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China Central Bank Refuses To Join Global Print Fest, Warns About Inflation Risks

Tyler Durden's picture


While the entire 'developed' world is now openly engaged in destroying the balance sheet of its assorted central banks - the sole means to devalue local currencies, a liability, by accepting ever more toxic 'assets' as currency collateral - thereby pursuing strategies which until now were strictly relegated to the banana republic playbook, there are some countries who see what is coming over the horizon, and refuse to join the printing frenzy. One such place is China, for whom, as we have repeatedly shown the threat of a fast onset of inflation is far greater (3x more bank deposits as a % of GDP than in the US, means a soaring capital market as a result of inflation will benefit far less while a deposit exodus will cause hyperinflationary havoc in minutes) than any other developed world country. And with the inability to hide "non-core" CPI as a result of food and energy being such a greater portion of overall inflationary bean counting than in the US, it means that despite the demands of Tim Geithner for immediate more easing by China, the PBOC is now stuck waiting to import everyone else's inflation: this includes the Fed, ECB, BOE, BOJ, Korea, Australia and all other bank engaged in adding liquidity, while its own hands are quite tied. Because recall that it was only last year that the NYT said that: "Inflation in China Poses Big Threat to Global Trade." Now we are told that lack of inflation poses the same threat, when in reality what they mean is that with the world tapped out, one more source of marginal liquidity is needed. Judging by overnight comments from the PBOC's head Zhou Xiaochuan that liquidity, suddenly so very needed to keep the game of musical chairs going, is not going to come from China just as we have warned for months on end.

From Reuters:

China's central bank governor has warned that quantitative easing policies worldwide could cause inflationary risks, state news agency Xinhua said on Saturday.


The remarks by People's Bank of China (PBOC) Governor Zhou Xiaochuan come even as analysts credit policy easing from G4 central banks - the U.S. Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the Bank of England - in the third quarter of the year as underpinning business confidence.

Ironically, unlike before when the West benefited from Chinese easing during periods of stress such as in the Lehman aftermath, this time around it is China who is sowing the fruits of others' relentless easing tactics. Only last night China reported that its trade surplus came well ahead of expectations, at $27.7 billion versus a consensus of $20.5 billion, with exports coming coming nearly double the expected 5.5%.

Chinese data on Saturday offered a sign that G4 policy easing was being felt in the world's second biggest economy, with trade numbers showing exports grew at roughly twice the rate expected in September while imports returned to the path of expansion.


"The data shows both imports and exports are improving - especially a rebound in export growth reflects a rising confidence after the U.S. and European countries launched further easing policies last month," said Xue Hexiang, an analyst at Guotai Junan Securities in Shanghai, after the trade numbers were released.

In other words, China is now perfectly happy with the status quo, and is delighted that for once it does not have to be marginal provider of global growth impetus. Instead, it will continue resorting to ultra short-term liquidity intervention strategies such as a reverse repos, which it has been doing for the past several months, and will do no RRR or rate cuts for as long as the threat exists that some other bank will do it for them.

Across Asia, central banks are wary about the potential inflationary impact of the Fed's latest quantitative easing, dubbed QE3, as well as policy stimulus unveiled by the ECB.


Central banks "should consider draining excessive liquidity injected into the market and eliminate inflationary pressure in the long-term", Zhou was quoted as saying by Xinhua, which cited the Journal of Public Research, a magazine published by the People's Bank of China.


China's central bank said in September that it would "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

The bottom line is that those waiting for China to come in and provide that last bit of momentum to take the S&P to its all time highs, will be waiting, and waiting, as such an intervention will not come. Why? Thank the Chairman, whose open-ended easing has effectively taken out an even great short-term stock market growth driver, China, out of the picture. And judging by the recent market move, in which the entire QE3 jump has now been faded and then some, Bernanke better have some more magic up his sleeve, ironically, magic which will make any additional "developed world" easing that much less likely.

And just as the permabulls were hoping for once they would be right with their 1650 year end S&P forecasts...


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Sat, 10/13/2012 - 10:19 | 2884645 LULZBank
LULZBank's picture

Leave us out of it Bitchezz!!!

Sat, 10/13/2012 - 10:23 | 2884650 jekyll island
jekyll island's picture

What a difficult decison for the communists.  Do they join the West and print money or position themselves to replace the FRN$ as the world reserve currency?   China's energy demand will not go down and the price of oil will probably never reach $40/bbl again.  This is why China has been buying all that gold.  

Sat, 10/13/2012 - 10:25 | 2884651 SheepRevolution
SheepRevolution's picture

What communists?

Sat, 10/13/2012 - 11:08 | 2884663 kaiserhoff
kaiserhoff's picture

What elections?  What free speech?  What private ownership?

How many private citizens own GUNS??????????????????

Tue, 10/16/2012 - 16:40 | 2896084 3rdgrader
3rdgrader's picture

U.S. Politicians and Judges are the real Communists

Sat, 10/13/2012 - 12:09 | 2885058 malikai
malikai's picture


Referring to the CCP as "communists" is just silly.

Sat, 10/13/2012 - 12:53 | 2885146 Paul Bogdanich
Paul Bogdanich's picture

This is just silly.  When things begin to cause problems in China, China will deal with them through devices like capital controls and other similar measures which are very effective but anenthema to neo-liberal Western religion.  As of today the cost benefit analysis does not support the imposition of such measures but as sson as it does they will do it.  They are not idiots like our political class.   

Sat, 10/13/2012 - 13:37 | 2885237 OneTinSoldier66
OneTinSoldier66's picture

So what you're saying is that smart people impose capital controls... through the use of force, coercion, and if necessary, violence?

Sat, 10/13/2012 - 13:48 | 2885263 kaiserhoff
kaiserhoff's picture

OK, let's just call them tyrants and gangsters.

Want to lead a protest in Tiananmen Square?  Go for it.  I'll hold your coat.

Sat, 10/13/2012 - 10:30 | 2884660 kaiserhoff
kaiserhoff's picture

I always get my financial advice from arrogant commie pencil-dicks, but this could be helpful.

Anyone opting out of the race to the bottom for currencies puts more pressure on the greater fool theory for bonds.

