Chart Of The Day: How In Five Short Years, China Humiliated The World's Central Banks

Tyler Durden's picture

The concept of the "liquidity trap" is well-known to most: it is that freak outlier in an otherwise spotless Keynesian plane, when due to the need for negative interest rates to boost the economy (usually resulting from that other inevitable Keynesian state: the bursting of an asset bubble) - a structural impossibility according to most economists although an increasingly more probable in Europe - central banks have no choice but to offset a deleveraging private banking sector and directly inject liquidity into the banking sector with the outcome being soaring asset prices, and even more bubbles which will eventually burst only to be replaced with even more failed attempts at reflation. Sadly, very little of this liquidity makes its way to the broad economy as the ongoing recession in the developed world has shown for the 5th year in a row, which in turn makes the liqudity trap even worse, and so on in a closed loop.

Since there is little else in the central bankers' arsenal that is as effective in boosting the "wealth effect" - which is how they validate their actions to themselves and other economists and politicians - they continue to do ever more QE. And since banks are assured at generating far greater returns on allocated capital in the markets, where they can use the excess deposits they obtain courtesy of the Fed's generous reserve-a-palooza as initial margin for risk-on trades, the liquidity pipelines remain stuck throughout the world, and loan creation - that traditional money creation pathway - is permanently blocked (as is the case empirically in both the US and Europe, where private-sector loan creation is declining at a record pace).

Everywhere except the one place that has yet to actually engage in conventional quantitative easing: China. At least explicitly, because loan creation by China's state-controlled entities and otherwise government backstopped banks, is anything but conventional money creation. One can, therefore, claim that China's loan creation is a form of Quasi-QE whereby banks, constrained from investing in a relatively shallow stock market, and unable to freely transfer the CNY-denominated liquidity abroad, are forced to lend it out knowing that if things turn soure at the end of the day, the PBOC will bail them out. Paradoxically, this "non-QE" is exactly how QE should work in the US and other developed markets.

That's the long story.

The short story is far simpler.

In order to offset the lack of loan creation by commercial banks, the "Big 4" central banks - Fed, ECB, BOJ and BOE - have had no choice but the open the liquidity spigots to the max. This has resulted in a total developed world "Big 4" central bank balance of just under $10 trillion, of which the bulk of asset additions has taken place since the Lehman collapse.

How does this compare to what China has done? As can be seen on the chart below, in just the past 5 years alone, Chinese bank assets (and by implication liabilities) have grown by an astounding $15 trillion, bringing the total to over $24 trillion, as we showed yesterday. In other words, China has expanded its financial balance sheet by 50% more than the assets of all global central banks combined!

And that is how - in a global centrally-planned regime which is where everyone now is, DM or EM - your flood your economy with liquidity. Perhaps the Fed, ECB or BOJ should hire some PBOC consultants to show them how it's really done.

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Obchelli's picture

Scroll down and see how economy is doing after 50 years of technological revolution

The Juggernaut's picture

So does China win the currency wars?

hedgeless_horseman's picture



"Political power grows out of the drum of a Heidleberg press."


remain calm's picture

Who is the dumb ass that thinks the Yuan will replace the dollar? Fuck You. My dick may only be 2 inches but it is bigger than yours China man. BTW your wife loves my big cocky

BoNeSxxx's picture

Any bets on whether or not the physical gold reserves held by each central bank would look the same?

Mark Carney's picture

I believe this is a lot bigger then anyone really thinks....



the straw that broke the camels back?


China has gone ALL IN!

Ham-bone's picture

BTW - this is pretty much a replay of what Wiemar Germany tried to restart the global economy in the early stages of the depression...major exporter attempting to weaken currency and flood system w/ inflation...I can't seem to recall how that worked out, but I'm sure this will work out exactly as planned?!?

economics9698's picture

lol, the way it always does, war.

FEDbuster's picture

Zimbabwe had 'em all beat, I have a couple of $100 Trillion bank notes to prove it.

Central Banks should never go "full retard".

BTW, isn't China the biggest Bitcoin player now?  Bubble, bubble, toil and trouble....

