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"The Market Would Have Collapsed" Had The PBOC Drained: Chinese Liquidity Shortage Hits All Time High

Tyler Durden's picture


Those who have been following our coverage of the bipolar Chinese liquidity situation (most recently here and here) are well aware of the unique position the world's fastest (if only on paper) growing economy finds itself in: on one hand, it is the target of massive external hot money flows from both the Fed and the BOJ, which are pushing select inflation in the country higher, manifesting itself best in the real-estate market now higher for 12 consecutive months. On the other hand, the local banking system is in such dire need of liquidity, that not only have various short-term SHIBORs soared to multi-year highs but as Market News reported last week, China Everbright Bank failed to repay 6b yuan ($977m) borrowed from Industrial Bank on time yesterday because of tight liquidity, leading to “chain effect” borrowing in the market overnight and almost ushering in the first bank failure in China.

The unprecedented liquidity shortage in China is seen best on the overnight SHIBOR chart below which just hit an all time high. In a nutshell there is zero free liquidity in the system.

Which all culminated to last night's surprising move by the PBOC to step aside from draining funds from the financial system for the first time in three months as even the PBOC now realizes that in the battle against Bernanke and Kuroda's cash it is about to lose the fight.

Bloomberg summarizes:

China’s central bank refrained from draining funds from the financial system for the first time in three months after a cash squeeze pushed up the overnight money-market rate to an all-time high.


The People’s Bank of China hasn’t offered repurchase contracts or bills today, according to two traders required to bid at the auctions. Two calls by Bloomberg News to the PBOC’s media office went unanswered. The central bank has held repo operations every week since February to drain cash and resumed sales of bills in May for the first time since December 2011.


The overnight repo rate, which measures interbank funding availability, touched 9.78 percent on June 8, the highest since May 2006, when the National Interbank Funding Center started compiling the weighted average. China’s financial markets were shut in the first three days of the week for the Dragon Boat Festival holiday. The rate was at 6.32 percent as of 10:39 a.m. in Shanghai today, little changed from June 9. The seven-day repo rate dropped 34 basis points to 5.63 percent.

So what would have happened if the PBOC had continued on its merry way of withdrawing liquidity from the interbank market? Very bad things.

If the PBOC sold repos or bills today, the market would have collapsed,” said Liu Junyu, a bond analyst at China Merchants Bank Co., the nation’s sixth-biggest lender. “The cash shortage hasn’t eased and banks are still busy borrowing money.”

Which means one thing: any minute now the PBOC, which has moved from a tightening to neutral stance, will have to continue along the spectrum, and quite soon, proceed to once more inject liquidity, either via RRR or an outright Interest Rate cut.

Aside from the fact that this is just the catalyst that gold bugs have been waiting for (recall 2011), this means that the global inflation exporting game is about to go into overdrive as now the Chinese Central Bank is about to join the Fed, the BOJ, and soon the BOE in actively easing. At that point the countdown to the ECB's joining the race starts, because the real fun will begin only when all global central banks engage in actively injecting liquidity into the system.


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Thu, 06/13/2013 - 09:45 | 3653811 Jason T
Jason T's picture

tis why this whole system needs to crash and burn

Thu, 06/13/2013 - 09:48 | 3653834 Derezzed
Derezzed's picture

Winter is coming ...

Thu, 06/13/2013 - 09:50 | 3653843 camaro68ss
camaro68ss's picture

Just print money like the bernake, duh

Thu, 06/13/2013 - 09:51 | 3653847 toady
toady's picture

Heating oil anyone?

Thu, 06/13/2013 - 09:54 | 3653862 Dr. Engali
Dr. Engali's picture

I'm saving my fiat for kindling to heat the house.

Thu, 06/13/2013 - 09:56 | 3653871 Jason T
Jason T's picture

There will be no hyperinflation .. per Armstrong: "No mainstream government has EVER expired in such a manner. The danger of mature economies is deflation as government needs money, increases taxes, and sucks the lifeblood out of everything. "

Thu, 06/13/2013 - 10:04 | 3653885 Skateboarder
Skateboarder's picture

Except those taxes don't even begin to cover the interest on the debts incurred, let alone the principal, ever.

Thu, 06/13/2013 - 10:09 | 3653897 Uchtdorf
Uchtdorf's picture

Government in default has technically expired, no?

Thu, 06/13/2013 - 10:10 | 3653898 LawsofPhysics
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Bullshit.  No society or currency has ever died/collapsed because it's purchasing power was too strong.

Armstrong is yet another scared paper-pushing shill.

Thu, 06/13/2013 - 10:16 | 3653917 Bay of Pigs
Bay of Pigs's picture

Very disappointing to read Armstrongs comments these days. Did he flip to get out of jail?

