. If they pay no one, that will be the collapse you are writing about.
They are only liabilities once they go into the red. Really irrelevant. The government could stop all spending and attempt to start paying debt back, the system would implode almost instantly.
Federal government debt is $8.2T of the $52.1T of total credit market debt of the US system see federal reserve Z1 report.
People are already not getting paid, the US consumer who is the US government are defaulting. The system is collapsing. I fail to see your point. You are focusing in on the government, well you could eliminate all spending by the government and you only get that must closer to your doom.
I have never understood this focus on the government debt, the defaults have been occurring for 3 years. I really fail to see your point. The government will not be paying anyone back because their simply will be no system in which to pay people back.
The US government could default or stop SS and Medicare payments, the system is still going to collapse, the collapse has nothing to do with whether the government is paying it's bills or not.
"I really fail to see your point."
To be honest, there really is no point. This is an internet message board. I just tried to state when it comes to paying bills that come due, the gov will need to choose which ones to pay just like everyone else.
There will be no bill to pay, everyone else will be defaulting before the US, they already are. You are worried about they last shoe dropping, you won't have a system way before the US defaults.
I guess you could go buy some MBS if you think that is better or Japanese debt or China debt, I assure you it isn't.... just like the people believing the decoupling lie are getting ran over in Europe.
The US government can't pay with what does not exist any more than the corporation, private person or other soveigns. The problem is not too much debt/credit.
It is impossible for the US to have a failed auction. The primary deaalers make sure that they can offload every piece into the futures markets if there is no demand, hence the reason why the yeilds spike going into the last minute of the auction. No failed auctions, nothing but confidence.
China is starting to implode under its own weight.
China is and was a ponzi.
40% of GDP at some points was FDI, which means that GDP was being used to recycle for the sole purpose of making more GDP. Like fractionally lending to yourself.
Most of the recent stuff they've built has been for the sake of building it. They are printing money into infrastructure, fine by me but there is no consumer for it and the yuan will *drop*, not rise if the peg is lifted.
Just like in the case when it is claimed there is a shortage of water, claiming there is a shortage of cash just cannot possibly be true. What is true in both cases is a government that doesn't want to pay as much as it will take to attract a sufficient supply come into the market.
Egad man/woman! Are you advocating wiping out entire forests of trees to print currency?
Peter Schiff will be proven right again... They eventually will have to decouple and even if they dont know it, it will be the best thing they could do..
The longer they keep pegged to the dollar, the further they continue to implode.
Peter Schiff will be proven 100% correct on all counts, but his clients will have already been wiped out by then.
Being right but way too early produces the same results as being wrong.
Correct. I don't know who coined it but "the difference between salad and rubbish is timing".
If they have been pushing into gold as Peter has been suggesting for the last several years, I doubt they'll be wiped out.
So if the Chinese currentsea fails, and the Doelarr is dead, and the Euro holds no weight, and the Pound is pathetic, and the Japanese Yen is worthless, then new world currentseas sound appropriate, and a ruling new world order is eminent.
The world is about to fail. Fail as in, game over, world wide. And this won't be 'oh well'. This will be, 'We are all going to die'.
Economics was never a science, but nobody noticed. One hundred years after the Fed instituted their fascist regime we are still walking around thinking that this is reality; this is not reality. Reality is not dictated by economic policy. It is dictated by empathy. We have lost empathy. You need to wake up. You need to do some homework.
D-peg for the love of cristo.
"bill auction ever happen in the US, it is game over."
Please explain how this would ever be possible. With all the crony sovereign wealth funds buying each others paper using insta-binary-fiatcon the circle jerk will forever produce expected results.
China can just as easily fall into the deflationary black hole for decades after de-pegging. Why not??
What's the difference between China today and Japan say 20 years ago? Japan was built by the Japanese and overheated resulting in an economy plagued with stubborn deflation. China was built by the West and is overheating. Once that capital is withdrawn due to collapsing capital utilisation and lack of demand, it's done.
They are getting closer to moving the peg upward and this morning's inflation story gives them cover to do it. It wasn't because the USA told us to, see?
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