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"China Accounts For Nearly Half Of World's New Money Supply"

Tyler Durden's picture




 

When it comes to the creation of money in China, and specifically the asset side of the ledger, or loans, there is much more confusion than consensus, primarily because nobody knows who it is that is creating the money: private or public entities, SOEs, the PBOC, regional banks, shadow banks, or your next door neighbor.

Another thing that is largely misreported: what the actual assets pledged as collateral to new loans are. Because while it is well-known that corporate debt in China is now greater as a percentage of GDP than in any other country, the comprehensive picture is still confusing (albeit GMO did a fantastic summary recently of what is known) as reporting standards are still non-existent, and the government flat out lies about its balance sheet.

Yet one very simple shortcut to get a sense of what is truly happening in monetary China is to peek at the liability side of the consolidated balance sheet, and one line in particular, namely deposits. Because unlike in the US, where the vibrant equity Ponzi scheme has rarely been stronger, in China it is still all about the cash and as a result the bulk of the newly created money once again return back to the banking sector in the form of a deposit. Ironically, that is what banking should be about (instead of the entire industry being a glorified hedge fund) although in China even this practice has gone on way too far, and like in Europe, has long passed the point where there is real collateral value backing up the new money created (which explains the emergence of various letters of credit collateralized by copper still not dug out of the ground which reappear every time Chinese inflation spikes above 5%).

So how do deposits look when comparing the US and China? Well, after having less than half the total US deposits back in 2005, China has pumped enough cash into the economy using various public and private conduits to make even Ben Bernanke blush: between January 2005 and January 2013, Chinese bank deposits have soared by a whopping $11 trillion, rising from $4 trillion to $15 trillion! We have no idea what the real Chinese GDP number is but this expansion alone is anywhere between 200 and 300% of the real GDP as it stands now.

By comparison, and as the chart below shows, US deposits have not even doubled over the same time frame instead increasing from $5 trillion to just over $9 trillion.

The reason why US deposits have grown relatively slower compared to China is because the bulk of the newly created credit-money has been injected directly into the stock market, whereas in China, where the Shanghai Composite is still mostly a distraction, cash rules.

Incidentally, if one looks at the highlighted tip of the black line, which shows US deposits spiking into year end, then dipping in January, right there is the reason for the rotation into stocks as deposits spiked in December when as we reported many pulled cash out, only to reinvest it in the market while HFT and Bernanke were providing a December stock market floor and avoiding any market drop while retail was selling.

But back to China, and its gargantuan money creation: between January 2012 and January 2013 Chinese deposits rose by just over $2 trillion. In other words, while everyone focuses on Uncle Ben and his measly $1 trillion in base money creation in 2013 (while loan creation at commercial banks continues to decline), China will have created well more than double this amount of money in the current year alone!

It is this blistering injection of cash into the economy why China, of all central banks, has not only eliminated its RRR-cuts, but has made any additional easing a thing of the past. The reason is that China knows that it is this close from setting off another inflationary conflagration, with the help of Bernanke, Draghi, Carney et al of course, just as it did back in 2011. And it will be runaway Chinese inflation, once more like in the spring and summer of 2011, that will be the gating factor on the current bout of monetary injection lunacy that has gripped the developed world's central bank.

Keep a close eye on Chinese deposits, as more than anything these are the best tell of the inflationary situation in China, and by implication, how close the world's monetary spigot is to shutting itself off for at least another brief period of time.

And just in case one needs a voice on the ground to simply all of the above, here is China Times with an article explaining just this:

China accounts for nearly half of world's new money supply

China has seen its money supply surpass that of developed countries since 2009 and has emerged as the world's biggest "money printing machine."

In 2008, the country added 7.1 trillion yuan (US$1.13 trillion) to the currency market, while the United States added 5.08 trillion yuan (US$815 billion) and Europe 5.7 trillion yuan (US$915 billion).

In 2009, China added 13.5 trillion yuan (US$2.1 trillion), while the US, Japan and the eurozone significantly scaled back their supplies. China has been steadily adding 12 trillion yuan (US$1.9 trillion) each year since 2009.

Following the global financial crisis of 2008, major economies in the world have been "printing money." Examples include the quantitative easing measures adopted by the United States and the European Central Bank's "unlimited" bond-buying program. Most recently, Japan launched its own version of quantitative easing on Jan. 22 by raising its inflation target and announcing open-ended purchases of government bonds.