Thu, 06/13/2013 - 10:19 | 3653929 fonzannoon
fonzannoon's picture

I was just listening to an economist on CNBC that explained that as Japan blows up and money starts fleeing Japan it will drive the U.S 10yr below 1.5% which is the cover Bernanke needed to make sure bonds get bought while the fed "tapers". That will also probably have a positive effect on equities.

It seems like a very plausable scenario. It's funny the new stimulus programs are other countries imploding.

Thu, 06/13/2013 - 10:23 | 3653955 Bay of Pigs
Bay of Pigs's picture

I'm beginning to understand what being "played like a fiddle" means.

(as we go green again)

Thu, 06/13/2013 - 10:28 | 3653975 fonzannoon
fonzannoon's picture

At a certain point we will be told the market was up when it was down. We will be told interest rates dropped when they rose. We are rich when we are poor. I heard Cramer yesterday and Andrew Ross Cocksmoker today explain that rich people were entitled to more information, and should be allowed to trade it ahead of us peons because that's just how it goes.

Thu, 06/13/2013 - 10:45 | 3654062 walküre
walküre's picture

the richer they get, the wider the gap, the hungrier the poor, the closer they get to hanging on lampposts

Thu, 06/13/2013 - 10:25 | 3653964 Chump
Chump's picture

Except for all that "buying on margin," everywhere.  There is no money to flee.

Thu, 06/13/2013 - 13:12 | 3654526 therover
therover's picture

I agree 100% Fonz. This is the way the Fed can clandestinely 'taper' and not cause total chaos (for now).

Funny how the Nikkei plunges 800 yet we are now up 84 on the Dow ( as of 1:10 PM, 6/13).

As they say on ESPN when commentating on a good basketball shot...RELEASE, ROTATION, SPLASH.

Thu, 06/13/2013 - 14:05 | 3654709 HedgeHammer
HedgeHammer's picture

It's funny the new stimulus programs are other countries imploding.


You don't know how right you are Sir! This is absolutely intentional.

Thu, 06/13/2013 - 10:41 | 3654041 smlbizman
smlbizman's picture

the fat lady just hit a sour note...

Thu, 06/13/2013 - 09:52 | 3653854 Doubleguns
Doubleguns's picture

If we get the fire started then maybe it will crash. We need to start in Utah however at the NSA building. Suspect they will be recording this and any add on comments so be careful out there........Someones beating on the door gotta go. 

Thu, 06/13/2013 - 10:54 | 3654111 Skin666
Skin666's picture

If anybody has been tracking the comments on ZH, they must be hearing "Fuck you Bernanke" in their sleep!

Thu, 06/13/2013 - 10:30 | 3653988 Midasking
Midasking's picture

Believe in free markets or central planning? 

Thu, 06/13/2013 - 10:40 | 3654038 Scro
Scro's picture

All they are doing is shuffling paper around. That's all anybody does anymore.

This will not end well.

Wed, 06/19/2013 - 23:38 | 3674123 Bokkenrijder
Bokkenrijder's picture

So much for a gold backed Yuan/RMB...

Thu, 06/13/2013 - 09:45 | 3653817 swissaustrian
swissaustrian's picture

Central planning, bitchez!

Thu, 06/13/2013 - 09:46 | 3653821 ParkAveFlasher
ParkAveFlasher's picture


Thu, 06/13/2013 - 09:47 | 3653823 butchee
butchee's picture

Sometimes it's liquidity, sometimes it's solvency......  If it's not one thing, it's another.  Just shit the bed already.

Thu, 06/13/2013 - 09:59 | 3653869 Paper CRUSHer
Paper CRUSHer's picture

Notice how crude oil remains pretty firm trading around +90 levels despite liquidity evaporating globally and a build in oil stocks ............damn the kid is resilient.Gold/Oil ,Silver/Oil Gold/Silver ratios,High Yielding Junk still signalling potential trouble ahead.

Thu, 06/13/2013 - 09:47 | 3653827 Non Passaran
Non Passaran's picture

Sweet. Keep stackin', folks!

Thu, 06/13/2013 - 09:48 | 3653829 SheepDog-One
SheepDog-One's picture

Elephant hanging by a thread.

Thu, 06/13/2013 - 09:54 | 3653859 freewolf7
freewolf7's picture

Offer him a wafer.

Thu, 06/13/2013 - 10:01 | 3653879 astoriajoe
astoriajoe's picture

or a wafer-thin mint.