Sat, 10/13/2012 - 10:57 | 2884682 hedgehog9999
hedgehog9999's picture

Absolutely, the west is playing into the hands of the Chinese just as England and Europe played into the hands of the Americans in the first half of the 20th century.

Back then the Americans waited for both wars to decimate all the players and they came in at the end as saviors while gaining ultimate economic power in addition to military power. They kind of did it again to the Russians when the Soviet Ubion collapsed. Now is the Chinese's turn, all the wars and profligacy of the US Government are weakening them while they quietly sit back doing deals in Africa , SouthAmerica and elsewhere which has strengthened them economically and by extension militarily.

While the West continues to decimate ther currencies, they will strengthen ther currency by refusing or at least slowering the pace of the Easin QE fest this time probably with a view to making the Yuan a reserve currency... that way they can afford to import more pork, food and energy from other countries as a bigger percentage of their domestic household budget is food and energy as they eat and drive unlike the US.

Sat, 10/13/2012 - 11:16 | 2884709 cowdiddly
cowdiddly's picture

You sir, Have got the light bulb on. See post below. +1000

Sat, 10/13/2012 - 11:24 | 2884723 WTFx10
WTFx10's picture

It has nothing to do with fake sovereign country's because there are only a few true sovereigns. America,England & EU countries are an illusion of sovereignty. The Central criminal banks own them and the people are lead to believe they control them. A perfect plan for the owners.

If you believe anything else your part of the problem.

At their extremes, neither communism nor fascism nor corporate capitalism are much different, as they both become extractive for the benefit of a small elite at the expense and misery of the people.

"And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that."

John Dalberg Lord Acton

“The men that American people admire most extravagantly are the most daring liars; the men they detest the most violently are those who try to tell them the truth.”  HLMencken

The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks. John Dalberg Lord Acton

    "Banking was conceived in iniquity and was born in sin.
    The Bankers own the earth. Take it away from them,
    but leave them the power to create deposits,
    and with the flick of the pen they will
    create enough deposits to buy it back again.
    However, take it away from them, and
    all the great fortunes like mine
    will disappear and they ought to disappear, for
    this would be a happier and better world to live in.
    But, if you wish to remain the slaves of Bankers
    and pay the cost of your own slavery,
    let them continue to create deposits."

    --- Sir Josiah Stamp (1880-1941)

    President of the Bank of England & 2nd richest man in Britain

    Source: Speaking at the Commencement Address of the University of Texas in 1927

    “Truth hurts. Maybe not as much as jumping on a bicycle with a seat missing, but it hurts.”

                                      -Naked Gun


Sat, 10/13/2012 - 11:49 | 2884763 hawk nation
hawk nation's picture

I still think when the collapse comes the central bankers who think they will gain control will be marched out and shot by the communist/muslem extremist faction that are currently working with them

Sat, 10/13/2012 - 11:33 | 2884742 LawsofPhysics
LawsofPhysics's picture

Riiiigggghhhht, because the China is being complete honest.  FAIL  A billion people is a lot of people to feed.  I guess that I (and all the other American Farmers) simply need to stop selling to China unless they pay us in GOLD.

Try again.

Sat, 10/13/2012 - 12:12 | 2885063 malikai
malikai's picture

It's just as bad to sell in U$D.

But you're right though. It will end up at gold.

Regardless of what talking heads say.

Sat, 10/13/2012 - 14:00 | 2885290 Marco
Marco's picture

They need food, we need oil ... that they produce mostly luxury goods is not a great position to be in ... but in the end if you're not both food AND energy independent you're simply not independent, and that's where most of the world is.

Sat, 10/13/2012 - 18:59 | 2885760 LMAOLORI
LMAOLORI's picture



Bingo who the hell believes the numbers coming out of China? They do the same thing as bernanky panky anyway they talk about stimulus the stocks rise rinse, repeat and in between they stimulate they just had stimulus in September.

Are Chinese Banks Hiding “The Mother of All Debt Bombs”?

How Stimulus Spending Threatens Social Stability inChina

Sat, 10/13/2012 - 13:36 | 2885234 jekyll island
jekyll island's picture

Do you ever wonder why the soviet union collapsed and disappeared without an uprising or violence?  That is NOT the way totalitarian rule has ended throughout history.  

Sat, 10/13/2012 - 15:04 | 2885385 Just Ice
Just Ice's picture

because the people did not have a dependency upon the state for their well fact they were lucky if and when they could get anything "to which they were entitled" out of the state...they had no choice but to count upon themselves and under miserable conditions of rats and snitches everywhere "saying something" whenever they "saw something"...the government collapsed and the people lost nothing of much import or value

Sat, 10/13/2012 - 22:39 | 2886038 LMAOLORI
LMAOLORI's picture



I don't wonder it's because they were disarmed fighting back was futile thousands were slaughtered and that should be a good lesson for Americans never give up your arms.

 "Those who cannot remember the past are condemned to repeat it"

George Santayana

Hitler vs. Stalin: Who Killed More?

Sat, 10/13/2012 - 13:58 | 2885286 Marco
Marco's picture

Of course they only got into the position they are by printing more than anybody else for a couple of decades ...

Sat, 10/13/2012 - 15:07 | 2885394 Just Ice
Just Ice's picture

...and the yuan will be a reserve currency when even the Chinese do not trust it to freely exchange or to be floated without the dollar peg umbilical cord

Sat, 10/13/2012 - 16:34 | 2885528 jekyll island
jekyll island's picture

Yeah, even linked to gold I wouldn't trust them.  I agree with Timmay, China is probably the second worst currency manipulator in the world.  

Sat, 10/13/2012 - 20:21 | 2885860 kaiserhoff
kaiserhoff's picture

Just as America came into the wrong side of the first world war.

There.  Fixed it for you.

Sat, 10/13/2012 - 12:43 | 2885115 Silver Bug
Silver Bug's picture

At least someone has some common sense.

Sat, 10/13/2012 - 10:23 | 2884649 VonSalza
VonSalza's picture

LULZbank Pls  give us sheeple Free monies with negative intrest

Sat, 10/13/2012 - 10:40 | 2884670 LULZBank
LULZBank's picture

Do you have any shitty MBS investments portfolio?