The amount of newly increased money supply peaked in 2012, totaling over 26 trillion yuan (US$4.1 trillion), with China accounting for nearly half of it.

China also saw record surplus money in 2012, with its money supply pegged at 1.88 times that of its GDP. The global average in 2011 was 126% of GDP.

A jump in China's consumer price index in December last year had further fueled concerns about the surplus supply of money printed by the central bank and its potential risks. Some analysts played down these concerns, saying that surplus money had become a universal phenomenon and that most of the countries experiencing it could boast a higher per capita income.

According to 2011 data from the World Bank, the global average for surplus ratio was 126%. China ranked number 10 in terms of the countries with the largest surplus ratio. Luxembourg has the highest ratio in the world at 489%. The top 25 also includes Portugal, Italy, Greece and Spain, as well as Germany.

If a country's per capita income fails to catch up with an increase in its money supply, the ratio will widen, a warning sign for a country's economy. The European debt crisis is highly correlated with the runaway printing of money by European countries and most importantly, an excessively high ratio of money supply to GDP.

Before a heavily indebted Portugal, Spain and Greece further slipped into the red in 2012, these country's ratios had surpassed 200% in 2011, among the highest in Europe. While countries including Ireland, Germany, Austria and France also have high ratios of 150%, the high per capita income in these countries has helped relieve a good deal of fiscal strain.

The United States, meanwhile, has one of the lowest ratios in the world. Though the US was largely responsible for the 2008 financial crisis, it has been able to prevent the ratio from increasing.

 

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Fri, 02/08/2013 - 17:48 | 3227286 reader2010
reader2010's picture

That's lots of firewood for the coldest winter in China.

Fri, 02/08/2013 - 17:58 | 3227309 DoChenRollingBearing
DoChenRollingBearing's picture

O/T, but if YOU want to increase YOUR money supply make your best guess!

 

Fringe Blogger Bearing offers $5.00 to the first correct guess as to WHAT that object is, whether by email (my moniker at gmail) or Comment:

"What is This?"

http://tinyurl.com/b27lez2

EDIT (Rulez, bitchez!):

 

1)  One guess per person

2)  Contest ends 22 Feb at 11:59 PM US ET

 

 

Fri, 02/08/2013 - 17:59 | 3227320 NidStyles
NidStyles's picture

What the M&M or the knitted material?

Fri, 02/08/2013 - 18:00 | 3227324 dick cheneys ghost
dick cheneys ghost's picture

it's blurry?...............what do i win?

Fri, 02/08/2013 - 18:03 | 3227334 ihedgemyhedges
ihedgemyhedges's picture

We must go big. We have more peepers here in China than US

Fri, 02/08/2013 - 18:10 | 3227349 DoChenRollingBearing
DoChenRollingBearing's picture

Re Contest, "Matt C" has already won at 4:56 PM.

The answer is "Osmium".  It is a 1 oz pellet.

Fri, 02/08/2013 - 19:15 | 3227495 trav777
trav777's picture

Didn't some dumbfuck or another say the yuan was going to be gold convertible and that it would soon displace the USD as the reserve currency?

Asinine

Fri, 02/08/2013 - 19:59 | 3227615 bobthehorse
bobthehorse's picture

The Chinese miracle.

What a crock of shit.

Assholes.

http://www.angrysinner.blogspot.kr/2013/02/saturday.html

Fri, 02/08/2013 - 22:53 | 3228049 rotagen
rotagen's picture

Hmm, I'm curious.

Very little data I can find on PBC, but the Bank of China did invest in some Rothschild-owned bank.  Found this:

"The four big state owned commercial banks are 100 percent owned by the central government. All other banks, with the exception of Minsheng Bank, are jointly owned by central and local governments and SOE (state owned enterprise) conglomerates" Also: "PRIVATIZATION Privatization of the four state-owned banks does not seem to be a realistic option because the quality of their assets is very poor and massive rehabilitation will be required before privatization. Since asset re-structuring and rehabilitation will take substantial time, privatization does not seem to be on the immediate agenda. Once substantial progress has been achieved in bank and SOE restructuring, the Government may start selling its bank share in the capital market and reduce its ownership gradually." It appears that we can assume that the banking system has not been compromised by foreign entities (but I am still a bit skeptical about that). Based on this info alone, in terms of a global order/power controlling interests in China, it doesn't seem to exist. Could the PRC be devoid of foreign corruption?