Thu, 06/13/2013 - 10:06 | 3653890 tip e. canoe
tip e. canoe's picture

better also bring a bucket

Thu, 06/13/2013 - 09:48 | 3653831 The Axe
The Axe's picture

That index    especially around the holidays    always does crazy shit.....

Thu, 06/13/2013 - 09:49 | 3653836 TheMayor
TheMayor's picture

I am going to call it here, BTFD is dead.

Thu, 06/13/2013 - 09:53 | 3653855 SheepDog-One
SheepDog-One's picture

I think the NY Fed started stealth tapering about a month ago.

Thu, 06/13/2013 - 13:13 | 3654534 therover
therover's picture


Thu, 06/13/2013 - 09:50 | 3653838 LetThemEatRand
LetThemEatRand's picture

Just like take out.  Order some liquidity and you'll be hungry again an hour later for more.

Thu, 06/13/2013 - 09:51 | 3653845 Eisenhorn
Eisenhorn's picture

If the PBOC sold repos or bills today, the market would have collapsed.”


But it didn't, because nothing will be allowed to collapse until it is convenient.

Move along.  Nothing to see here. 

Thu, 06/13/2013 - 10:45 | 3654059 rubearish10
rubearish10's picture

If the PBOC sold repos or bills today, the market would have collapsed.”

Sounds just like all the other qulaifying remarks such as; "on the verge", this will not end well", "the end is nigh" etc etc... Sure, "everything is about to blow any second now". Add that one too! Give me a frekin' break! 

Thu, 06/13/2013 - 09:51 | 3653848 pitz
pitz's picture

Got Gold?  Got Silver? 

Thu, 06/13/2013 - 10:31 | 3653980 Headbanger
Headbanger's picture

Got ammo?  Got Sig?  Or Glockenspiel? Or vintovka Mosina?

Thu, 06/13/2013 - 10:40 | 3654040 philosophers bone
philosophers bone's picture

Yes and Yes.  Thoughts:

Currently, indestructible precious metals (in which one can have ultimate confidence) are priced largely based on derivative contracts (in which one can have no confidence, particularly when one can be forced to accept cash instead of the physical)?

The result is that there is no legitimate price discovery.  For holders of physical, it is a waiting game until the "price discovery" event / events occur (which are inevitable, but timing is uncertain).  So, the risk of buying physical is really a liquidation risk (easy to liquidate, but not at proper price).  Therefore, leveraging to buy physical is risky as the timeline for price discovery is not known.


Thu, 06/13/2013 - 09:54 | 3653852 Dr. Engali
Dr. Engali's picture

Print moar bitchez! We are one digital credit closer to the collapse.

Thu, 06/13/2013 - 09:57 | 3653864 timbo_em
timbo_em's picture

Some guys out there are about to get squeeeeezed.


Thu, 06/13/2013 - 09:55 | 3653867 Unknown Poster
Unknown Poster's picture

Some machines may have seen a double at ES ~1600.

Thu, 06/13/2013 - 09:57 | 3653872 fonzannoon
fonzannoon's picture

I drove past a huge mall this morning. It was 8am and the parking lot was packed. As I proceed by i realize that the cars were all new unsold cars being stored there by car dealers who must have no more space on their lot. Crazy. 

- squeeky fonz

boy reporter

Thu, 06/13/2013 - 10:05 | 3653888 NoDebt
NoDebt's picture

I went past there, too.  You're talking about the Potemkin Village Mall.  Yeah, I did a double-take on that one myself.



Thu, 06/13/2013 - 10:17 | 3653920 astoriajoe
astoriajoe's picture

I wonder how this place is doing. close enough?

Thu, 06/13/2013 - 10:18 | 3653924 ekm
ekm's picture


Thu, 06/13/2013 - 10:45 | 3654056 The Carbonator
The Carbonator's picture

Its a Potemkin Car village.

Thu, 06/13/2013 - 10:00 | 3653877 astoriajoe
astoriajoe's picture

Hey, the more people there are, the better the party.

Thu, 06/13/2013 - 10:05 | 3653887 pragmatic hobo
pragmatic hobo's picture

I think the time to "buy the fucking dip" is transitioning into "sell the fucking blip" ...

Thu, 06/13/2013 - 10:07 | 3653892 Whatta
Whatta's picture

Bwahahaha...I alone have the power to turn the market around!!!

I go long an SPY put spread and Viola!...The market upticks and heads north!

You are welcome.

Thu, 06/13/2013 - 10:08 | 3653895 tip e. canoe
tip e. canoe's picture

it would actually be quite humorous if

one week after Dimon, Greenspan & the Boyz go on the airwaves to declare to the sheep "interest rates ARE GOING UP", 

the PBOC cuts their rates.