Dewey Cheatum Howe's picture

It isn't. If it isn't apparent to everyone yet the Chinese are buying everything up with printing press operation all while holding the US' balls in vice like grip by holding a large enough amount of debt that it can't stop them without major self inflicted damage. Once the Chinese buy enough assets up they are going to put a match to the whole paper game and burn everyone to the ground. They can get away with it because they have the gold to reissue a new currency after the fire goes out. Posession is the law at that point. Golden rule applies, he who has the gold makes the rules. He who doesn't unless they can enforce their will through force has to acquiese like it or not. Obama's systematic weakening of military is partially to foward this very goal and allow the bankstas there a way out without have to deal with the retribution when the US populace realizes they wuz robbed and are angry and looking for heads to kick in.

economics9698's picture

I agree.  China is just buying gold and waiting...not to far off now.

Ham-bone's picture

Come now - China's militarily abilities outside of China and it's immediate neighborhood is a joke - 1 retrofitted old Russian aircraft real navy to speak way to project itself beyond it's neighborhood...China is a puppet, not the one pulling the strings.

Not sure when people will realize these nationalistic divides, red team / blue team silly games, black vs. white, jew vs. arab...they all play on old hatreds and stereotypes to distract from those who are stealing everything...and it sure as hell ain't the Chinese - China is simply the current bubble and next great crash

Waffen's picture

It seems pretty obviousl, China is destroying everyone else in this currency war except for of course the bankers.

Whomever has the most assets when the music ends wins right? the only question now, is when will it end? What's to stop the status quo from continuing? it's gone on for 5 years, what's another 5? When everyone collides to transfer wealth from west to east in global cooperation what's to stop it from from continuing? there is no mechanism top stop it as long as there are things china wishes to buy. The west has no advocates in position to even want to stop it as the chosen jar no loyalty to th west but only loyalty to themselves.

economics9698's picture

The music stops when inflation can no longer be ignored.

max2205's picture

Did I miss something like loan creation went up as a result.....think not

BandGap's picture

Could be, you have a realistic concept.

How about this - the US is allowing this to happen until they align as many allies as possible against China. Currency wars end up as shooting wars and who is getting harmed letting China buy gold and trinkets while the US buys F-20s and F-35s? 

One thing I've learned is the moinute soemthing seems obvious, it isn't.

gmrpeabody's picture

"One thing I've learned is the moinute soemthing seems obvious, it isn't."

You obviously fat-fingered a couple of words there,...oh, wait.

RafterManFMJ's picture

Once the Chinese buy enough assets up they are going to put a match to the whole paper game and burn everyone to the ground. They can get away with it because they have the gold to reissue a new currency...

Genius! And let me add the Chinese are doing all they can to get more manufacturing capacity, IP by trade or theft, stockpiling strategic metals like copper...

When the fire goes out and the new Chinese gold backed currency arises like a Phoenix, China will hang signs outside of all those formerly Western owned factories saying "So solly! Under New Management"

But please not to worry, the US can still fuel it's carriers with US Treasuries... we did save some that are steam powered, right?

Hmmmmm's picture

Every Communist must grasp the truth; "Political power grows out of the barrel of a gun."

"Problems of War and Strategy" (November 6, 1938), Selected Works, Vol. II, p. 224.

Page 121 in the little red book.

Ham-bone's picture

So does China win the currency wars?

they don' and I and the Chinese people all lose in another mega bubble and all real assets are stripped in the process of "saving the system" from collapse...serial global bubbles and serial global bail-outs / ins by the money printers.  Not sure that I remember voting for that????

SilverDoctors's picture

@The Juggernaut:  China wins the currency wars by quietly accumulating 20,000 metric tons of gold reserves.

Game. Set. Match.

BandGap's picture

They won't get to keep it if they lose the shooting war.

Son of Captain Nemo's picture

So true.  And what a consolation prize to both the "winner" and the "loser" if a shooting war begins.

Fine line that determines sanity.

I think you could interchange "greed"with that quite easily -especially when you are talking about the one that is creating all the systemic problems with the reserve currency control(s) that initiates with great frequency both idle and active threats when it doesn't get it's way.

