China Affirms Yellen's "Six Month" Guidance, Says Not To Expect Any "Big Stimulus" Out Of Beijing

Tyler Durden's picture

Apparently China did not get the memo that the Fed's apologists are furiously scrambling to packpedal on Yellen's "6 month" guidance in virtually all media outlets. The is the only way to explain why Vice Minister of Finance Zhu Guangyao said overnight that "the U.S. Federal Reserve will begin boosting interest rates within six months after exiting “unconventional” monetary policy, and that will have a “significant impact” on the U.S. and world economy, as Market News International reported earlier. Zhu told China Development Forum this weekend “we believe a the Fed meeting this October, the exit of their quantiative easing will complete." In other words while the spin for public and algo consumption is that the Fed will continue placating those long the stock market until everyone's price target on the S&P 500 is hit and everyone can comfortably sell into an ever-present bid, China is already looking for the exits.

Understandably, Zhu Guangyao also indicated that China is uneasy about the impact of such a move. He should speak to the army of vacuum tubes which has no idea how to exist in a world in which the Fed isn't injecting at least a few billions in reserves every month.

From Market News:

"The basic judgement, if there is no big accident, is that within six months after the Fed fully exits from its unconventional monetary policies, the Federal Reserve Bank will launch the process of raising interest rates and that will have a significant impact on the United States and the world economy as well," he said.


"Based on the current progress, we believe at the Fed meeting this October, the exit of their quantitative easing will complete," Zhu said at the China Development Forum at the weekend.


But Zhu's comments -- the most detailed from the top of the Chinese government since Yellen took over from Ben Bernanke last month -- suggest that the authorities here are beginning to brace for an end to the extraordinary monetary accommodation of recent years. They come even as the Chinese government presses on with a sweeping reform program which has already plunged domestic financial markets into uncertainty.


The yuan fell sharply last week following the widening of the currency's trading band to the U.S. dollar to 2% from 1% around the central parity. That was part of an ongoing move to deregulate the currency and interest rate regimes in order to better prepare the economy to handle swings in capital flows. The government also appears more willing to tolerate defaults as part of a long-delayed clean-up of the financial system.

But while the end of QE appears a given, at least until the market realizes there is no handover to an economy that is a moribund as it has ever been in the past five years, and the Fed has no choice but to  untaper and return with an "even more QE" vengeance (it certainly won't be the first time - just recall the "end" of QE1, QE2, Op Twist, etc), a bigger question surrounds whether China, already sliding in credit contraction and suffering a plunging stock market with its housing sector also on the edge of a bubble bust, is about to take over from the Fed and proceed with its own stimulus program. The answer is no.

Bloomberg reports: "China used big fiscal stimulus in 2008 during the global financial crisis and this made the economy heat up quickly, Finance Minister Lou Jiwei says at a forum in Beijing, according to a transcript of his comments posted on’s website."

This year, however, China will focus on quality of growth this year according to Lou, which means no shotgun stimulus program. He added that China will pay more attention to the environment and won’t use  large-scale fiscal stimulus to spur investment in order to reduce overcapacity.

So with China caught in a deleveraging vortex, with the world used to Chinese "asset creation" in the range of $3.5 trillion each year, and with no endogenous credit creation to offset the phasing out of Fed QE, one wonders: will the next big surge in outside money come from the ECB, where outright QE is against the charter, or from the BOJ, where Abenomics has failed so miserably so far, that any additional surge in import food and energy prices may just lead to an outright recession. And it is in this context that we expect the stock "market" will surge to new all time highs again this coming week.

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Soul Glow's picture

They've been quantitative easing since '09, why would they stop in 6 months.

kliguy38's picture

Nothing more than coordinated "jawboning" (which btw is about the only arrow left in the quiver) to takedown the bubbles they've created and hold the "fiat currencies" together for awhile longer. Its not the endgame just yet......but once the true panic selling sets in then the excuse for QE MAXIMUS MAGNANIMUS can begin with Queen Janet at the helm......THEN we will begin the endgame.....and your bunker had better get fortified

MontgomeryScott's picture

Reading between the lines, I see in this article a warning to those who are 'invested' that a rise in interest rates is not only possible, but is a foregone conclusion.Old Yellen started it, and the Chinese are merely following along. Interest rates HAVE to rise, in fact. There is too much free money available (to the tune of several tens of trillions of whatever fiat currency it is that you measure).

First, by INFLATION (of the money supply), and then by DEFLATION (of it's purchacing power), your children will wake up one day homeless and impoverished... (forgot the part about slavery to the interest rates, though).