Thu, 06/13/2013 - 10:11 | 3653901 disabledvet
disabledvet's picture

i thought the USA was "tapering" now not "papering." interest rates have already busted a move higher here. our consumption of fossil fuels and its variants have completely collapsed. if Tesla offers an all electric car for say...$3500 bucks "forget it, game over." that's so much oil out there the USA will become the world's biggest energy exporter overnight. we WERE the biggest food exporter until 2008..."now that's on the rest of you, Planet Earth." I find it interesting the Florida is banning ethanol in the State. Prices spiking higher? How about in Texas? Or California where prices are always off the charts? Sorry but i still don't see the "recovery" here in the USA...let alone globally. since Mass/, i mean "Dodd/Frank" is now the law of the land instead of Glass/Stegall i see nothing to prevent Wall Street now from hovering up copper mines, silver mines, gold name it. "just put a price on it and Jamie Dimon will finance it." I'd like to think GE thinks this way as well but my patience has just about worn out with that bunch of clowns. so "on the Full Retard buy Morgan Stanely."

Thu, 06/13/2013 - 10:23 | 3653948 astoriajoe
astoriajoe's picture

"i see nothing to prevent Wall Street now from hovering up copper mines, silver mines, gold name it."

it would be fun to watch that followed closely by countries nationalizing those mines.

Miners will become service companies like Baker Hughes and Helmelich.

Thu, 06/13/2013 - 10:15 | 3653912 Notarocketscientist
Notarocketscientist's picture


To President Barack Obama:

We call on you to ensure that whistleblower Edward Snowden is treated fairly, humanely and given due process. The PRISM program is one of the greatest violations of privacy ever committed by a government. We demand that you terminate it immediately, and that Edward Snowden be recognized as a whistleblower acting in the public interest -- not as a dangerous criminal.

Thu, 06/13/2013 - 12:14 | 3654313 Aurora Ex Machina
Aurora Ex Machina's picture

Yes, I can see that having a huge impact.


Naive or trolling? Not sure, but I can tell you their response.

Thu, 06/13/2013 - 10:31 | 3653997 Crash Overide
Crash Overide's picture

A storm is coming, looks like there is going to be a lot of paper flying around in the wind...

Thu, 06/13/2013 - 10:38 | 3654033 Tombstone
Tombstone's picture

Benny:  Charge!

Thu, 06/13/2013 - 12:38 | 3654397 Chalit
Chalit's picture

I just wanna share some information. Last week, there are 7 working days in China that including Saturday 8 and Sunday 9, so it has a gap between FX and money market cashflow. Moreover, all of commercial banks exclude Policy Banks that operate in China have to comply new regulation (Net Open Position that Zero Hedge hed alreday provided). June 2013 is a first month to comply this regulation that SAFE allows all banks to adjust position until at the end of this month. As i roughly calculate a whole banking industry has to buy about USD 20 billion if they cannot do other ways, they have started to buy and hold FX position since at the beginning of June.

Thus, all of draining liquidity of PBOC, New regulation and mismatch cashflow affect to short liquidity in China market. Therefore, PBOC does not want drain CNY from market and let market gets liquidity back about CNY 95 billion today.



Thu, 06/13/2013 - 12:52 | 3654460 IamtheREALmario
IamtheREALmario's picture

If the Fed and other central banks had any intention of helping the people then they would push DEFLATION instead of inflation. Why? because wages lag prices and unemployment lags wages.

Now the central banks have created the worst of all situations for the US. They have created much larger than stated inflation at the same time that they have decreased the need (and hence the number) for the percentage of people in te workforce. The headline inflation and employment numbers are clearly meaningless except for propagandist purposes.

... and the dependecy on the US government is higher than I have ever seen it. Great for dictators, but bad for people.

Thu, 06/13/2013 - 16:27 | 3655495 Kirk2NCC1701
Kirk2NCC1701's picture

Currency* War sim-games:  US+Japan+EU vs. Russia+China

The economies of these players suffer.  The $100T question is:  Whose will suffer more and crack first?  Where will civil unrest bubble up first and most?  Paging Jim Rickards.  Dr. Rickards to red courtesy phone please.

* War by 'other means'.



Thu, 06/13/2013 - 20:36 | 3656592 Youri Carma
Youri Carma's picture

Very Important Article this one for Gold Cockroaches such as myself

(I don’t care for the predicate ‘Gold Bug’ anymore, it’s used too much and not aggressive enough.

Gold Cockroach is better because every time the FED thinks they kill us we multiply :) )

Sun, 06/23/2013 - 15:06 | 3684329 SeeNoEvil
SeeNoEvil's picture

Cockroaches I like it . deflation then inflation and losing control of interest rates 

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