Spot The Real Liquidity Bubble

Tyler Durden's picture

Overnight the PBOC released the latest Chinese bank loan and liquidity data for the month of January. Those who have been following our recent series on Chinese liquidity measures will know that when it comes to the real marginal source of global liquidity, it is China that is the true unprecedented juggernaut, putting both the Fed and the BOJ's "puny" QE programs to shame (see "Chart Of The Day: How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The Water", "Some Stunning Perspective: China Money Creation Blows US And Japan Out Of The Water"). And January's data was simply the final exclamation mark in a decade-long series in which China's prosperity has been simply the result of an exponentially increasing amount of loan and liquidity creation by the Chinese semi-national and government backstopped financial system.

Here are the numbers:

Total Chinese loan creation in January was CNY 1.32 trillion, or $218 billion. While January traditionally sees a pick up in loan creation (and demand), the 174% increase in bank loans from December was an unprecedented number, was above the CNY 1.1 trillion, and CNY 250 billion more than a year ago. More notably, this was the largest monthly bank loan injection since January 2010. The last time China scrambled to inject massive amounts of bank loans was in late 2008 and early 2009 when the world was ending, and it was China's money that stabilized the global financial system far more so than the Fed's whose QE 1 did not begin in earnest until March 2009.

The far broader monetary aggregate, Total Social Financing, which is the most encompassing calculation of credit and liquidity created in China in any one month, rose to CNY 2.58 trillion. This was more than double the December's $1.23 trillion, and beat last January's CNY 2.545 trillion. In fact, this month's broad liquidity creation was the largest monthly amount in China's history!


Here is what Reuters had to say about the overnight data:

January’s lending surge aside, China’s central bank has consistently signaled in recent months that it wants to temper credit growth to slow a rapid rise in debt levels across the economy.


It has focused in particular on keeping short-term interest rates elevated to force banks to stop lending to speculators or high-risk borrowers.


Analysts polled by Reuters in January said they expect China’s economy to grow 7.4 per cent this year, an enviable performance for a major economy, but still the worst for China in 14 years. The economy grew 7.7 per cent last year.

Here's the problem: one can't put the January lending surge aside, as it came at a time when for the second time in six months the PBOC tried to taper, only to be forced to not only bail out its money markets, but is on the verge of a bankruptcy tsunami involving its shadow banking products, the first of which it also bailed out despite repeated warnings this time it means business and would let it die. In this context, the January number is precisely what it appears: the bank's logical response to a liquidity crunch as the Chinese regime finds itself in the same spot that the Fed has been in for the past 5 years - it must keep the monetary spice flowing, or else the party is over. And just like the Fed, and now the BOJ, so too does China not want to deal with the fall out if all it takes to created yet another quarter of increasingly subpar economic growth is another record of funny money conceived out of thin air.

The only problem is that it is becoming increasingly difficult to hide all the pieces of funny money, most of which result in bad and otherwise impaired loans, under the rug. And just to show the problem in its context, here is how China's banks created some 50% more in bank loans in January than the QE credit money created by both the Fed and the BOJ combined.

And finally, here is China's nearly half a trillion in total liquidity added to the system in just one month (some deleveraging, right?) looks compared to the Fed and the BOJ's much maligned and unprecedented uncovnentional monetary policy.

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Pool Shark's picture



Keynes would be proud...



Herd Redirection Committee's picture

Shelter in place, everyone!  Shelter in place!

Unpopular Truth's picture

But... but... they need the money! Why shouldn't they print it? /sarc/

Boris Alatovkrap's picture

Real liquidity bubble is in bath with Boris after much delicious dinner of onion goulash.

deflator's picture

 Can I get the recipe for that onion goulash?

Oh regional Indian's picture

Such terrible Engrrish in the Tyler part of this story. Why? long meandering sentences; using all, the wrong' punctuation:sentences left unfinished because ....


The Sunday Tyler underpaid?



jeff montanye's picture

if only these writers responded to corrections!  you may overstate the case, but there are a couple of true run-on sentences, a "takes to created" where a "takes to create" is meant, "not only bail" when "bail" would be better, and a "but is" which should be "which are".  the latter two are in what is probably the most confusing sentence in the piece.

glenn greenwald, a native speaker, was quick to correct similar mistakes and his columns were better for it. 

TruthHunter's picture

The Sunday Tyler underpaid?

