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How Beijing Is Responding To A Soaring Dollar, And Why QE In China Is Now Inevitable

Tyler Durden's picture




 

While the topic of China's slowing economy has been a prominent fixture over the past week, first with the latest Chinese rate cut last weekend, followed by the announcement that China is once again lowering it target growth rate to 7% for the 2015 and onward, coupled with a warning that "downward pressure is growing" and that 2015 will be more difficult for the country than 2014, the one issue that has not gotten the attention it deserves is capital flight out of China, now that deflation is increasingly mentioned as an outright possibility for the country, and the reasons behind it.

As a reminder, China is increasingly impacted by the Fed's policies as a result of two things: weaker currencies around the globe, coupled with China's quasi-peg to the USD, which over the past week has soared to fresh 13 year highs on expectations that the Fed will hike this summer (further validated by today's jobs report which miraculously was not impaired by the second, and worse, Polar Vortex, thus destroying the narrative made so popular last year that cold weather in the winter is responsible for weak job reports). Needless to say, for a country which just posted its record trade surplus, and whose net exports are still the lifeblood of the economy, being pegged to the world's strongest currency has two consequences: concerns about imported deflation which will lead to even further economic slowdonw, and capital flight as faith in the Chinese Renminbi is increasingly shaken.

The WSJ touched on just this critical topic in mid-February when it reported that "Despite a record trade surplus and a steady inflow of investment capital, China’s banks posted net sales of foreign exchange in January, suggesting that capital was flowing out of the country during the month."

The WSJ continued:

Analysts said the foreign-exchange data, released Tuesday by the central bank, partly reflected declining confidence in the nation’s currency amid a slowdown in the economy, as exporters and individuals held on to foreign exchange rather than convert it into yuan.

 

They also said it was yet another signal the People’s Bank of China would need to offset the loss of those funds by reducing the percentage of deposits that banks must park with the central bank in case of financial trouble.

As was further explained, while the foreign-exchange data also include figures from commercial banks and other financial institutions, they mostly reflect purchases and sales by the central bank. The figure is seen as a rough guide to changes in domestic liquidity conditions.

Not helping things is the recent weakness in the Yuan, which as shown in the chart below, has recently tumbled to multi-year lows:

 

The WSJ's take: "The yuan’s weakness against the U.S. dollar of late has made many companies and individuals reluctant to convert their foreign funds into local currency. The yuan lost 2.5% against the increasingly robust U.S. dollar last year and another 0.8% this year."

But the biggest reason for the slide in the Yuan is that banks "have seen rising levels of foreign-currency deposits, and that is a sign that exporters and individuals are “not confident in the outlook for their own currency and don’t want to hold on to it."  said Dariusz Kowalczyk, an economist at Crédit Agricole in Hong Kong. He said he sees this as the key factor in the net foreign-exchange sales data. Mr. Kowalczyk said the market is looking for the yuan to fall further to 6.35 or 6.40 to the U.S. dollar from the 6.25 level it traded at Tuesday morning.

It is slowly getting there.

Fast forward to today, when overnight Barclays observed more of the same theme. In a report titled "Unprecedented surge in FX deposits", Barclays notes that the recent "Unprecedented surge" in FX deposits is reflective of growing expectations of CNY weakness vs the USD. It adds:

The latest banking statistics from the PBoC suggest a further increase in market concerns about the risk of CNY depreciation this year. According to the PBoC press release on banking statistics, total FX deposits in China surged by USD45.2bn in January 2015 to a total of USD655.7bn (comparatively, the increase for the whole of 2014 was USD108.4bn). While we have become aware that PBoC has made some methodological changes to banking deposits starting in 2015, the increase in January of USD45.2bn still marks a very large monthly increase in FX deposits compared with the historical series. This compares with a q/q decline of USD31.8bn in FX deposits in Q4 14, and we think the January increase cannot be fully explained by seasonal factors. Such a renewed jump in FX deposits is significant, in our view, and reflects the degree of FX pressure that has developed over recent months.

This is how said "surge" looked like:

 

That is not to say that the PBOC is doing nothing. Quite the contrary:

A separate and more closely watched data series – the change in financial institutions’ (FI) position for FX purchases – suggests that the PBoC has continued to intervene in the FX market to limit currency weakness as CNY fell towards the weak side of its trading band. As shown in Figure 3, FIs’ position for FX purchases fell again in January, dropping USD17.4bn following a decline of USD19.1bn in December. We believe this can be largely attributed to the PBoC’s FX intervention activity, even though data on the PBoC’s foreign assets/FX reserves have not been released.

Behold the PBOC's alleged intervention:

 

Barclays, like everyone else suddenly, is pessimistic about the prospects of a quick CNY jump. In fact, if anything, it took is shifting to a "controlled devaluation" camp, saying "Negative market sentiment on CNY may not abate quickly."

