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China Bails Out Money Markets For Second Day In A Row, Following Repo Rate Blow Out

Tyler Durden's picture




 

As reported yesterday, following a surge in various short-term and money market rates in the aftermath of the Fed's taper announcement, the PBOC admitted after the close that it used Short-term Liquidity Obligations (SLO) to add funding to the market, and in doing so, bailing out money markets - the same product that nearly collapsed the financial system in the aftermath of Lehman.

The bank didn't specify when it added the funds but, in another direct echo of the June panic, the PBOC said it is prepared to add more. However, it seems the market was less the convinced, and despite an early plunge in the seven day repo rate by over 2%, it suddenly and rapidly reversed direction and instead blew out hitting a whopping 9%, the highest since the June near-crash of the Chinese banking sector.

The outcome: China said it injected another $50 billion to bailout and stabilize its money markets in what is increasingly looking like a replay of this summer's liquidity lock up. Perhaps the PBOC hinting at tapering at a time when the Fed is actually doing so is not the smart choice...

From the WSJ:

China's central bank said it had injected over 300 billion yuan ($49.2 billion) into the nation's money markets over a three-day period as interbank interest rates surged to their highest levels since June.

 

The People's Bank of China said on its official Twitter-like weibo account that the banking system had current excess reserves of over CNY1.5 trillion and it called that level "relatively high."

 

The central bank said that it had injected the funds through its "short-term liquidity operations" and this was in response to the year-end market factors.

 

The interest rates banks charge each other for short-term loans jumped to 8.2%, the highest level since the June cash squeeze. 

 

The stress in the banking system is starting to spread elsewhere, with stocks in Shanghai falling for a ninth straight day to the weakest level in four months while government bonds dropped, pushing the 10-yield up to near the highest in eight years.

 

The turmoil has been sparked by a scramble for funds by banks as they near the end of the year when they typically need extra cash to meet regulatory requirements as well as the demand for funds from companies.

 

The central bank also said reminded banks that they need to manage liquidity better.

As to what drove the rapid mood reversal, the Chinese market was hit early on with talk of a missed payment at a local Chinese bank. For now it has not been confirmed, and even if it was the PBOC is expected to never allow any government-backstopped bank to fail. Still, a few more days like the last two and the world may just find out how prepared for a bank failure a credit-stretched China really is.

 

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Fri, 12/20/2013 - 09:26 | 4263395 negative rates
negative rates's picture

Repo rate blow out! Can that be fatal?

Fri, 12/20/2013 - 09:32 | 4263417 RobD
RobD's picture

Ever see the pic of the weight lifter blowing his insides out his ass? China banks=weight lifter.

Fri, 12/20/2013 - 09:35 | 4263428 NoDebt
NoDebt's picture

If your o-ring lets go at the same time, yes, it can be fatal.

Fri, 12/20/2013 - 09:46 | 4263442 Winston Churchill
Winston Churchill's picture

Ask Bear Stearns.

Fri, 12/20/2013 - 09:28 | 4263397 holdbuysell
holdbuysell's picture

How do you say Lehman in Chinese?

Fri, 12/20/2013 - 09:30 | 4263404 wallstreetapost...
wallstreetaposteriori's picture

BITCOIN..... or I mean Fonestar

Fri, 12/20/2013 - 09:55 | 4263474 Zero Point
Zero Point's picture

Reamin

Fri, 12/20/2013 - 09:31 | 4263408 Zero Point
Zero Point's picture

Might be some new organ donors on the market soon.

Fri, 12/20/2013 - 10:10 | 4263432 GetZeeGold
GetZeeGold's picture

 

 

If you don't buy the Platinum Obama healthcare.....your transplant will likely come from China.

If you can make it through the 20 years of red tape....you might live.

 

Fri, 12/20/2013 - 09:34 | 4263419 RagnarDanneskjold
RagnarDanneskjold's picture

They ran out of Bitcoins.

?? is back!

Fri, 12/20/2013 - 09:36 | 4263431 ghostzapper
ghostzapper's picture

Everything is fine.  The global financial system is in excellent shape.  There is no need to change the status quo.  

Fri, 12/20/2013 - 12:03 | 4263914 Seer
Seer's picture

Keep shoveling $$ into the engine as we circle the tracks.  Eventually those $$ cars are going to empty out...

And today I hear from the "source" WSJ that housing prices have increased!  So, yes! everything MUST be fine (they tell me so)!