Sunday Tyler overpaid in Scotch

mjcOH1's picture

I predict good deals (or at least low prices) in the China mail order bride business within two years.

StychoKiller's picture

Time to run and find some scissors...

OutLookingIn's picture

This is a total bullshit article, beneath ZH's usual quality.

What gives here? Bloomberg in bed with ZH? Or is it the other way round?

Forget about 90% of the global credit default swap derivatives market owned by the five big US TBTF's amounting to over $250 trillion notional amount.

Forget about the Fed's "backdoor" QE going to the Eurozone banks. In what amount? Only they know!

Forget about the US unfunded liabilities in the amount of +$200 trillion. Forget about no debt ceiling now.

Instead, lets beat up on China for printing! Forget about who now owns the gold now. Forget about the Chinese $+3 trillion in US Treasury reserves. Forget about who owns the globes biggest manufacturing sector.

This article is not worth the crap to paint it with!  

Tyler Durden's picture

You seem very confused by the concepts of "stock" and "flow" - that's ok though, so is the Fed.

KickIce's picture

Ooooh I know this one.  TBTF gets all the flow which in turn allows them to buy all the stock.

Terminus C's picture

My question is why did you chart Chinese loan creation vs Fed and BoJ printing?  Would it not be a better measure to go with loan creation vs loan creation?  The metric seems... off.

Tyler Durden's picture

Because as we explained, most recently in "What Shadow Banking Can Tell Us About The Fed's "Exit-Path" Dead End", in the US there has been no loan creation since Lehman, and the only outside money is that being pumped from the Fed, which as as we have explained over the past 4 years, has gone purely into asset, and not economic, reflation.

Disenchanted's picture

There's no loans, only giveaways...if you're in the right club(re: George Carlin).

Cognitive Dissonance's picture

Tyler (or anyone),

Article after article explains how the Fed's liquidity has fueled the Emerging Markets. Yet China's liquidity injections are so much larger. Isn't some of that leaking into the EM's as well?

AGuy's picture

"This article is not worth the crap to paint it with! "

This article has merit. It just shows that the Asia is home growing its own collapse too. I doubt in any sense that the Tylers are suggesting that the US isn't in a bubble or isn't heading for a collapse. There are those that believe investing in Asia is a sound long term investment. This article clearly shows that China is headed for a major fall too. It probably why China seems to be stirring up disputes with its neighbors. The "Ye olde Buracreats book" states that when insolvencely is near start a war to distract the masses and send them to be slaughterd in the war machine.

And,,,Stop your bitchn! ZH does a much better job presenting the news than all of the major media combined. If you don't like ZH, then go away. Go watch CNBS. Then you really have something to Bitch about!


TruthInSunshine's picture

Outlookingin - Neither I nor anyone can predict precisely what shall become of the unfunded liabilities that comprise a huge % of the broader & more comprehensive measures of U.S.debt outstanding, I do think it's at least possible, and thus fair, to consider it an aggregate liability that gets paid in "pennies on the dollar," so to speak.

Contrast that with the mountain of septic debt that exists in present form in China, which can only be repaid via intervention by the Chinese Government (i.e. TARP/TALF style bailout, only much larger than what occurred in the U.S.), or which will, to a large measure, be defaulted upon (which the Chinese Authorities probably regard as preferable given the epic level of malinvestments & excess leverage within both their "real" economy and FIRE economy).

rqb1's picture

Dude, I said this many times, china makes us look solvent.

TruthInSunshine's picture

When I merely suggest to be people that China is floating on a literal ocean of yuan/debt/credit (all the same thing in a fractional reserve fiat system) they look at me with an inquisitive or confused sheep face.

You see...these consumers of financial main stream "news" bought the financial main stream media tagline that China is going to save the world from the next monumental economic collapse, when in fact, dear compatriot, China will be the spark that ignites said monumental economic collapse.

There is literally dozens of trillions of plants, factories and R&D facilities, along with office buildings, warehouses, distribution centers (built out both by Chinese AND multinational corporations) and other infrastructure (mainly "state" owned & controlled) that have made China the next Epic Capital & Capacity Surplus HQ of the World.

China alone has enough manufacturing capacity - right now - to saturate the globe with products and wipe out foreign industries in their domestic markets if trade barriers were to truly come down.

If you really want to blow the sheeples' minds, tell them it is the Chinese Government, itself, that will intentionally pop their bubble.