Sat, 10/13/2012 - 10:26 | 2884653 Surrealist
Surrealist's picture

Apparently China have just reported impressive export figures. Reckon this might have something to do with their reluctance to launch stimulus? 



Sat, 10/13/2012 - 11:12 | 2884693 cowdiddly
cowdiddly's picture

Its called Check mate in chess. The West has committed to printing money. China's main objective is to replace the petrodollar with its own currency. Switching to make their currency strong gives it the power to buy more gold faster with a stronger yuan,thus obtaining the necessary gold backing only that much faster.

 The boobs in Washington are stuck trying to hold gold down to keep from looking bad and dilute the currency to try to inflate their way out of the debt load that no one wants any more, only aiding the process of the wealth heading East. The circle jerk of the fed buying 60%-70% of their own offerings can only go on so long.

Now watch what a cornered dog does. Out of desperation it will try to draw China into some sort of war either in Syria or the South China Sea where all the carriers are stationed.

Congrats Wahington and the EU its your move you checker playing chumps. You've been punked.

Sat, 10/13/2012 - 11:49 | 2884765 LawsofPhysics
LawsofPhysics's picture

Well in that case I guess I will be asking for gold and silver in exchange for all my agricultural products.  2 billion people is a lot of mouths to feed.  Good luck China.  America is not cornered idiot, being stupid, yes, but hardly cornered with plenty of natural resources and the world's largest military force.  Time is indeed running out on the circle jerk, but what exactly do you think is going to happen when the collapse comes and all those veterans return to their home towns and cities in the country where over half the population is a proud gun owner?

Grow up, get out of the basement already.  The shit you are saying is the exact same thing that was said 20 years ago when Russia imploded.  "China was going to move in and take it all over".  Tell me, what happened there dipshit?  The russians lost everything, the ruble was crushed (as will be the dollar), but guess what, people learned to live within their means and russia and the russians are still there.

Why is it that people are so stupid to think that just because a country goes broke that somehow the actual fucking people "dissappear" and another country can simply walk in and take what they want.  Grow the fuck up and go read some fucking history you stupid fucking sheep.  You'd think that kids today want to be slaves at Foxconn or something making "icrap" all day and chatting on their social media devices but creating nothing of real fucking value other then soylent green.

Stupid fucking sheep.

Sat, 10/13/2012 - 12:09 | 2885059 cowdiddly
cowdiddly's picture

You are the stupid fucking sheep. Nothing against the American farmer as I am one myself of sorts. But,If you think that the world will end if the US does not sell that shriveled up 2012 GMO corn crop you are sadly mistaken. Maybe you do not understand who the real agricultural Superpower is today. BRAZIL you idiot. Number one producter of soybean, corn, citrus, blackbeans, coffee and about ten other crops. All with only 8% of available land currently under production. Look it up. Putz.

Funny it was just last month that China and Brazil announced they were going to use their own currencies for trade and expand their trade rapidly.

Get out of your cave and do some research before you start thowing uninformed drivel. DIPSHIT

Sat, 10/13/2012 - 12:26 | 2885078 LawsofPhysics
LawsofPhysics's picture

So you don't want to address any of the real issues?  Again, the russians are still there, survived just fine dipshit.

Unless the any currency is backed by something fucking real it will not fucking matter.

Will China and Brazil be backing their currencies with gold? with oil?  with silver?  So what you are saying is that the paper promises of these  countries will be much better than any other paper promise?  Bah ha ha ha ha ha ha...


Drivel indeed.

Mon, 10/15/2012 - 01:32 | 2889239 aminorex
aminorex's picture

Given the rate at which China is buying gold, I'm happy to grant your point, and note that the Yuan is increasingly well backed by gold (and guns, and industrial supply chain, and technology).

Sat, 10/13/2012 - 12:46 | 2885125 e2thex
e2thex's picture


Brasil has a problem with LATERITIC soils-----high iron and high aluminum content.  It will take awhile before they turn their farming areas into red clay tennis courts but it's inevitable. Amending these soils with fertilizers creates a slippery slope as well.

Growing a crop is one thing and being able to sustain it generationally is another.

Sat, 10/13/2012 - 14:42 | 2885343 cowdiddly
cowdiddly's picture

Agreed sustainability on Amazon soils might become an issue but at the current rate of growth, Brazil has rapidly overtaken the world in agriculture and they are just getting started.

   I guess they could always host Wimbleton in the event it does not work out.:^)

Sat, 10/13/2012 - 12:25 | 2885082 Offthebeach
Offthebeach's picture

2 billion food? Isn't China exporting food, fish, even some wheat or corn?
Besides, Africa awaits. ChinaFarmCo, Inc or something could afford a million man Chinese security/engineering army on a 500x500 mile plantation no problem. Think Foxcom goes into farming.
All your foods are belong to us.

Sat, 10/13/2012 - 12:35 | 2885090 LawsofPhysics
LawsofPhysics's picture

There are more people playing in Africa than China, or do you have some evidence to actually present to the contrary?


When all the government manipulated fiats fail, the conversation will return to "what are you giving me of real value in exchange for my labor or my product? and ultimately the conversation comes back to something real like gold, silver, oil, corn... etc."

Arguing that exchanging any other fiat is going somehow be a "better system" is beyond stupid. 

Sat, 10/13/2012 - 12:56 | 2885149 Mad Mohel
Mad Mohel's picture

Who gave the farmer an internet connection? Someone get this kid a helmet before he hurts himself.

Sun, 10/14/2012 - 03:09 | 2886260 SWIFT 760
SWIFT 760's picture

LoP, SSDD. You sound like a broken record with imbecilic name calling, belittling...what is it anyway with you, basements and sheep?

Russia is still there amongst rampant corruption. US banks rarely trade paper with Russian banks its that bad. Banksters fearing Russian banksters. 

You sound the same as USrael gvt's...everything resolved via military. At least the chinks don't send in their 5th fleet to resolve economic issues. 

You need to grow up or get the "fuck" outta here. 