The renewed rise in FX deposits highlights the increasing currency pressures and the ongoing monetary dilemma that China is facing. Even though the authorities have kept USDCNY fixings broadly stable and have attempted to tame market expectations of policy changes through public comments, these efforts have failed to calm market expectations of CNY depreciation. This is reflected by a number of factors, including the rise in FX deposits, offshore USDCNH trading above the upper bound of the onshore USDCNY trading band, and the extreme skew in risk reversals in the FX options market. We do not see these factors abating? indeed, we expect USDCNH to continue to trade above USDCNY, with the risk that the basis will widen further."

The punchline: devaluation may be imminent:

As the USD has risen against global currencies, the market has likely become more concerned that China eventually will have to allow more CNY weakness versus the USD in order to tame REER appreciation. As we argued in CNY: Deflation, downturn and the deepening monetary dilemma, 12 February, amid slowing inflation and rising outflows, the costs of limiting CNY weakness are growing – including the unintended effect of placing more stress on CNY market liquidity and interest rates, rendering liquidity easing efforts less effective.

Which means the PBOC's recent easing will do absolutely nothing to offset not only the ongoing surge in the USD, but the near historic collapse in the EUR, one of China's main trading partners. As a result China will be swamped be exported deflation not only out of Japan, as has been the case since the start of Abenomics, but now, thanks to Q€, from Europe as well.

And yet, the paradox is that China is caught between a rock and a hard place: devalue too much, and the capital outflows will accelerate, not devalue enough, and the mercantilist economy gets it:

... the recent surge in capital outflows probably means that Chinese authorities have become even more cautious about fuelling CNY depreciation expectations in the near term. Indeed, China typically has refrained from making policy adjustments when selling pressures on the CNY are heaviest. This may preclude an imminent band widening, but we do not rule out the authorities undertaking policy adjustments when CNY selling pressures subside. In the meantime, the path of least resistance is to move USDCNY fixings higher.

 

Supporting our view that a band widening is likely, even if not imminent, is the fact that Premier Li mentioned in the opening speech of the National People’s Congress (NPC) that the government would allow the RMB exchange rate to “float more freely”. It is important to note that the phrases on “increasing flexibility/expanding the floating range” are not mentioned at every NPC speech. Interestingly, these phrases were included in the NPC speeches of 2012 and 2014, years during which China allowed the trading band to be widened.

What all of the above means is that China is suddenly finding itself in an unprecedented position: it is losing the global currency war, and in a "zero-sum trade" world, in which global commerce and trade is slowly (at first) declining, and in which everyone is desperate to preserve or grow their piece of the pie through currency devaluation, China has almost no options.

Well, that's not true. Because if China wants to enter the global currency wars, and it will soon have no choice, it has - according to Cornerstone - several options with which to stabilize its economy, but really all of which, due to the size of China's epic credit and investment bubbles, and keep in mind that China's housing bubble has not only burst, but is now deflating at a faster pace than what happened in the US after Lehman...

... boil down to just one: QE.

From Cornerstone:

Do you remember that from 2007 to late 2008, U.S. fed funds dropped 500 bp, and then the Fed still needed to do QE? The backdrop for China looks a bit similar. We had a credit bubble, they have a credit bubble. We had a housing bubble, they have a housing/investment bubble. Will China eventually have to go down the same path as the U.S., and the Eurozone? Roberto Perli believes the PBoC will first cut rates to 0%, before contemplating QE.

There you have it: the flowchart for what is in store for the world for the next 12-24 months - an ongoing deterioration in Chinese economic conditions, coupled with a weaker, but not weak enough, currency, before the PBOC first go to ZIRP, and then engages in outright QE.

And once China, that final quasi-Western nation, proceeds to engage in outright monetization of its debt, then and only then will the terminal phase of the global currency wars start: a phase which will, because global economic growth and that all important lifeblood of a globalized economy - trade - at that point will be zero if not negatve, will see an unprecedented crescendo of money printing by absolutely everyone, before coordinated devaluations mutate into uncoordinated, and when central bank actions morph from "all for one" to "each man for himself."

At that moment, what had been merely currency "war" will finally transform into a shooting one.

 

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Fri, 03/06/2015 - 21:44 | 5863570 Crawdaddy
Crawdaddy's picture

What are these bubbles you speak of? Are they like the so-called chemtrails?

Sat, 03/07/2015 - 00:30 | 5863938 MarketAnarchist
MarketAnarchist's picture

....... Or China could peg its currency to gold along with Russia and Switzerland.

 

Then they could look the west straight in the eye and say

"Checkmate."