Fri, 02/08/2013 - 23:29 | 3228123 rotagen
rotagen's picture

And all along I was thinking the Soviet union of europe or the creature from Jekkyl island would lead the economic meltdown...I'm thinking the giant weight of business-fraudulent china may be more substantial..recent news..

 

Sale of Stake in ICBC

One of the biggest factors that pushed the share price of Goldman Sachs was the disclosure that the company had sold its shares in Industrial & Commercial Bank of China (ICBC). Goldman Sachs managed a cash inflow of $1 billion from the sale and the shares surged 2.1% immediately after the information was made public. From the sale of its stake in ICBC, it can be derived that Goldman Sachs is gradually cutting down its stake in non-core business. Goldman Sachs is also under pressure from regulatory authorities to strengthen its capital ratios, and

Fri, 02/08/2013 - 18:06 | 3227304 Landotfree
Landotfree's picture

The money supply is $55T in the US which is part of the $200T (est) of the worldwide credit system.

"while the US, Japan and the eurozone significantly scaled back their supplies"

I have no idea what that means.  The US went into negative money creation in 2009, the bottom was unable to increase at the rate needed, which required the mother of all bailouts.   Eventually, the system is going to need the mother of all bailouts plus the exponential required since 2009.  

The US credit system is missing about $20T right now. 

"Though the US was largely responsible for the 2008 financial crisis, it has been able to prevent the ratio from increasing."

You mean it's the fault of the US that they are unable to exponential grow forever?   Excuse the shit out of the US for not having unlimited power, you know like God.

China is going to collapse just like the rest are going to collapse, the liquidation I would imagine will be much worse in Asia, as there 4 billion over there.   Good luck and all.

http://2.bp.blogspot.com/--RkLZLRlRi8/UGAGOUg7fNI/AAAAAAAAABs/HHgMlfUYP2...


Fri, 02/08/2013 - 17:57 | 3227308 thismarketisrigged
thismarketisrigged's picture

i fucking hate china more and more everytime i read the shit they do.

 

fuck you china!!

Fri, 02/08/2013 - 23:34 | 3228133 thefedisscam
thefedisscam's picture

And FUCK You!!

Sun, 02/10/2013 - 19:11 | 3231484 JonNadler
JonNadler's picture

it's your own government that's screwing you

Fri, 02/08/2013 - 17:57 | 3227314 NidStyles
NidStyles's picture

Sucha a fucking waste of resources.

Fri, 02/08/2013 - 17:59 | 3227318 falak pema
falak pema's picture

lol, yes they just might catch up to that other kong dong : USA! 

Fri, 02/08/2013 - 18:03 | 3227332 francis_sawyer
francis_sawyer's picture

Print till it hurts... [and beyond]...

Fri, 02/08/2013 - 18:06 | 3227344 Yen Cross
Yen Cross's picture

 Bubbles, tiny bubbles.

Fri, 02/08/2013 - 18:11 | 3227353 spartan117
spartan117's picture

And just in case one needs a voice on the ground to simply all of the above, here is China Times with an article explaining just this:

 

You consider Taiwan part of China?  You really going to believe what Taiwan has to say?  Give me a break.

WantChinaTimes.com

Knowing China through Taiwan

 

Fri, 02/08/2013 - 18:21 | 3227379 dick cheneys ghost
dick cheneys ghost's picture

Lead story from that news site...................Maybe we should be more like China

 

''17% of China's billionaires under investigation or arrest''

 

''Around 17% of billionaires in China were under investigation, have been arrested or have lost their fortune quickly due to the country's business environment and illegal financial activities.''

 

http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130208000031&c...

 


Fri, 02/08/2013 - 18:31 | 3227399 spartan117
spartan117's picture

The point is, that website is Taiwan owned.  You might as well believe in the tooth fairy if you're going to believe what Taiwan has to say about China.