Sat, 10/13/2012 - 12:24 | 2885079 disabledvet
disabledvet's picture

Hold gold down? You mean hold everything down. "change is illegal" it would seem. Yet going full on USSR here has of them is the continued existence of a private sector. I'm still not convinced the Fed has cured us of that. At least not yet. Clearly the rule of law has been annihilated tho. Wasn't it no less than Paul Volker himself who said publicly as i recall "what the Fed has done is illegal" while at the same time not having a problem with? Can someone please explain what the plan for beginning to "pay it forward" will even work let alone where it will come from? Let me guess..."ignoring it really makes it work better."

Sat, 10/13/2012 - 12:39 | 2885105 LawsofPhysics
LawsofPhysics's picture

Having done business in Russia for almost ten years after the collapse, your concern about the "private sector" is confusing.  Do you mean a "private sector" that gets bailouts from the taxpayer?  If so, that is not capitalism, that is kronyism and I don't fucking want it.


The truly private make it-on-our-own sector did just fucking fine post collapse in Russia.

Sat, 10/13/2012 - 10:28 | 2884655 slaughterer
slaughterer's picture

Tyler is right, PBOC cannot print.  But they can do other sneaky things.  

Sat, 10/13/2012 - 10:41 | 2884671 LULZBank
LULZBank's picture

Art of the Shadowless printing?

Sat, 10/13/2012 - 10:28 | 2884657 BurningFuld
BurningFuld's picture

Of course they can say that. They have a trillion dollars of US bonds that they are just now making an excuse to spend. Watch out below.

In other news did anyone catch Sheila Bair on Bill Maher saying what a massive bubble bonds were?

Sat, 10/13/2012 - 10:44 | 2884673 kaiserhoff
kaiserhoff's picture

Now she gets some religion.  Why didn't she mention this when she ran the FDIC, and why doesn't she comment on the obvious implications for bank melt-downs?

Sat, 10/13/2012 - 10:34 | 2884666 The big unzip
The big unzip's picture

Now that's what I been talking about!

Sat, 10/13/2012 - 10:56 | 2884679 bankonzhongguo
bankonzhongguo's picture

What is amazing is that China has the capacity to ignore the rest of the burning world and simply provide the financing (like the World Bank and IMF) to Africa and the non-coastal regions of China and purr along like nothing has happened.  The only thing is the internal inflation monster lurking inside China and all those Goldman Sachs brainwashed Chinese bankers that are ready to split China into the Waring States.

Sat, 10/13/2012 - 10:59 | 2884683 the 300000000th...
the 300000000th percent's picture

Wow thats not playing nice. If China was a little country like Iraq or Libya they would be bombed for this. So i guess their currency will rise now against all the other "race to the bottom" currencies. Well i guess thats good considering that the yaun needs to be the next world reserve currency. Its all happening


Sat, 10/13/2012 - 11:28 | 2884733 LawsofPhysics
LawsofPhysics's picture

Will the yuan be backed by gold? or oil? or coal? or silver? or anything real?  Will this state-run communist government open their books to the world?  will they allow mark to market rules to return.

This is what will be required or any reserve currency moving foward.  Otherwise this is just simply more paper promises that will not be kept.-- FAIL.

Sun, 10/14/2012 - 04:56 | 2886544 WojtekSz
WojtekSz's picture

can you pls remind me where one can see the FED books open for scrutiny?

Mon, 10/15/2012 - 07:57 | 2889705 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

I also hope your psychiatrists return from vacation soon, LoP.

Sat, 10/13/2012 - 11:02 | 2884685 Dareconomics
Dareconomics's picture

China is also smart enough not to get drawn into this disaster:

Sat, 10/13/2012 - 11:02 | 2884690 bnbdnb
bnbdnb's picture

They are lying.

Sat, 10/13/2012 - 11:04 | 2884692 flaunt
flaunt's picture

Perma bears.

Sat, 10/13/2012 - 11:05 | 2884694 netpounder
netpounder's picture

Raise interest rates also.  In about 1 year, the Chinese will be going all over the world buying everything cheap.

Sat, 10/13/2012 - 11:06 | 2884696 XtraBullish
XtraBullish's picture

Just buy the VIX under 15 and wait for the hedgies to start inhaling portfolio insurance. A realistic VIX should be 55 with all the shit going down...

Sat, 10/13/2012 - 11:07 | 2884697 the 300000000th...
the 300000000th percent's picture

QE3 was DOA WTF now Bernanke??? The western banking cartel is fucked and they know it, its the end of the chess game and China is moving into checkmate. China doesnt need to use the western pawns anymore for cover they will now step into the light and take the queen.

Sat, 10/13/2012 - 11:40 | 2884750 hawk nation
hawk nation's picture

By queen do you mean the role of reserve currency?

this appears to be where we are headed with their gold purchasing

Sat, 10/13/2012 - 11:52 | 2884814 the 300000000th...
the 300000000th percent's picture

Yes by "queen" thats exactly what i mean, its what every country wants but all but one can have that role. Once you have that role you have it made, you can set the world up to play the game the way you want them to play it. As long as you have ligitimacy. The USA has lost ligitimacy as we have resorted in the last few decades to way too many "occupations" and wars to ensure our demand for our "debt dollars" thats why we killed Quadaffi thats why we killed Sadam that is why we are going into Iran. Its all about making everyone use the dollar for international trade, thats how it has demand. 

Sat, 10/13/2012 - 11:10 | 2884700 walküre
walküre's picture

I guess loan defaults and non-performing assets will then be disposed of according to traditional accounting rules? Will China allow mark-to-market defaults and deflation of state owned assets? LOL

Sat, 10/13/2012 - 11:31 | 2884739 LULZBank
LULZBank's picture

Seems like some Junior Tyler is on the board today, either that or Tylers are giving out free LULZ!

Sat, 10/13/2012 - 11:54 | 2884855 Tyler Durden
Tyler Durden's picture

What you guess is very much irrelevant when 500 million angry migant workers see the cost of pork surge by 100%+ leading to the most memorable China spring, summer, fall and winter all rolled into one.

Sat, 10/13/2012 - 12:51 | 2885137 judejin
judejin's picture

did you miss china just published its M2 growing 15% per anum just like it has been for many years.

isn't 15% the fastest among all major economies.

don't put too much faith into corrupt chinese officials. most of their children already abondoned the ship and enjoy their lives in western cities. that's why the most luxurious apts in shanghai have been half empty ever since they were finished 5-8 years ago,  but real estate in vancouver, sydney, singapore and hk are going up during to the chinese bid.

government backed real estate developers are still grabbing land like crazy. most people in china regard it a good signal. everybody has forgot about the japanese lesson, which is exactly china is heading towards i'm afraid.