When China falls, the BRIC wall collapses, too (a process already underway, actually).

disabledvet's picture

the B and I have already collapsed.

Russia has Gaxpromia so that seems able to pretty much pay for everything.

The theory that the Fed will stop tapering is just that...a theory.
Certainly there are a lot of "interested parties" within the USA who really want to see the total destruction of the dollar here.

A lot of them are in Government apparently.
Talk about irony...

lewietheparrot's picture


I don't know.

It seems to me that China did exactly what one would have expected it to do when it entered WTO: it allowed the West to 'use it' in exchange for funding everythibg it needed---especially manufacturing that is more scalable than the planet will ever again see.

Do you think it was a bad deal?

A very poor nation without any means of internal funding borrows all that it needs to be king of the mountain from its former adversary and becomes the king of the mountain having leveraged all those foreign fiats to the nth degree.

Big military, manfacturing capacity for the planet, a much improved society, and real assers world-wide---not including the famous USTs and gold-----not a bad run especially when if your creditors push you too much----you just close your doors and take the phone off the hook.

I don't think any cat has ever played the mouse better

China won't fall because the rest will go first

I never understood how the bankers were able to get WTO approval for China with China's past   

Oh well, here we are now

Thanks for the post---it pulled this out of the back of this weak mind


jerry_theking_lawler's picture

Talk about build out...I've driven halftway across this country since yesterday (thank to all that Global warming in ATL and CLT)....and I can tell you this....there is a McD's in almost every 1 horse town.


So, where is their growth going to come from in the future?? It is going to be almost 100% from same store sales....


This turd isn't going to float.

Spumoni's picture

Why ever do you think the FSA was formed? Nobody would imaqine that the feckless cretins we have elected to run the country could ever come up with a sustainability plan for keeping the pink slime purveyors in business.

Offthebeach's picture

In order to flood you need to buy. A lot. First. Also margins are small or negitive, and it costs to ship. The whole import raw, make, ship, finance is pretty stretched and profit thin.

Did I mention everyone and his Chinese brother is borrowing to loan to ....well you know.

Stalin said quantity had a quality all its own, but China is off the charts, although if you need a specific number they, unlike our White House, will produce it for you.

( "Leave the gun, take the egg rolls." C.Leemenza )

Seer's picture

The pros have done what they've always managed to do- export inflation.  China got its lips stuck to the exhaust and are inhaling and they cannot stop until they pop.

Again, the Fed did a masterful job of managing to stay on top while driving everyone else under: yes, the Fed will sink, but I don't even think that they have any misperceptions about being able to continue the ponzi party forever (the mathematics of perpetual growth on a finite planet doesn't take the mind of a rocket science to understand).

It'll be interesting to see how the deck chairs are arranged as it all sinks...

hobopants's picture

Central bank one "Well I can print a gigillion dollars" Central bank two "Oh ya! well I can print..."


Bokkenrijder's picture

Where is Jim I'm-teaching-my-daughter-Mandarin Rogers?

falak pema's picture

taking  his daughter to see Chinatown and to learn to be patient when the guy goes for a smoke during a poke drill. 

semperfidelis's picture

I think we have the wrong perspective . For China 100 million people is a rounding error. If we look back at the last 2000 years for the better part of the two milenia China was one of the richest places on earth. There is more to this story than just printing of currency.

falak pema's picture

middle kingdom lost in opium wars.

Seasmoke's picture

Looks like War....

proLiberty's picture

Ludwig von Mises said that creation of money out of thin air no matter what the means, creates the "appearance of prosperity", but it can only be sustained for a limited period, after which economic reality returns and I might add, when asset prices fall to their value in terms of yield.

I think this is the first time in history when the central banks in all the major economies of the world, Europe, the US, China and Japan have co-inflated. The sobering fact is that leverage in a fractional reserve banking system works to the benefit of banks on the way up, but is devastatingly powerful against banks on the way down. This will not end well. Look out below.

imapopulistnow's picture

Something very strange is going on globally.  Massive global money creation yet without high levels of inflation.  Why?

akak's picture

The water often recedes at the shoreline just before a tsunami as well. 