 

Registrant Contact:
TW
Kaowei Nee (kaowei@gmail.com)
Taiwan
Taiwan, Selangor, tw 108
P: +886.223087111 F:

Fri, 02/08/2013 - 20:04 | 3227636 Son of Loki
Son of Loki's picture

No wonder they are desperate to smuggle $$$ out of the country into RE all over the world creating multiple Bubbles overseas. RE purchases are not monitored that well.

Fri, 02/08/2013 - 18:36 | 3227391 JR
JR's picture

Bernanke said that the Fed has a wide assortment of tools able to do many different things in order to help the economy, including some things that have never been tried before. I beg to differ, Mugabe tried them.

Fri, 02/08/2013 - 18:31 | 3227402 LawsofPhysics
LawsofPhysics's picture

So, how long until we get that "gold-backed" yuan?  Pardon me if I don't hold my breath.

Fri, 02/08/2013 - 19:06 | 3227474 Mutatto
Mutatto's picture

No wonder they buy twice as much gold every month as they did the month before!

 

Fri, 02/08/2013 - 19:25 | 3227520 Falconsixone
Falconsixone's picture

I just bought a pair of gloves made by a chinese slave girl for a $2.00...put that on the books.

 

What's going to be funny is when these american companies find out their out, and their company is now chinas company. Fuck'em I hope china chops up all those ceo's/owners (whole company) in the most honorable grisly manner befitting their honorable greed. Ha...No honor among thieves and liars 

 

The man of virtue makes the difficulty to be overcome his first business, and success only a subsequent consideration. Confucius

Sat, 02/09/2013 - 01:15 | 3228245 Notarocketscientist
Notarocketscientist's picture

How much to buy the slave girl?

Fri, 02/08/2013 - 22:42 | 3228023 silverdragon
silverdragon's picture

Quoting a Taiwan rag on China is hardly intelligent!

The 15 trillion cash in the bank speaks more to qovt. soft landing property market by increasing deposit amounts so property is unattractive to everyone but those that must buy. Stock market is a no go as well.

Everyone is battening down the hatches and accumulating cash, property and stocks are a no go, so cash in the bank is king.

Anyway, how does 15 trillion cash in the bank become a bad thing?

Just wait until the Chinese masses get a real taste for Gold and most importantly Silver. Just a moderate sized chunk of the 15 trillion will rape the manipulators of these ever so precious metals.

Fri, 02/08/2013 - 23:11 | 3228081 silverdragon
silverdragon's picture

China Merchants Bank is listed and not majority govt owned, is very well run and cashed up. Obviously part of China Merchants Group which is seriously cashed up and majority govt owned.

Sat, 02/09/2013 - 02:59 | 3228204 silverdragon
silverdragon's picture

Why not focus on what is important, the 15 trillion in cash just sitting there waiting to flow into silver and gold.

They aren't interested in property and stocks either.

Just a trillion of that in Gold and Silver would be a good day at the office. Oh wait up, they are already very educated ref PM's, so I guess we just sit back and enjoy the ride.

Wait up, they can just buy PM's at the bank or at the local PM shop on the corner of every street, "get the f*ck out" this is gunna be a wild ride.

Sat, 02/09/2013 - 08:20 | 3228431 hero HNL
hero HNL's picture

In Japan, people suspected China was broke long time ago. This program is intersting although it is in Japanese:

http://www.youtube.com/watch?v=HuEsVj9Ltpc&feature=related

http://www.youtube.com/watch?v=i7G6La55O3M&feature=relmfu

 

Actually, China is not so bad....the worst example of keynsian economics in the whole world is Korea & no other country even comes close. In fact, korea went so broke in 2008 that all its major companies are now foreign owned. That includes samsung, LG, all banks, all insurance companies, etc......They are now owned mostly by US financial companies.

Get a auto-translator to read (thread#26 is very important):

http://www.logsoku.com/r/poverty/1328966296/

 

 

 

Sat, 02/09/2013 - 10:02 | 3228521 hero HNL
hero HNL's picture

China will experience a stagflation in the near future like south korea......meaning a lower standard of living & a higher cost of food and energy. They are not producing goods & sevices that the world needs......too many bankruptcies & suicides.

 

 

hero

Sat, 02/09/2013 - 10:08 | 3228535 Freewheelin Franklin
Freewheelin Franklin's picture

China has all of that cheap labor running their printing presses. Benny can't keep up.

Do NOT follow this link or you will be banned from the site!