Chart Of The Day: How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The Water

Tyler Durden's picture

Much has been said about the Fed's attempt to stimulate inflation (instead of just the stock market) by injecting a record $2.5 trillion in reserves into the US banking system since the collapse of Lehman (the same goes for the ECB, BOE, BOJ, etc). Even more has been said about why this money has not been able to make its way into the broader economy, and instead of forcing inflation - at least as calculated by the BLS' CPI calculation - to rise above 2% has, by monetizing a record amount of US debt issuance, merely succeeded in pushing capital markets to unseen risk levels as every single dollar of reserves has instead ended up as assets (and excess deposits as a matched liability) on bank balance sheets.

Much less has been said that of the roughly $2 trillion increase in US bank assets, $2.5 trillion of this has come from the Fed's reserve injections as absent the Fed, US banks have delevered by just under half a trillion dollars in the past 5 years. Because after all, all QE really is, is an attempt to inject money into a deleveraging system and to offset the resulting deflationary effects. Naturally, the Fed would be delighted if instead of banks being addicted to its zero-cost liquidity, they would instead obtain the capital in the old-fashioned way: through private loans. However, since there is essentially no risk when chasing yield and return and allocating reserves to various markets (see JPM CIO and our prior explanation on this topic), whereas there is substantial risk of loss in issuing loans to consumers in an economy that is in a depressionary state when one peels away the propaganda and the curtain of the stock market, banks will always pick the former option when deciding how to allocated the Fed's reserves, even if merely as initial margin on marginable securities.

However, what virtually nothing has been said about, is how China stacks up to the US banking system when one looks at the growth of total Chinese bank assets (on Bloomberg: CNAABTV Index) since the collapse of Lehman.

The answer, shown on the chart below, is nothing short of stunning.

 

Here is just the change in the past five years:

You read that right: in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion - some two and a half times the GDP of China!

 Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion!

Here is how Diapason's Sean Corrigan observed this epic imbalance in liquidity creation:

Total Chinese banking assets currently stand at some CNY147 trillion, around 2 ½ times GDP. As such, they have doubled in the past four years of increasingly misplaced investment and frantic real estate speculation, adding the equivalent of 140% of average GDP – or, in dollars, $12.5 trillion - to the books. For comparison, over the same period, US banks have added just less than $700 billion, 4.4% of average GDP, 18 times less than their Chinese counterparts – and this in a period when the predominant trend has been for the latter to do whatever it takes to keep commitments off their balance sheets and lurking in the ‘shadows’!

 

Indeed, the increase in Chinese bank assets during that breakneck quadrennium is equal to no less than seven-eighths of the total outstanding assets of all FDIC-insured institutions! It also compares to 30% of Eurozone bank assets.

Truly epic flow numbers, and just as unsustainable in the longer-run.

But what does this mean for the bigger picture? Well, a few things.

For a start, prepare for many more headlines like these: "Chinese buying up California housing", "Hot Money’s Hurried Exit from China", "Following the herd of foreign money into US real estate markets" and many more like these. Because while the world focuses and frets about the Fed's great reflation experiment (which is only set to become bigger not smaller, now that the Fed has thrown all caution about collateral shortage to the wind and will openly pursue NGDP targeting next), China has been quietly injecting nearly three times in liquidity into its own economy (and markets, and foreign economies and markets) as the Fed and the Bank of Japan combined!

To be sure, due to China's still firm control over the exchange of renminbi into USD, the capital flight out of China has not been as dramatic as it would be in a freely CNY-convertible world, although in recent months many stories have emerged showing that enterprising locals from the mainland have found effective ways to circumvent the PBOC's capital controls. And all it would take is for less than 10% of China's new credit creation to "escape" aboard from the Chinese banking system, the bulk of which is quasi nationalized and thus any distinction between prive and public loan creation is immaterial, for the liquidity effect to be as large as one entire year of QE. Needless to say, the more effectively China becomes at depositing all this newly created liquidity, the faster prices of US real estate, the US stock market, and US goods and services in general will rise (something the Fed would be delighted with).

However, while the Fed certainly welcomes this breakneck credit creation in China, the reality is that the bulk of these "assets" are of increasingly lower quality and generate ever lass cash flows, something we covered recently in "Big Trouble In Massive China: "The Nation Might Face Credit Losses Of As Much As $3 Trillion." It is also the reason why China attempted one, promptly aborted, tapering in the summer of 2013, and why the entire third plenum was geared toward economic reform particularly focusing on the country's unsustainable credit (and liquidity) creation machine.

The implications of the above are staggering. If the US stock, and especially bond, market nearly blew a gasket in the summer over tapering fears when just a $10-20 billion reduction in the amount of flow was being thrown about, and the Chinese interbank system almost froze when overnight repo rates exploded to 25% on even more vague speculation of a CNY1 trillion in PBOC tightening, then the world is now fully addicted to about $5 trillion in annual liquidity creation between just the US, Japan and China alone!