Oh, you need 10 dollars? SURE. It'll cost you 22 dollars, though... See, it's all perfectly LEGAL. Your signature is at the bottom of the contract, isn't it?

STRANGE. I was always taught that the communists (and the banksters) used 'five-year' plans. I guess things are getting bad.

TaperProof's picture

Don't worry , after Ben's flight to 100km where he stalled out the engines and permanently damaged them...  our new captain Yellen will take us in for a smooth landing


TruthInSunshine's picture

It's all over. China just said they're not going to bail out shareholders or bond holders, at the highest level, so as to prepare risk takers for the now inevitable smackdown. The "smart money" (aka insiders) have long since liquidated & fled).

China, Japan & the PIIGS+France are very sick, along with the other BRIC nations (India is dire straits, and Brazil is sitting on a massive, toxic credit bubble), and then you have the U.S., floating on a sea of nothing but pure debt pumped out by the Fed & Treasury in concert, to the tune of 7 trillion USD since 2008, leveraged up many times over - and that is suffering from a contracting real economy despite this, while corporate, government and consumer debt levels are all much higher than they were in 2007, just prior to the bubble bursting(but frighteningly, still less than the 15 trillion USD that Chinese Authorities force fed through their system over the same time frame).

post turtle saver's picture

the amount of debt it takes to fund $1 of GDP in the US is up 270% from what was needed in 1952... yes, this is a problem

jwthomps's picture

"Rising interest rates."  For me, in today's world, that concept causes me mental anguish.

Each unit of money was created out of an equal unit of debt and each unit of debt demands a return at a given interest rate. 

World real growth (that which pays a return) must be greater than the world's interest payment on that debt or the economic system goes into reverse. 

For the past five years, governments of the world have created much more debt to support entities that could not carry their own weight (essentially making their interest payments.)

So now, a system with much increased debt and a decreased long term growth rate is now going to make higher interest payments due to a rate increases while governments reduce their interest payment subsidy.

I don't think so.  Rates are more likely to go down and/or money printing up.

If rates rise, the perceived value of paper money will rise but I consider this very unlikely.  I think "rising rates" is a mind game to save paper currencies.

As rates fall and the units of currencies increase, paper currencies begin to become just paper.

The only alternative to falling rates is unbelievable growth or massive debt default.

But then like Shultz "I know nothing."




EatYourCornTakeyourPill's picture

Good. Question. I should pull out all of the posts by the Tylers the way they do saying "we said it here, here and here" but they kept saying that QE would never end. It looks like they've given up and now believe that it will indeed end.

Charles Nelson Reilly's picture

If the smart & big money thought the spigot was gonna be turned off, you'd see a bloodbath on Wall St. They're still calling Yellen's bluff.

jwthomps's picture

Short-term, maybe yes, maybe no, but in the long-term you are right, they will print.

Short-term this could be an interesting week.  The Dow did not reach a new high and the VIX has been making higheer lows this year.

Don't trust my view, I have found that what I know counts for very little so Good Luck.


zorba THE GREEK's picture

Everyone talks big, but when they get to the edge of the abyss and stare down, it is back to bailouts 

and QEs and oiling up the printing presses. Even Paul Volker would have second thoughts on pulling

the plug when confronted with the situation the world is in today: Unsustainable National debts, 

insolvent banks, bond bubbles, housing bubbles, and a highly levered Quadrillion dollar derivitive

market. There is no turning back now. 

layman_please's picture

Unsustainable National debts, insolvent banks, bond bubbles, housing bubbles, and a highly levered Quadrillion dollar derivitive

market. " this reads like 'bailins'

HurricaneSeason's picture

They'll stop because the feral reserve didn't print money, they loaned a few trillion they didn't have and want it paid back.  If they loan 10 trillion that they don't have, the taxpayers will balk at paying it back or paying any interest.  Paying $300 or $400 billion in interest a year is pretty easy when you're borrowing $1300 billion a year, it's going to get interesting now.

TruthInSunshine's picture

China's sitting on 15 trillion USD, at bare minimum, of absolute loans created in the last 5 years, probably which contain a 20% to 30% spoilation component (i.e won't be paid back - ever).

Take that 20% to 30% of 15 trillion USD and run the leverage-up multiplier, and K doubt anyone would consider the potentiality of 12 trillion USD to 20 trillion USD in losses in the coming years, just from mainland China & Hong Kong,as any exaggeration of the amount of impending "investor" or lender losses.

In actuality, if one truly understands how rotted the foundation of both international finance & economic conditions are, they'd not blink at the possibility that these losses will be much higher,'given the interwoveness of the entire system at this point

lolmao500's picture

Power blackout in Crimea reason unknown... saboteurs? Putin to use as a pretext to invade eastern ukraine in 3...2..1...