Pboc is allowing RMB to appreciate to dampen imported inflation. but it definitely won't help much.



Sat, 10/13/2012 - 13:14 | 2885188 Lloyd_Xmas
Lloyd_Xmas's picture

Just think of the reduction in CO2 when the chinesne military fixes the situation.  The greens will be estatic.

Sat, 10/13/2012 - 11:25 | 2884724 LawsofPhysics
LawsofPhysics's picture

LMFAO!!!!  Right, the PBoC is not printing yuan and is being completely honest.

Seriously?  If you believe that any government (especially a state-run, communist one) is being honest please call 949-824-5532, because I have a couple bridges for sale that are guaranteed to generate revenue for years to come.


Sat, 10/13/2012 - 11:33 | 2884741 LULZBank
LULZBank's picture

There is a difference between printing money and printing money.

Sat, 10/13/2012 - 11:36 | 2884746 LawsofPhysics
LawsofPhysics's picture

Wrong, paper is paper is paper is paper is paper.  Now paper with a large military behind it is another thing altogether.

Sat, 10/13/2012 - 11:26 | 2884726 cranky-old-geezer
cranky-old-geezer's picture



There's so many flaws in this article I don't know where to begin.

While the entire 'developed' world is now openly engaged in destroying the balance sheet of its assorted central banks

You can't destroy the balance sheet of a central bank because there's no higher authority to audit it and declare it's trash.  In our case the Fed can print currency and buy any sort of worthless trash paper from Wall Street, pay full par for it, plus fees and commissions, put that worthless trash on their balance sheet and say it's freikin gold and nobody is gonna say otherwise.  When it matures and just dies, losses are passed on to the government. 

So no, you can't destroy the balance sheet of a central bank.  It's why central banks have become garbage dumps for all the worthless shit paper from the financial sector.  The bad banks of last resort. Nobody is gonna audit that shit and say it's worthless.  And if someone did, it wouldn't matter, because the currency isn't backed by that worthless trash.  People just want the damn currency.  They don't fucking care what's on the other side of the balance sheet.

The balance sheet of a central bank doesn't fucking matter to anyone.  Nobody cares what's on it, they just want the damn currency coming off the printing press.

the sole means to devalue local currencies

No it isn't the sole means of devaluing a currency.  It has nothing to do with the currency's value, because the currency's value isn't tied to the asset side in any way.

How much of the currency is floating around out there.  That's the only thing that matters.

Why does Zerohedge keep worrying about central bank balance sheets?   They don't fucking matter to anyone else, and they don't have any damn bearing on a currency's value.  If they did, the US dollar would be worthless already.

So China says they're gonna back out of the worldwide printfest and preserve the value of their currency.  

Fine, it'll crash the US dollar that much faster since Bennie boy is gonna keep running the presses here,  and Mario is gonna keep running the presses in Europe.

Sat, 10/13/2012 - 11:38 | 2884747 LULZBank
LULZBank's picture

ZH, at the end of the day, is a financial blog.

Sat, 10/13/2012 - 12:02 | 2884989 cranky-old-geezer
cranky-old-geezer's picture



Yep, caught up in that balance sheet mentality, which applies everywhere EXCEPT central banks.

It's damn sure not a monetary theory blog.

Sat, 10/13/2012 - 12:07 | 2885054 LawsofPhysics
LawsofPhysics's picture

Monetary theory?  WTF?  I'd say ZH has always been a monetary reality blog.

Sat, 10/13/2012 - 11:58 | 2885003 Tyler Durden
Tyler Durden's picture

This rambling monologue would be great if only it wasn't 100% wrong. In a relative closed loop fiat world, the quality of the balance sheet - the asset side - is all the matters, as bank after bank tries to dilute their currency faster than everyone else, which can only be done by creating increasingly more worthless reserves against which currency is created - first TSYs, then MBS (this is where the Fed is), then ETFs, then REITS, then outright corporate bonds (this is where the BOJ is) and stocks. That in the end it merely leads to infinite liquidity ultimately hitting what is left of the market is precisely why in the long run hard assets priced in current iterations of fiat will soar and then become N/M from a status quo pricing standpoint once the end result, hyperinflation, which has always meant terminal fiat collapse, hits.

Sat, 10/13/2012 - 12:04 | 2885040 LawsofPhysics
LawsofPhysics's picture

In a nutshell, when the whole fucking system is based on fraud and fraud is the fucking status quo, possession of hard assets of real (survival) value is the fucking law.  Learned this the hard way with some assets I had in Russia in the mid 90's.  Smart money is positioning itself for this everywhere around the world.  The interesting bit here is that while local fiat collapse and local hyperinflation has occurred throughout history, this will be the first time it will be a world wide phenomena (in part we have the internet to thank).  Consistent with a financial theme, all the world's paper will go "bidless".  

Sat, 10/13/2012 - 13:40 | 2885243 1C3-N1N3
1C3-N1N3's picture

Consumption is the law.

Possession is merely the identifier by which the law chooses its targets.

Such is fraud.

Sat, 10/13/2012 - 12:03 | 2885044 hawk nation
hawk nation's picture

You want proof look at the way farm landhas gone up in price since obama came in office

Its also interesting that people with money are suddenly wanting to own about 100 acres that have woods, farm land and a stocked pond with a small farm house included

Sat, 10/13/2012 - 12:06 | 2885048 LawsofPhysics
LawsofPhysics's picture

Barely arable land arounf parts of our operation has gone from sub $1000 per acre to over $25,000 in some cases since 2007. Personally I feel that this more accurately reflects the true destruction of fiats.

Sat, 10/13/2012 - 12:06 | 2885049 cranky-old-geezer
cranky-old-geezer's picture



Tyler I love Zerohedge even to the point of hammering off-topic contributors like GW incessantly, so you have my loyalty, but what part of it-ain't-tied-to-the-asset-side do you not understand?