Throw in the ECB and BOE as many speculate will happen eventually, and it gets downright surreal.

But more importantly, as with all communicating vessels, global liquidity is now in a constant state of laminar flow - out of central banks: either unadulterated as in the US, Japan, Europe and the UK, or implicit, when Chinese government-backstopped banks create nearly $4 trillion in loans every year. If one issuer of liquidity "tapers", others have to step in. Indeed, as we suggested a few weeks ago, any possibility of a Fed taper would likely involve incremental QE by the Bank of Japan, and vice versa.

However, the biggest workhorse behind the scenes, is neither: it is China. And if something happens to the great Chinese credit-creation dynamo, then we see no way that the rest of the world's central banks will be able to step in with low-powered money creation, to offset the loss of China's liquidity momentum.

Finally, when you lose out on that purchase of a home to a Chinese buyer who bid 50% over asking sight unseen, with no intentions to ever move in, you will finally know why this is happening.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Jonas Parker's picture

This will not end well... for anyone!

 

SafelyGraze's picture

china has exported all that inflation *somewhere*

 

hedgeless_horseman's picture

 

 

And nobody is talking about the death of the CNY.

No more race to the bottom, it is global synchronized diving; no strong currency left behind.

TruthInSunshine's picture

That's because China, Inc. is set to dominate the global economy & swallow competing nations whole, while it will soon own nearly every ounce, inch, millimeter, gram or cubic ton of every valuable resource on planet earth.

It's an unstoppable economic, military and cultural juggernaut that need not resort to the lowly tactics of currency debasement writ LARGE XXL.

Make sure, above all else, to teach your children Mandarin.

/s

ACP's picture

Perhaps a deal allowing them attack and enslave the liberals on either coast would be enough to sate their unending lust for power.

I think Heinlein wrote a similar story...

ZerOhead's picture

Since the Pentagon already believes that China will be America's most formidible enemy in 2017, perhaps we could attempt to pacify them by giving them California.

It would be a brilliant Trojan Horse excercise of course... you know... considering the mountain of debt obligations they would have to assume it would likely bankrupt them...

http://rt.com/news/reforms-china-communism-crisis-447/

James_Cole's picture

You don't start negotiations at the top, start with a basket of red states, throw 10 of 'em together, no one would notice. Losing 13 1/2 % of the US economy + the most productive state might be a bit of a dent.

SWRichmond's picture

Because after all, all QE really is, is an attempt to inject money into a deleveraging system and to offset the resulting deflationary effects.

Everyone on mutherf*cking planet earth needs to read and re-read that statement until they understand it.  The Fed is printing "money" in an attempt to offset "credit destruction" caused by "capital destruction" of likely between $3-5 Trillion in the US alone, and in a leveraged, fractional-reserve system.

Are "money" and "credit" the same thing (hint: NO)? 

HOW MUCH "MONEY" DO YOU THINK THEY WILL NEED TO PRINT?

Waffen's picture

zerohedge is a perfect example of too much information being a bad thing.

I have been reading this site for years and I don't know that I am much better for it. I really have no idea how this is going to play out. Many times I have thought I have known, but then there I am with no fucking clue again.

If chinas assets have grown that much and we still aren't really seeing all that much inflation, except in the most select classes, then the deflationary monster must be cataclysmic. but really wtf do I know? I just hope yellen prints sixty-six sextillion so we can start at 0 again.

TruthInSunshine's picture

No matter what, rest assured that this round of doing that which has never worked before (ever), this episode again will all end in yet another deflationary or inflationary crash - sponsored by fractional fiat reserve Harvest.

Stuart's picture

Little wonder the Chinese are in the middle of the plot to hoard real physical gold. 

fockewulf190's picture

Not just hoard....hoard and then take control of the gold market.  THEY want the power to price gold, and once they have enough of it, gold will be reset to a much higher price.  How high?  High enough that any financial threat that could cause the destruction of the Communist Party would be eradicated.  Guess all those goast cities, dams, and what not, cost some very serious moolah.

 

Wonder how big the shadow banking world in China really is.

Doña K's picture

There will be no PM's for sale in a few years. Let the elite collect objects of art and pretentiously overpriced wines. Physical PM's in any form will be the true wealth along with the ability to generate KW's/per hour.

 

Stuck on Zero's picture

Most of that $15 trillion has gone to party apparatchiks.

 

MontgomeryScott's picture

I gotta interject.

Y'all (most who only concentrate on money changing shit) are missing the larger picture.