RafterManFMJ's picture

They won't get to keep it if they lose the shooting war.

Yup great idea. Your Nation pissed away its advantages and allowed itself to be co opted by the dross of humanity, so what're you gonna do?

Start a shooting war with a nation that has real weapons systems, and H Bomb tipped ICBMs - when you cannot defeat men in sandals with AK47s?

Pure insanity, stupidity and criminal genocidal incompetence. So, look for President Hilary to launch the war in 2017.

Son of Captain Nemo's picture

As long as the intent is backing it with Gold -it would appear so.

Sam Clemons's picture

Isn't China buying real assets?  The US Fed is buying MBS and US Treasuries.  LOL.

RafterManFMJ's picture

I'm COL over here...

*Crying Out Loud

Skateboarder's picture

That's when the common man still had class.

ZerOhead's picture

... rather than deep vein thrombosis...

Skateboarder's picture

From a diabetic prognosis.

whatsinaname's picture

explains why Pan AM went bust ?

NOTaREALmerican's picture

Re:   50 years of technological revolution

Without "Keynesian" debt prosperity we'd not have had jumbo jets or the really cool airports to land them.    Big-MIC and Big-Airport, those evil commy socialist central-planning scams funding with evil debt, allowed the common person to afford jumbo jet technology.  

Last time I checked, United and AA didn't have any budget for airliner research-n-development. 

economics9698's picture

lol, what a stupid statement.  

shovelhead's picture

Theres a lot more where that came from too.

BandGap's picture

The word stupid doesn't quite capture the essence of the idiodicy contained in his statements.  I always hope that people are being sarcastic when they write shit like that.

TruthInSunshine's picture

This can't be the case. Too many people "know" that China is set to dominate the world economically, militarily & intellectually.

China is on the cusp of winning the whole enchilada, it is commonly & popularly stated among the crowd.

Never "go against" the collective wisdom of the crowd/herd.


The man with pointy horns's picture

And maybe, just maybe, the obvious is simply the obvious.

Running On Bingo Fuel's picture

This is just a series of stupid statements.

Total Assets means that the CB's can offload assets to member banks and effectively hide them.

In China all businesses are owned by the party, including banks which means that China cannot hide assets.

Has anyone asked, "Hummmm, I wonder why Team Tyler is not comparing the same data-points, "Total Assets of ALL Central Banks"?

A fair comparison could be presented, but that would not sell clicks to the ZHeeple, The Anti-Asianites.


Son of Captain Nemo's picture

"In China all businesses are owned by the party, including banks which means that China cannot hide assets."...


This is why there system will continue to trump ours in both the short and long run. Would be a completely different situation if Mr. Ruben and Mr. Summers had left Glass-Steagall untouched now -wouldn't it?

Coulda, Woulda, Shoulda...

YC2's picture

All these sheeple telling me the sun will come up tomorrow, too.  I'll be in my bunker full of light bulbs if you need me.

RafterManFMJ's picture

Wish I could afford a bunker. All I've got is a package of birthday candles, a case of SPAM, and some duct tape to seal the closet door's gaps shut.

whatsinaname's picture

So are Chinese banks buying physical gold with money printed by the central bank ?

ZerOhead's picture

Nah... they are lending it out to themselves first and then buying gold.

When the time comes the same thing will happen over here with the assistance of the Federal Reserve. The new program is to be called the Commodity and Asset Reflation Program or CARP.

Personally I think it sounds a bit fishy...

BandGap's picture

Thank you, sir. I need more humor in my day to day dealings.

Harbanger's picture

More likely it's money from the west that's been buying them the gold.  Those Chinese trinckets ended up costing a fortune.

forwardho's picture

Agreed, what better to spend those now worthless bonds on. Exchange something of no lasting value for something of everlasting value.

Seems like a no brainer.

Max Damage's picture

Assets or shite sold to them by thieving and corrupt banksters? With of course the full backing of the CB's

Kirk2NCC1701's picture

A house built on financial "liquefaction" shall not stand.

Oracle of Kypseli's picture

We need bentonite underpinning. PM's