Fri, 12/20/2013 - 12:33 | 4264018 Seer
Seer's picture

This just about sums it all up:

Yahoo Finance 2013 company of the year: Walt Disney

http://finance.yahoo.com/blogs/michael-santoli/company-of-the-year--walt...

It is, after all, a VIRTUAL world...

Fri, 12/20/2013 - 09:39 | 4263435 buzzsaw99
buzzsaw99's picture

1) fuel bubble

2) cause crash

3) bail out a-holz

Fri, 12/20/2013 - 09:45 | 4263448 disabledvet
disabledvet's picture

the beginning of a run on Central Banks?

Fri, 12/20/2013 - 10:11 | 4263522 max2205
max2205's picture

If a bank fails in China it coukd take 10 years before we'd know it

Fri, 12/20/2013 - 10:03 | 4263495 youngman
youngman's picture

just another trillion or two....should be good for Gold and Silver...lots of paper floating around somewhere....fresh paper.....

Fri, 12/20/2013 - 11:05 | 4263716 starman
starman's picture

Isn't time for "The worlds financial markets reality TV" show?

Sarc

Fri, 12/20/2013 - 11:59 | 4263895 highwaytoserfdom
highwaytoserfdom's picture

Dam China is going to out FED the FED and out Shinz? Abe, Japan's Shinz? Abe,

I'd pay attention to David Stockman he knows he was booted by trickle down. and  crony Keynesians.

There are a lot of broken windows sicko's out there...   and the propaganda machine.   Borrowed from Duck Dyanasty comments  These three stooges (FED Japan China central banks) utterly fascist, utterly Stalinist... 

 

http://palindia.files.wordpress.com/2011/10/world_military_expenditure_2...

Fri, 12/20/2013 - 16:34 | 4265143 novictim
novictim's picture

Re: "Crony Keynesian"

Hey Highway...I understand the Crony part---that is the transfer of money from the treasury to the banks like Goldman Sachs who are big political donors.

..but what do you mean by Keynesian?  All I can see are large attempts at trickledown economic stimulus via monetary policy (ZIRP/QE) but no Keynesian approaches via public works programs or jobs programs or increased public spending.

 

So help me out here understanding your "Keynes" reference...

 

I personally haven't seen any Keynesian approaches since FDR WPA or the Reagan Arms race/defense build up with the soviet union.

Fri, 12/20/2013 - 14:14 | 4264535 thefirstabomb
thefirstabomb's picture

This is actually getting some more mainstream coverage.  Still not in most headlines, but at least some places are picking up important stories.  Just waiting for the next credit crunch before I throw in a lot of money into the markets.

http://dhnnews.com/chinas-financial-system-is-in-crisis-mode-again-and-the-central-banks-billions-arent-helping/

Fri, 12/20/2013 - 15:02 | 4264740 Seer
Seer's picture

So, the "solution" is to throw more and more money at unsolvable problems?

What’s causing the money shortage?
It’s due in some part to the fact that the PBOC has halted open market operations since late November in an effort to force companies to pay debts and reduce reliance on the shadow lending system.
Bigger banks are probably fine.

That evil PBOC, why the nerve of them to withhold money from the banking sector such that it cannot bubble up a bigger Ponzi!  Especially love the part about "Bigger banks are probably fine," yeah, just like we "know" that ALL Bigger banks are honest and not comprised of human folly... (leave it to Bloomberg and or the WSJ to provide cover for all the big crooks)

Fri, 12/20/2013 - 16:23 | 4265094 novictim
novictim's picture

This is all UNSURPRISING, at least to those who understand the key dilemma of the market economy and capitalism. 

Put simply, China is experiencing a collapse in domestic demand and global demand.

 

What is happening in China is a rapid version of what occurred to the US middleclass/working class over the past 4 decades.  Wage gains long sought by Chinese workers and middleclass shopkeepers are being taken away while jobs are being outsourced to cheaper labor markets (Vietnam, Burma, etc).  This is causing a drop in demand for goods and a deflationary pressure on the currency encouraging wealth hoarding and a collapse in spending.   (You know what spending is, right?  It's that activity that keeps an economy healthy and growing.). 

 

China is trying to hide these trends with rosy scenarios and cooked numbers but the markets tell the tale.

 

So just as here in the USA, the egg-timer to financial collapse will inexorably tick down to financial ruin unless steps –on a global scale- are taken to redistribute wealth back into consumer pockets and out of the hands of financial oligarchs.

 

Did you expect this Winner take All system to go on indefinitely?  When has it EVER done that?  