Just ask all those Thais and Indonesians who went out to pick up flopping fish on the suddenly (and very temporarily) dry seabed back on December 26, 2004. 
Oh, wait, you can't --- they're now all dead.

economics9698's picture

While the money has been created most of it is in stocks and other financial instruments, meanwhile the paychecks have been dwindling and more have gone on government aid.  The bankers know there is a delay to new money hitting Main Street, usually five years or so, and they have been gorging themselves on commodities, land, whatever they can buy while the money has value.

Same shit as during the Great Depression when prices declined for 4 years and then rose for 4 years because of all the Fed printing.  This time around the main difference is the Fed never bothered with deflation, they printed so much, for so long the CPI never had a chance to go negative.

This puts more money into the pockets of the elites, the Fed did learn from 1929-33, yes they learned how to steal more from Americans.

The inflation will come, how do I know?  The money is printed, the money is out there, it cannot be retrieved. 

As long as there is no real recovery, as long as millions go from a paycheck to food stamps, as long as inflation is single digits, the game goes on.

Dick Buttkiss's picture

On the other hand, a commodity like gasoline could plunge to, say, $1 due to the lack of demand in a collapsing economy but still be unaffordable due to faster-falling wages and skyrocketing unemployment.

No matter the nominal price, in other words, if you can't afford it, you can't buy it.

falak pema's picture

In a deflationary world cycle the first to go is renewables (unless subsidized for eco reasons (climate change) by government). The second to go are Tar sands, Tight oil and frack gas as they be marginal cost higher than conventional. 

MENA oil and gas stays king pin in face of deflation scenario as the cost to produce is still lowest (not in Russia).

But in ME, if you cut back their arms purchases and Dubai type investment plays, the inherent cost of oil production stays low. 

We are talking about B/E around 120 $ Brent sale price for tight oil and 80 $ for Russia or deep sea Brazil but 20-30 $ in ME. 

Seer's picture

It's amazing how many people don't get this.

I've figured that oil prices would get ramped down but then would have to climb back up in an attempt to get margins out of negative territory (which would only put more downward pressure on demand).  This would be the only general "investment" advice I'd likely offer.

noguano's picture

Is this deflaion/inflation?  Still learning.

MisterMousePotato's picture

Consider the following:

1. About 2.3 trillion dollars in excess reserves are sitting idle with the TBTFs;

2. Foreclosures picked up dramatically in January (57% in California, for instance); and,

3. Wells Fargo just lowered its lending standards.


TruthInSunshine's picture

This is the explanation as to why inflation isn't ripping in the U.S.

The banks are being paid to suck up and hold tight trillions in excess reserves.

Despite all the proclamations that lending standards are easing and will continue to do so, how can this be true and a sustainable reality when the economy isn't growing in real terms, when consumer credit (aka outstanding debt) is now at an all time record high of nearly 3 trillion USD, when real wages are stagnant at best and more likely declining in real terms, when U6 is 18% at a minimum, when the broadest measure of the labor participation rate is the lowest % since the economic doldrums of the Carter era, when a massive % of Americans have impaired credit ratings, and when probably at least 35% of banks are insolvent and only still operating due to the suspension of honest mark-to-market asset valuation standards & the aforementioned plying of cash in the form of interest paid on excess reserves by the Fed, which has supplanted the traditional/historic role of banking profits, to wit, lending money at a higher rate of interest than their borrowing costs, with confidence that a vast majority of such loans will perform (and not default).

The traditional role of the banking sector and bank profit model has been absolutely and completely broken by the new economy and radical interventionist central bank monetary policy.

Spumoni's picture

The only place I see which isn't experiencing inflation is the CPI. Fuel and food, on the other hand, have added between 30% and 55%+ respectively, since 2009. Where prices have not risen for certain goods - including a great many processed foods- cheaper ingredients are often the reason why.

It sounds nice when the government says there isn't any inflation, but much of the money that consumers would be able to spend goes to getting to and from work and buying food. Big Oil gobbles up some 140 billion dollars every quarter (approximate total profit). How many years can an economy sustain that sort of vaccuum pressure on its money supply?  Add to that the sad fact that so few companies control so much of the food supply, and must please the almighty shareholder every quarter as well. What little of QE ever reaches the street doesn't stay there long enough to support any growth. It just goes back to Wall Street, which does nobody any good besides those who work there.

We are already in an inflationary spiral. When the check comes for the party, there will be hell to pay.

NoDebt's picture

Velocity of that money (how many times it changes hands in a given period of time) is in the toilet.  That's why.  And that's the only reason why.