Sat, 10/13/2012 - 12:08 | 2885055 Tyler Durden
Tyler Durden's picture

And what part of money-is-a-Central Bank-liability-which-can-only-be-created-against-new-assets-in-a-limited-asset-world do you not to understand?

And please don't trot out idiocy like MMT that assets can be created out of thin air, i.e., TSY bonds, in perpetuity (which are in turn a liability on soveriegn faith and credit, which is now used to fund negative IRR deficit funding "projects" like welfare, the Fisker Karma and Solyndra), because then we will trot out our favorite chart showing that reserve currency status, unlike what all those socialist fans of MMT would like to believe, is very much finite.

Sat, 10/13/2012 - 12:21 | 2885071 cranky-old-geezer
cranky-old-geezer's picture



First, it's currency, not money. Big difference.

Second, yes, new currency on the liability side requires new assets on the asset side, we agree there. It's a balance sheet after all, it has to stay in balance.

But the asset side doesn't determine the value of the currency.  Forex determines the value of the currency.  Competition with other currencies determines the value of the currency.

Reserve currency status?  Yea, we're gonna lose it somewhere along the line, precisely because Bennie keeps running the presses buy more worthless shit from Wall Street.

The asset side of Fed's balance is a freikin garbage dump.  And it determines USD's value?  Let's hope not, or we're in big fucking trouble.

Sat, 10/13/2012 - 12:35 | 2885097 Tyler Durden
Tyler Durden's picture

First of all, US currency (not money) is just over $1 trillion, and is about 35% of all Fed liabilities. The remainder, or about $1.6 trillion, is excess reserves (this number will hit ~$4 trillion by the end of 2014). Together they are M1 and make up the Fed's liabilities which are matched by the Fed's assets. M2 is what happens when you add fractional reserve banking into the equation. M3 is what happens when you add leverage upon M2. Shadow banking is what happens when you take M3 and add credit, liquidity and maturity transformation from unregulated, deposit-free institutions.

The take home here is: it is all about credit, i.e., money creation, in both the public and private sectors.It is not a coincidence that US GDP has followed total financial liabilities created in the past century nearly on a dollar for dollar basis.

As for your argument that  "Forex determines the value of the currency", uhmm, how do FX traders determine what the fair value of a currency pair is, i.e., if EURUSD is cheap or expensive? And don't say Thomas Stolper. Here is your answer, which incidentally we posted a year ago:

"The Fed vs The ECB - Presenting "The Correlation Of 2012" And What It Means For Gold."

The post was 100% accurate in predicting every move in the EURUSD as a result of relative increases in the Fed and ECB balance sheets (and then add all others to the equation).

All that said, hopefully by now you are seeing the picture little by little. The race to debase is nothing but a race whose balance sheet can get biggest (i.e., whose currency can be relatively devalued) the fastest.

Sat, 10/13/2012 - 13:02 | 2885147 cranky-old-geezer
cranky-old-geezer's picture



What determines USD's value vs EUR's value on Forex?

Fear.  Emotions.  People's market-level perceptions of the their relative strengths.

Does the average Forex trader care what's on the asset side of Fed's balance sheet?  Or Mario's balance sheet?

No, of course not.

Like I said, we agree it's a balance sheet and has to stay in balance.  But they can say their so-called assets are worth anything they want to say they're worth.

And if net currency is 5 times what's on Fed's balance sheet, because every bank in the Fed system can create currency too, it's really impossibe to determine USDs value from aggregae balance sheet assets ...which are so distorted as to be meaningless.

I guess we'll have to agree to disagree on this.  You seem to think there's a hard asset-liability balance sheet link.  I don't.  I don't think there's any real world connection between the two, not when they can say their assets are worth whatever they want to say they're worth and Forex determines the value on a day-to-day basis.

I believe the BRICs are gonna introduce a gold-backed currency.  If they do, USD is gonna crash overnight, even though asset values didn't change one cent.

That will be the proof that the asset side doesn't matter when we're talking about central banks.

And bottom line, I'm just a commenter.  If everybody else thinks what I say is BS, ok, downvote me to oblivion.

Sat, 10/13/2012 - 13:04 | 2885165 Tyler Durden
Tyler Durden's picture

So you are saying China will introduce a gold backed currency? You mean something like what we said here?

Name The New Reserve Currency: China Imports More Gold In 2012 Than All ECB Holdings

And of course once there is a hard-backed currency alternative, it becomes the reserve, precisely because assets for reserve creating central banks have now been exhausted and the world is very much aware of this: this is exactly what we meant by relative balance sheet destruction in a close loop fiat world.

Sat, 10/13/2012 - 14:45 | 2885215 cranky-old-geezer
cranky-old-geezer's picture



I see your point in a purely accounting sense, and I agree with you, asets gotta equal liabilities, as asset values slip, something's gotta happen on the liability side to compensate.

Balance sheet destruction?

When has Fed ever said their assets are losing value and they gotta reduce the liability side by pulling currency out of circulation?  Never to my knowledge.

So who really cares about "balance sheet destruction"?  Not the Fed.  Not anyone on Forex.

And we acknowledge here on ZH all the freikin time the US military is really what  maintains USD value, in spite of whatever's on Fed's balance sheet, right?

See, another example of non-balance-sheet factors making more difference than what's on the balance sheet.

And guess what, BRIC's gold-backed currency wouldn't be gold-redeemable, so it doesn't matter how much or how little gold they actually have on the asset side.

It's people's perceptions of gold-backed that would make it the new defacto (if not dejure) world reserve currency. 

People's perceptions.   That's not an accounting thing.  It's not a balance sheet thing.

Make me a contributor.  I'll publish my contrairan monetary views here exclusively, nowhere else, we can hash out our different views till the cows come home, and get everybody else's comments. 

One thing for sure, people here will get a better understanding of things on the monetary side, which is pretty important in these days of wild ass printing and resulting debasement, the race to the bottom as you say.

And by the way, I developed my belief in a BRIC gold-backed currency well before seeing it here on ZH.

It's common sense.  China is the new 900 lb gorilla on the world economic scene, and they're pissed how we're debasing our currency like we are, reducing the value of USD reserves they hold.

And it's RIC actually, asian powers are the ones behind it, i.e. SCO.

Sat, 10/13/2012 - 15:01 | 2885353 LULZBank
LULZBank's picture

Tylers is right man.