How could it possibly do that?  

Fri, 12/20/2013 - 19:37 | 4265581 mobydick
mobydick's picture

They've been buying all this increased iron ore production from Australia. If the Gubment is determined to switch economy from investment to consumer where's it all going? Sitting in Mt Everest type Stockpiles? Are they trying to force the Gubment's hand here? More ghost cities? More fleecing the system for their own private gain? Make a few extra billion, then get out before the shit hits the fan. Employment in China is going down the tubes.

Li Keqiang, in a speech released last month, said a 7.2% annual increase in China’s gross domestic product creates 10 million new jobs a year.  The premier, therefore, believes each percentage point of growth produces 1.4 million jobs.

Morgan Stanley’s Ruchir Sharma, writing in the Wall Street Journal just before the release of Li’s speech, told us that each percentage point of growth results in 1.6 million to 1.7 million new jobs. 

Beijing’s National Bureau of Statistics reported that last year China’s GDP jumped 7.7%.  Applying Sharma’s formula, the economy should have created 12.3 to 13.1 million new jobs in 2012.  Applying Premier Li’s formula, the number is 10.8 million new jobs.

So how many jobs were in fact created last year?  The Ministry of Human Resources and Social Security reported that 767.04 million working-age Chinese—those aged 15 to 59—were employed in 2012, 2.84 million more than in 2011.  In other words, the number of jobs increased 0.37% last year at a time when gross domestic product grew, according to NBS, 7.7%.

What makes this even more interesting is that China’s services sector, an obvious job-creator, is expanding fast according to NBS.  Services accounted for 44.6% of GDP last year, up from 41.9% in 2011.  Output from services grew 8.1% in 2012, a pace faster than GDP.

These figures are hard to reconcile.  How can an economy growing in the high single digits with a quickly expanding services sector create so few jobs?  There is no iron correlation between GDP growth and employment creation, but the two cannot be this far out of whack in an economy like China’s that has already passed its initial stage of development.  In China, economic growth and employment should more or less move in step.

So how fast did China expand last year?  Working back from the Human Resources Ministry statistics, the Chinese economy grew 2.0% last year if Premier Li’s formula is correct.  It grew 1.7% to 1.8% according to Sharma’s relationship between growth and jobs.

And how fast is China growing now?  In 88 cities surveyed by the Human Resources Ministry, the number of available jobs—termed “demand for workforce”—in the third quarter of this year fell by 139,000 (2.5%) from the third quarter of 2012.  In 95 surveyed cities, the number of available jobs in the July-September period decreased by 232,000—4.0%—from the second quarter of this year.

Employment data for the third quarter is still fragmentary, but it is consistent with anecdotal evidence from China’s jobs market.  For instance, observers report that this year is the toughest hiring season ever.  College graduates have even been hired and fired in the same month as employers realized they did not need new hires.

Of course, job-creation numbers are not the only data points available.  They are, however, generally consistent with private surveys, such as the China Beige Book and the widely watched HSBC purchasing managers’ manufacturing index. 

The National Bureau of Statistics, on the other hand, has issued Q3 figures showing a robust economy, 7.8% growth in the period.  Yet Premier Li Keqiang just-released speech on jobs contains a formula that undermines NBS’s creditability, and job creation numbers from the Human Resources Ministry show an economy that from last year to last quarter is moving from a state of low growth to one of contraction.

 

Sat, 12/21/2013 - 02:46 | 4266211 novictim
novictim's picture

mobydick...YOU ROCK!

Nice work.  Pearls before swine...but nice work all the same.   Really nice work.  

 

I strongly suspect that you are fully aware of the game that is afoot in China and can see through the lies and manipulated numbers that we are supposed to take at face value.  And THEY are too...avoid Chinese takeout unless you have a food taster employed.

But let's be real.  The international business and banking community are all complicit in fostering the sham that is the Chinese economy...what choice do they have?  The global slow motion collapse of capitalism is held up only by further borrowing and promises and a faith that the system is sound.  Which it is not and can never be.

In China, as in the US, the growth of GDP and employment are almost entirely decoupled.  Okun's law is no longer valid due to automation and out-right lying.  And the calculations for both GDP and Employment are falsified by both the US and Chinese governments (or at least fudged).  

 

So we see China building up its military and rattling the saber against its neighbors to distract their masses from the growing unemployment problem/consumer crisis...Nationalism, unemployment, and a growing war machine lead only in one direction, don't they?

RE: Iron ore and minerals procurements: Think WAR

 

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