China's banking is just as infected as everyone else's, at this point. This should be OBVIOUS by reading the article. The question would be; NOT; WHODUNIT; but RATHER; WHY is this the goal of those who actually pull the strings in global banking? Did the PLA have anything to do with it?...PROBABLY, not DIRECTLY; they are like the Democrats and Republicans in the States (or any OTHER foolish 'political party' in any other nation).

Qui Bouno? (Who benefits)? Wrong question.

FIRST, set a GOAL...

Start with the correct question: WHY?

Postulate a theorum, and look for physical, real-time measurments to explain it (as is now obvious, historically and currently), and start asking the correct questions...

WHAT is the GOAL of causing ALL fiat currencies to spiral out of control SIMULTANEOUSLY? (Create a PROBLEM)

IF ONE entity (or group of active collaborators or conspirators) COULD cause the collapse of ALL currencies SIMULTANEOUSLY, an immediate call would be made WORLDWIDE for a 'financial voice of reason' and GLOBAL INTERNATIONAL MONETARY PARITY and CONTROL. (Wait for the REACTION)

The 'ONE ENTITY' will step up to the challenge, offering their help in stopping the collapse of the financial system (as well as the starvation of huge swathes of humanity). (Introduce and implement the SOLUTION that achieves the AGENDA desired)

See? Classic!

PROBLEM-REACTION-SOLUTION...The Hegelian Dialectic in ACTION, NOW!

One happy, surveilled, drone-striked, poorly-fed, slave class WORLD!

WHAT'S in YOUR wallet?

Fish Gone Bad's picture

The 'ONE ENTITY' will step up to the challenge, offering their help in stopping the collapse of the financial system

Between Corexit, Fukushima, all the nukes set off in Nevada, and all the leaking nuke plants, everyone is going to have a much shorter and painful life... including the 'ONE ENTITY'.  Their victory will taste like ashes in their mouth.

Doña K's picture

Doing the right thing will upset the equilibrium of workers, productivity, taxes for state services and among others consumerism.

No sane person will pull the plug for the reset as the reset will be catastrophic. The extend and pretend is their best solution at the moment. There are no white knights on the horizon.

To reach the same equilibrium with sustainability will take a few generations. Pity our children and grandchildren

Que barbarida! Que lastima!

Welder's picture

Best comment I've read in months !

MythicalFish's picture

$15T at today's price buys you 373k tons of gold. Hey, wait a second..

SAT 800's picture

LOL. Yeah, interesting, isn't it.

SWRichmond's picture

...the deflationary monster must be cataclysmic

Exactly so.  Leverage working against us now and the Fed is trying to print our way out...

whateverittakes's picture

Debt is future deflation. They can only print their way to a future day of reckoning which will be even more cataclysmic. The Forestry service used to try to stop ALL forest fires from occuring but they learned that it only resulted in a much bigger more uncontrollable fire later. That is why the use control burn. FED should learn from forestry service.

Mrmojorisin515's picture

two random names from what feels like ages ago reappear? Could actual discussion return to zerohedge message boards?

ArmyofOne's picture

Exactly, but, the banksters are all holding each others dicks and if one squeezes they all feel it. 

SAT 800's picture

You want to know how this will play out? Why? Isn't it the case that you should want to know what you should do? It's not a mystery paper back , you know, where you get to the last chapter, and say, "oh, that's how it plays out". It's going to play out with Silver selling for more than 145$/oz. and the collapse of more than one major currency; probably with martial law and "civil unrest"; (which is anything but civil). What you want to do is get out of the Continental US if possible and convert all your capital assets into Silver Bullion. We are going to start over from zero, regardless of what Yellen does; but be careful what you wish for. What other source of information would be better? The New York Times? I don't think so.

Waffen's picture

I have been here almost three years, you think I haven't come to those same conclusions at some point? However you do not know that it will play out that way. You are going on faith, faith that you have it right. Well sorry, but you don't know, non of us know. No one paying attention would have thought things would go this far, that global bankers would have pulled it off for this long.

I am no longer convinced that this thing will break and reset, I only have hope for it. All of our greatest fears however seem to be playing out, we are sliding into a dark hole, a controlled collapse were the .01% get more filthy rich and the rest get more hopelessly out matched.

The only hope we had was to catch an asset bubble and become rich enough to ensure we weren't part of the non persons,
like catching a chopper off the top of the American embassy in Veitnam. Was that the last chopper? We don't know if there will be another. Sadly I think the gold and silver choppers were shot on take off. Hats off to those that got on the bitcoin one. As for those that rode the market, well fuck you, you lucky bastards. Any sane person would have stayed the fuck away from the market.

Perhaps the day for those with metals can still come, but that's just resting on faith IMO and to rest on faith is the act of a desperate man.

ArmyofOne's picture

Histroy has plenty of clues to look at.  Yet, this is on a global scale and it will, in my opinion, lead first to a finacial war, then to resource war, then to a war to the death. 