Central banks can create assets and liabilities by creating money which is also called currency. And its not easy to manufacture all that wealth.

FX traders wake up everyday and study the balance sheets of the central banks and assign a value to each currency money and then try to shaft each other all day long. Nothing to do with the Nash Equilibrium, the agreed upon set of rules or the big players in the background creating demand for one currency and then the other or to do with trade settlements.

This is the reason countries with strong central banks are the rich countries with stronger currencies because central banks keep the assets and liabilities in the perfect balance, and those resource rich third world countries are poor because their central banks cannot print wealth for them as they dont have any assets to post against the created money liabilities.

And IMAGINE a world without Gold and Silver *SHOCK* * HORROR* The whole world will die of starvation and all the trade and economy will come to a standstill. I mean what the fuck are they going to back their monies with?? Ermm.. I mean currencies with?

Iran printed so much currency overnight, that next day they woke up to hyperinflation. Nothing to do with their currency being cut off from the rest of the world. Their central bank did not have any assets.

... in my opinion and I am not an expert nor do I have any experience of the market, apart from farmer's grocery stores.

Sat, 10/13/2012 - 16:51 | 2885560 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

I think I get it. Central bank balance sheets don't matter: so we're all going to be billionaires! This is gonna be great! So the Fed, now leveraged 69:1, can just keep going! Sure just take another $40B a month in MBS, pay the banks 2004 prices for them, and stick them under the rug in the Maiden Lane offices.

Why didn't any civilization figure this out before? Genius.

Sat, 10/13/2012 - 17:25 | 2885616 Money Squid
Money Squid's picture

Release the "paste" key to all (except cranky) and we shall see who has the most bad-assed charts.

Sat, 10/13/2012 - 12:21 | 2885072 malikai
malikai's picture

It sounds to me like cranky-old-geezer is seeing the 'now' regarding human behavior + fiat. Meanwhile, TD is seeing the 'historical' regarding human behavior + fiat.

Personally, I don't think this time is different, despite all the great wonderful theories floating around these days.

Sat, 10/13/2012 - 18:32 | 2885718 helping_friendl...
helping_friendly_book's picture

No one seems to aknowledge the fact that the US Treasury Debt is well beyond 16 trillion, the FRBNY buys 76% of all debt created by Treasury, buys 40 billion a month in CMBS (It can't be single family MBS since all the Mexicans headed South of the border two years ago). The US spends a trillion dollars a year, not on defense but, on wars of aggression.

China has stopped rolling over maturing Treasury debt and the balance is dropping from the 1.5 trillion peak of 2010. 

China doesn't have massive deficits each year and they save 1/2 of all US currency by buying hard assets and spends the rest on infrastructure and the PLA.

You guys argue about balance sheets and miss the big picture. If China dumped their Treasury debt it would not kill their economy. It would kill ours. How many tonnes of AU does China buy a year? 1000? It is against Chinese law to export gold. What gold comes in stays in.

Argue balance sheets all you want but the fact is our financial system has passed the point of unsustainability, we spend 1.3 trillion more than we take in. 

Let's put all of our debt on the FRBNYs balance sheet and force THEM into bankruptcy.

I have had my share of skanks but, never such bad Bush!

I know this sounds crazy but, we can have a fractional reserve system backed by silver. We have over 1000 tonnes of gold. which we could convert, some, into silver to back our currency into money convertable into silver. We could leverage 10x and have convertable twenty dollar bills. 20 dollars per ounce.

I say force the FRBNY into bankrupcy because they are insolvent. No more bailouts. No more socialist bond buying.

Bring bavck the free market. 


Sat, 10/13/2012 - 13:21 | 2885194 OneTinSoldier66
OneTinSoldier66's picture

"The balance sheet of a central bank doesn't fucking matter to anyone."


A Central Bank's balance sheet doesn't matter? Sounds to me kind of like "deficits don't matter".


If you take this all the way out to it's logical conclusion, where the CB buys and ends up having all the assets of the entire country on it's balance sheet(Treasuries, Munis, MBS, Stocks, etc.)... that doesn't matter?

Sat, 10/13/2012 - 13:46 | 2885261 cranky-old-geezer
cranky-old-geezer's picture



What matters is by that time the US money supply would be 300 freikin trillion and USD would be WORTHLESS.

Sat, 10/13/2012 - 15:23 | 2885424 OneTinSoldier66
OneTinSoldier66's picture

Okay, I hear you.


I just want to say that my understanding is, that the trillions that are conjured up out of thin air are done so when the Central Bank buys an asset(as worthless as it may be) and places that on it's balance sheet. It just seems to me that the balance sheet is involved and therefore does matter. That's all I'm sayin'.

Sun, 10/14/2012 - 02:11 | 2886177 cranky-old-geezer
cranky-old-geezer's picture



Balance sheet does matter in a purely accounting sense, which I agree with Tyler on. 

But it's a farce in a practical sense.  The asset side is a garbage dump full of rotting stinking toxic shit Bennie can say is gold because there's no higher authority to say otherwise.

They print and buy near worthless MBS at par (plus fees and commissions) so it won't stink up Wall Street bank balance sheets and stink up their balance sheet with it.

A billion bennies created out of thin air, credited to some Wall Street bank's "reserve account" on the liability side, in exchange for MBS worth a hundred million at best, but booked on the asset side at a billion.

Everything's in balance, everybody's happy, the bank got rid of near worthless crap and got a billion fresh bennies for it.

It can stay there stinking up Fed's balance sheet till maturity, never marked-to-market, always worth a billion.  When it matures Bennie gets a hundred million if he's lucky, 900 million loss passed on to the government. 

The billion bennies in the bank's "reserve account" never gets taken out, M2 never drops, Fed just takes more crap paper and puts it on the asset side.

It's a freikin joke.  A farce.  Nothing resembling a true balance sheet and never audited.

And Tyler takes that nonsense seriously?  "Oh lord, they're destroying their balance sheet again, USD is in trouble again, god help us" while Bennie shugs his shoulders, he's done his job, laundered more near-worthless paper into fresh spendable bennies, Wall Street parties on paying huge bonuses from those fresh spendable bennies.


Then there's how many trillions of "assets" and corresponding "reserves" not even on the freikin balance sheet?