Nid's picture

Wait...isn't Crimea ALREADY part of Russia?

fxrxexexdxoxmx's picture

Damn communists have been in charge for less than a month and they are already having a hard time keeping the lights on. Well at least everyone willget less at the same time.

Poor Grogman's picture

Without the flow

The economy won't go

Squid-puppets a-go-go's picture

oh noes *gasp* we might be forced to going back to using.....savings of actual capital *shudder*

ebworthen's picture

China has the factories, the labor force, and the Gold.

The U.S. not so much.


post turtle saver's picture

you couldn't be more wrong if you tried

ebworthen's picture

How so?  Please elucidate. 

When was Fort Knox last audited?

How many American jobs and industries have been sold out to cheap Chinese slave labor?

How many Americans have been trained to rob pension funds and savings accounts via Wall Street, Washington, and HR Departments and MBA management versus building something?

You argue from emotion and memories of the past versus a realistic vision of how the U.S. has become a cesspool of opportunistic money-changers and robber barrons bleeding the good people dry.  The U.S.A. sucks; not the people, but TPTB and the lies and misdeeds they promulgate.

post turtle saver's picture

actually, I think anyone who says the US has no mfg, gold etc needs to pony up and present their own statistics first... you made the assertion first you see... let's see you elucidate on your claims with real numbers backed by fact and keep your own emotions to yourself in the process... after all, you would do no less than what you ask of others, correct?

and, I'd submit, if you think that China _isn't_ a cesspool of opportunistic money-changers and robber barrons bleeding the good people dry, you simply aren't paying attention to what's going on over there... everything you've stated can just as easily be attributed to the Chinese... in fact, more so in many ways

I don't see suicide nets installed around US factories to keep people from killing themselves... when I walk outside, I breathe clean air... when I turn on the tap, I drink clean water... I work hard and live well in a career of my choosing, I worship when I wish to with full freedom to do so, and so on

I keep hearing that the US is such a terrible place... and yes, it is not perfect, but no place is... tell me, if the way China does things is supposed to be superior to how the US currently goes about its business, why is it I don't feel that way? In fact, why would anyone be surprised if most US citizens are overall proud of their country? Are people so desperate to see the US fail that they don't ponder what the alternatives will be?

if I've learned one truism in my years on this rock, it's this... everyone wants to go to heaven, but no one wants to die... there's a lot of big noise talked up on this shambling collection of bits and bytes but I seriously doubt there's much action behind it... anymore I come here for the entertainment

this is why I say "not so much" is completely wrong... note I'm not saying, "number one in everything", I'm simply countering an implicit assertion that there's nothing to be had... I'm also countering the implicit assertion that China will just keep on going like this forever, when everyone says that it's impossible for the US to do so... if ridiculous growth is unsustainable for the US, what makes anyone think China will fare better?


khakuda's picture

I just can't get over the inflation mandate. The Fed was supposed to encourage a stable dollar, not one where it they act like it's the end of the world if it doesn't lose value by a few percent every year. I don't know of anyone who prays every night that things get more expensive every year so that the economy can get better?

Nid's picture

It's a travesty.....simply exaggerating Booms and Busts instead of mitigating.

TrustWho's picture

Simple, The Fed should have acted in 2004/05 to stop the bubble. Since everyone admits this was impossible (and all other prior periods like late 90's), The Fed should be terminated.

MontgomeryScott's picture

Dear Simple:

The FED (in their magnificent benevolence) usurped the Constitutional power of the Congress and the States to coin money, and regulate the value thereof, In December 1913. When you question their policies, you are merely spitting in the wind, and the slobber is dripping back at you, getting your face all messy. The FED should have... been outlawed at conception... and those who seeked to establish it should have been hung (including those in government).

They ARE the Military/Corporate Industrial Complex, now. They ARE the 'shadow government'. THEY DECIDE what money you use, and how much you will pay them to use it (how about that 16th Amendment, by the way?).

The CONUS is simply a REGION to them. If you own your house, you STILL have to pay them in their money to use it ('property taxes'). If you make TOO MUCH of their money, they will simply tax you MOAR. If the 'economy' is 'heating up', they withdraw 'liquidity', thus impoverishing you, and if the 'economy' 'recedes', thay print MOAR fake money and lower interest rates, to 'increase the tax base' (you 'earn more' in digits, and the value goes down, but the graduated tax rate makes you pay more as a percentage in tribute to THEM; even as the 'puchasing power' of this fake money is decreased).