 

WAR!

Apostate2's picture

Thank you for underlining the most important sentence in the above article.

doctor10's picture

Maybe enough to backstop the collapse of some 800 trillion or so worthless derivatives?

NOTaREALmerican's picture

Re:  start with a basket of red states, throw 10 of 'em together, no one would notice

Best of all, politically, they'd fit right into China.

TheFourthStooge-ing's picture

.

Best of all, politically, they'd fit right into China.

Would their patriotic bedazzlement treatments still include the same US slow motion flag waving in the breeze, a Chinese Citizenism slow motion flag, or a gradual and barely perceptible transition from one to the other?

new game's picture

give them our brightest from the ivy leaugers or lagers-hehe, send em with the university professors to boot all expenses paid. throw in a few union bosses and 535 vips from dc and we are all good!

10mm's picture

The same military that recently just hosted Chinas military in Hawaii.

TheReplacement's picture

All things considered, we would be lucky to not have to pay China to take the west coast, Fukafornia and all that.  It is a given that Japan itself is a bargain giveaway now too.

max2205's picture

So why isn't the shanghai not at all time highs...fucking amatuters

ZH Snob's picture

the more I hear of this rush to debasement the more I am convinced that there really is a global reset ahead.  it is as if every nation is looking to cash in (or out, as the case may be) before this happens.  if that is true then the only question left is what kind of reset.  the basket of resources sounds like the most likely one.

fockewulf190's picture

If you thought the 20th Century was pretty much FUBAR, we are well on the way to Mad Maxing ourselves here in the 21st.  Going to have to ask the Duck Dynasty folks if they have any calls made up for black swans.

Groundhog Day's picture

 

"Finally, when you lose out on that purchase of a home to a Chinese buyer who bid 50% over asking sight unseen, with no intentions to ever move in, you will finally know why this is happening"

If I can get 50% over spot on my house they can most certainly take it so that i am free of the tax shackles and free to buy more metals.  ow do i contact a chinese realtor and let them know i want to sell sell sell

Miffed Microbiologist's picture

They are buying like crazy in our area causing our prices to jump. The funny thing is they are buying all those shoddily built McMansions. I know 3 homes in Scripps Ranch that went for 700K+ in a few days. Two overlook canyons that are high risk for wildfire. So in a few years,the joke will be on them.

Miffed;-)

DaveyJones's picture

They are buying in the Seattle area like mad as well, with cash, often the waterfront

Ham-bone's picture

Same in Portland...realtors are having a 2007 year all over again.  Homes all going over asking and they're building new as fast as possible.

takeaction's picture

I AM ALL IN TOO.....I have a $400,000 home...give me $800,000 right now...you can have it...and I am off to the lake for the boating trip with my metals.  I have learned that many here take their metals on boating excursions...must stabilize the boat or something.  I am going to give it a go.

MontgomeryScott's picture

Sell your property for a night in Vegas.

Let the Chicoms buy what you own, using currency that is worthless, and maybe put it in your bank, earning worthless monies (called 'interest').

Wake up a year from now, after buying their products, wishing you had a place to live and stay warm.

Go back to them, begging to rent your former property.

HELL, you sure got a good deal! So did your children and grandchildren and everyone else you know (or don't know)!

You will get...worthless scrip...for your property...but, HELL, you sure got a lot of them! FUCK the future, the FUTURE is NOW! EAT, DRINK, and be MERRY, for TOMORROW you will SURELY live (the CORRECT quote, by the way).

When the Chicoms look at you, when you ask to be allowed to rent back your property that you FORMERLY owned, will you be pleading with them to take you in; and willing to do their bidding; living with the FACT that you sold out your SOUL to them (as well as taking a bunch of worthless crap paper for it)?

 

Sorry, I gotta down-arrow your response.

 

IrritableBowels's picture

Why doesn't he move and get a house somewhere else and buy metal with the proceeds?  Why would ANYBODY do what you just alluded to? Fuck, everybody is essentially 'renting' from the government anyway. 

Sorry, I gotta down-arrow your response.

americanspirit's picture

Craigslist. I regularly post my Texas ranch on Craigslist Tokyo/Osaka at triple its value (no buyers yet) because one of these days some smart Japanese buyer is going to realize that the homeland is soon to become uninhabitable. I think I'll begin posting on Craigslist Shanghai at 10x. Payable in gold bulion at spot.

Big Brother's picture

Which Heinlein book are you refering to?  I'm reading "Starship Troopers" right now, and would read more of his works.

MrTouchdown's picture

If China owns every bit of every valuable resource, then that means there are no sellers and thus, all that "valuable" stuff has no value.

 

I love the doom-pr0n too, but let's keep it realistic. This isn't Michael Bay economics.