You think Wall Street banks are the only ones doing off-balance-sheet shit?  Fed never does? 

Sat, 10/13/2012 - 11:46 | 2884760 No Euros please...
No Euros please we're British's picture

We no need plint. We got gold..............................bitchez.

Sat, 10/13/2012 - 11:46 | 2884761 Atomizer
Atomizer's picture

Let's just sum this up in four words..


Global Currency War Dominance


Sat, 10/13/2012 - 11:51 | 2884770 LawsofPhysics
LawsofPhysics's picture

trade wars have also been started, then comes more real wars, yes, yes, same as it ever was.  Hedge accordingly.

Sat, 10/13/2012 - 16:19 | 2885498 Quinvarius
Quinvarius's picture

I can do it in 3.

Done buying Treasuries.

Sat, 10/13/2012 - 12:30 | 2885092 Stilicho
Stilicho's picture

National inflation has been already dangerously high in China. By sitting out a round of QE, they may have a chance at bringing their own local inflation levels under control. If a nation already has a currency that is strong and not inflationary, such as Brazil, it makes it vastly tougher on them to sit out a QE round without real damage to their main street economy.

Sat, 10/13/2012 - 13:26 | 2885209 OneTinSoldier66
OneTinSoldier66's picture

What makes you believe that a strong currency is tough on an economy?

Sat, 10/13/2012 - 12:30 | 2885093 Yen Cross
Yen Cross's picture

 This hit an all time low Friday. . There is a portion of that trade surplus you mentioned in currency appreciation.

  Here is the Sunday China calendar:GMT-8 

18:30  CNY   Chinese CPI (MoM)   0.4% 0.6%     18:30  CNY   Chinese CPI (YoY)   1.9% 2.0%     18:30  CNY   Chinese PPI (YoY)   -3.6% -3.5%     19:00  CNY   Chinese FDI    




Sat, 10/13/2012 - 12:49 | 2885134 loveyajimbo
loveyajimbo's picture

Soon (next year), they announce a gold backed Yuan and ti is game over for the old Bernanke Buck... and the S&P, and all trade agreements and the reserve currency status... PLOP!!  Fluuuuuuuuuush!!

Sat, 10/13/2012 - 13:20 | 2885197 Money Squid
Money Squid's picture

i believe one of my strengths is that I know i am not very bright, so can someone spell this out for me in simple terms - The the US is "printing" to ease quantitatively and China pegs their Yuan to the dollar, so why does China need to print? Can China just ride the dollar down with out printing because of the peg?

Sat, 10/13/2012 - 14:28 | 2885328 cranky-old-geezer
cranky-old-geezer's picture



If China really does back out of the printfest and keeps their peg where it is, it would be like the Swiss pegging to the Euro, requiring ongoing printing and buying Euros to hold the peg.

So no, if China really does back out of the printfest they won't be able to hold the peg, at least Forex wise, their currency will rise against the dollar significantly.

Sat, 10/13/2012 - 17:24 | 2885613 Money Squid
Money Squid's picture

ahhhhh soooooooo. The chinese need to print to keep the peg, but if they do the inflationated peasants will riot. If they don't their currency will rise against the dollar and their manufacuting economy will shift towards a spending/consumption economy. Sounds like one front in an economic attack to cash in on China's holdings, and forcing China to spend that money on oil from the Middle East, which is now controlled by the west, at higher still prices.           eh?

Sat, 10/13/2012 - 14:20 | 2885311 resurger
resurger's picture

No more soup?

Sat, 10/13/2012 - 15:14 | 2885411 Encroaching Darkness
Encroaching Darkness's picture

Didn't we have articles just a few months back noting that China had printed billions and billions of RMB and lent it out to their banks? Mainly to keep the state-owned enterprises solvent?

Haven't we also seen a few Ponzi-scheme deals go bust in China just recently?

China may ALREADY have printed and pushed so much paper that a recession, if not collapse, is coming. Now we are hearing, from one official, that they are not going to "print their way to prosperity"?

Is this a real change, a pseudo-change, or just a misdirection? How long will it take to find out?

I am sure the Chinese are smart enough to know what not to do, but then so are we; whether or not the political will to act intelligently is present - well, you'll have to prove that one. I think the Chinese have their own internal political problems that will make "not-printing" highly desirable but not actually feasible - sort of, like, us.

Sat, 10/13/2012 - 15:28 | 2885432 orangegeek
orangegeek's picture

So much for QE-whatever.  SP500 daily just closed below channel support.


Looks like the slide is on.

Sat, 10/13/2012 - 21:53 | 2885981 EconoIdiot
EconoIdiot's picture

I'm just thankfull for all the stability our world leaders have provided for those that depend on them.


Sat, 10/13/2012 - 22:29 | 2886024 ZFiNX
ZFiNX's picture

China doesn't need to print to sell their exports. That's the difference.

Sat, 10/13/2012 - 23:25 | 2886088 silverdragon
silverdragon's picture

When China declares it has 10,000 tonne of Gold it will get real interesting.

Sun, 10/14/2012 - 03:25 | 2886268 SWIFT 760
SWIFT 760's picture

Not sure China will truly reveal their gold holdings. Not sure if showing their cards is an Art of War strategy. 

Sun, 10/14/2012 - 03:35 | 2886274 SWIFT 760
SWIFT 760's picture

Sun Tzu's Art of War. 

China has manipulated currency making trade profitable thus keeping factories sustained and masses emplyed. 

China has used their Forex US reserves to purchase business, land, raw materials globally and purchase gold reserves. 


Sun, 10/14/2012 - 04:18 | 2886290 muppet_master
muppet_master's picture


refuses to BOW DOWN to QEorganizer's printing fest....bc i think they are smarter than a 5th grader...odummer is not....the chinese they know they have full well over 1 billion mouths to feed....if (actually when) the system comes crashing down from hyperinflation....the chinese have 1.2+ billion people and not a reliable farm land as the US, with less mouths to feed (300k).

china nows that nobody will come to their rescue during hyperinflation and food shortages...but QEorganizer says:  everybody PRINT BABY PRINT!!! u don't want me to fail do you? you want the ponzi scheme casino to be raised for the political donors...


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