Shoulda, woulda, coulda...

khakuda's picture

Agreed, the question is why aren't we seeing more anger on the part of those who are really struggling.  Where is the person who is trying to make ends meet standing up and saying, "Wait a minute.  It's really tough to find a job if you lose one or don't have one.  And raises?  What are those?  When you have a job, between federal, state, social security, medicare, unemployment taxes and health insurance premiums, you take home 50 - 75% of your gross wages.  Then, out of that you get to pay property taxes and a mortgage or rent which take much of what is left.  You also need thousands for car expenses, clothes, food, repairs and kids, if you have them.  Plus, there are all the hidden taxes like sales taxes, gasoline taxes, telephone taxes, car inspection/emissions fees, car registration fees and driver's license fees, taxes on hospital bills to pay for the indigent, etc, etc.  Not only is there not anything left, you have to borrow to make ends meet.  WHY THE FUCK WOULD THE FED PURPOSEFULLY WANT TO INFLATE PEOPLES COSTS EVEN MORE?"

Simple question Ms. Yellen, how do higher costs help me and the economy?  Try answering that never asked question at Fed press conference.

The economy was begging for a deflationary reset in 2008.  Government policies had over inflated housing costs, healthcare costs and education costs.  Not only was a reset not allowed, but the Fed has managed to create more inflation and bubbles.  I get why, they can't have house, stock and bond prices decline because the banks which are basically leveraged casinos will fail and the government is the biggest debt junky in the world and needs free money from zirp to keep operating.  But, at some point people will wake up and realize that their debt is increasing every year, either directly or through their share of the ever increasing government debt.

Maybe as taxes keep rising or maybe the student debt that starts the revolt.  You can't have kids coming out with debts that take 25 years to pay off.  They will resent being debt slaves at some point.

yellowsub's picture

Because they can and the majority is too ignorant or don't care...  

cossack55's picture

Whats the difference between China and the Fed?


Hint: its yellow and you can't eat it.

MontgomeryScott's picture

My grandma in Nigeria gave me the recipe to that. It's best served when people are upset and confused. Watch out, though, for the gut reaction. It's like the WMD of desserts!

Zombie Investor's picture

Kocherlakota clutching his heart and gasping for breath at this very moment.

Cattender's picture

China has been buying Gold.. that is just Silly! Paper Fiat RULES!!!! HAHAHAHA!!!!!

BullyBearish's picture

QE cures the economic depression like overeating cures obesity.

xamax's picture

Despite this troubling economic partner,China, we still S&P500 touch 2400 by year end as there are no alternatives to stocks.

TheRideNeverEnds's picture

Well futures open soon so we will see just how bullish this news is.  I am thinking up at least 5 by the cash open tomorrow. 

xamax's picture

Regardless of the opening in futures, we remain convinced one investing in S&P500 will gather a 30% return by year end.

MontgomeryScott's picture

A 30% return, with a 40% net loss in real value, I suppose predict.

Here, let me put your money in a savings account...

hotrod's picture

I think China purposely called them out by stating AGAIN, " Interest rates will rise in 6 months."  Kind of like, you said it so let's see it. So if you don't, well I guess your guidance is crap and screw the dollar.

scuttlebutt's picture

Good debt is to borrow for the future to produce for the future. Examples: New ideas, better services, production of cheaper products. For some, maybe to purchase a home.

Bad debt steals from the future. Some examples:

Most government debt- especially entitlements.

Business- such as dividends.

Individuals- over consumption, living beyond ones means.

Cycle's picture

The Fed never mentioned the word "monetization" as a way to avoid the downside of ending and reversing QE. This likely means that when the going gets tough, the Fed will monetize and the currency will be debased. Of course, the 4 trillion dollar of reserves question is when this will occur.

AdvancingTime's picture

Every country has unofficial lenders, but in China individuals, companies and even local governments who can not get loans from state-controlled banks have been on a borrowing binge from these unofficial sources. China is awash in overcapacity and debt.

After several years of growing debt loads concern is rising the whole unstable pyramid is about to come crashing down bringing China and possibly the global economy with it. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be vary painful. More on China's credit trap below.

The wheels on the bus are going to fall off's picture

If the US does not continue the taper then the reserve status of the US dollar is dead (some may argue its a ticking time bomb anyway).

If they reverse the taper through political and economical pressure then they will lose reserve status and probably cause riots throughout the entire country.

The FED has a choice, to save the banks or save the dollar, they cant do both! Yellen isnt Neo!

Iceland chose to not save the banks back at the time the US did save the banks, now Iceland are targeting less than 3% unemployment........

Whichever way the FED goes, there is hardship ahead, deflation or inflation?