 

Sat, 03/07/2015 - 01:52 | 5864043 luckylongshot
luckylongshot's picture

It is a big mistake to look at China and assume the same rules apply as apply in the west. China owns its central bank and that means it has a whole range of options that the west does not have. It can write off debt. It can and has given a 60% payrise to bureaucrates to increase demand. It can issue interest free money to fund infrastructure projects, it can execute banksters, it can and has raised pensions 900% over 11 years. The point is that QE has shown it does not work in raising demand and so is ineffective aginst deflation and so the chances of China doing western style QE are zero.

Sat, 03/07/2015 - 02:21 | 5864083 Self-enslavement
Self-enslavement's picture

We can all only hope they are using the money to build bombs that they will launch at Israel.

Why else would anyone print money, to buy Apple stock?

You have to be fucking kidding me right?

Sat, 03/07/2015 - 02:32 | 5864098 old naughty
old naughty's picture

the answer is "yes", resoundingly...

with more lives at stake.

Sat, 03/07/2015 - 09:13 | 5864310 Self-enslavement
Self-enslavement's picture

The entire planet is at stake here. Jewish control of the worlds "governments" is a real and irreversible threat.

Sat, 03/07/2015 - 11:03 | 5864410 cnmcdee
cnmcdee's picture

Central bank interest rates will determine the growth rate of the saver and the contraction rate of the borrower.

 

 

Sat, 03/07/2015 - 17:23 | 5865290 Exponere Mendaces
Exponere Mendaces's picture

@luckylongshot, I think you're right but not for the reason you state - their partnership with Russia is going to be part of the safety net once the EU crumbles and the USA continues to slide into third-world status.

China also has a record of letting bad bets fail, whether its a private bank or a construction company. They also jail CEO's who they view as corrupt, a practice the USA should emulate but doesn't have the balls to do so.

When the dust clears, China and Russia will be fine, the rest of the world will be wallowing in the "new normal" of currency devaluation and credit crisis.

 

Sat, 03/07/2015 - 02:19 | 5864077 gwiss
gwiss's picture

China's economy is still dependent on exports, and the exports aren't things that are vital.  Russia could do the precious metals move, because if push comes to shove, countries will do whatever they have to and pay whatever they have to in order to get energy.  On the other hand, countries won't do whatever they have to in order to get manufactured goods.  

Russia, with its low debt, can move to a commodity money without too much pain.  China, whose growth has been entirely dependent on a credit binge that makes the credit expansion of all other countries look like mormons in Vegas, has really grabbed a tiger by the tail, because they are reaching debt saturation, meaning that even though they are trying to buy GDP growth with debt, they are now borrowing multiples of the growth they are able to achieve.  Macau casinos, a proxy for how rich the Chinese elite feel, are on course for revenues to crash 53% this year.  Now, they say this is due to Xi's crackdown on money laundering and corruption, but when combined with the crash in the Baltic index shipping that moves Chinese goods throughout the world, and a once red-hot Chinese property market that is currently collapsing faster than our housing bubble did post Lehman, I'd say they are peeking over the abyss and quietly pissing in their shoes.  1.3 billion people were promised a ticket to the living standards of the west, and they are not going to quietly trudge back to their peasant villages without a fight.

 

Despite their deep and ancient appreciation for the true nature of wealth, their politicians have been snookered by the same confusion about the nature of growth fueled by debt that all advanced economies have been.  They are just now beginning to understand that when you move demand forward from the future using debt you can temporarily achieve above average growth, but it can only be paid for by a prolonged period of below average economic activity.  And below average economic activity is not going to cut it for China's leaders because it is not going to cut it for the Chinese people.  

So, watch Taiwan and Japan.  China will need a distraction and a scapegoat as their economic rocket engine starts to melt, and blaming economic austerity on war is always more politically palatable than blaming it on fucking bonehead political choices.  And politicians are the same no matter what flag they crawl under -- goddamn lying pussies willing to ass fuck their own grandmothers in order to hang onto the power and fame they can't live without.

Sat, 03/07/2015 - 16:32 | 5865146 napper
napper's picture

Not even close.

 

Change "China" to "the US" and "export" to "money printing", you might have a much better case.

 

China's Real estate market is not collapsing, despite central government's repeated attempts to rein in speculations. China is no more dependent on exports than its trading partners dependent on imports, especially the US. China is dependent on energy imports only.

 

There is a financial and economic warfare going on in the world on top of military conflicts the US has started in Europe, Africa, and the Middle East. The NATO crime syndicate is losing ... hence the escalation of rhetorics from puppets in Washington and London.

 

You seem to have been getting your news from the mainstream media.

Sat, 03/07/2015 - 19:56 | 5865714 80 years are up
80 years are up's picture

I fear that the last paragraph is totally true.  The older I get the more I see it. Watching the current crop of politial "leaders" is tough to stomach.  We will live in interesting times. 

Sat, 03/07/2015 - 15:20 | 5864356 post turtle saver
post turtle saver's picture

if it's so easy why haven't they done it?

I'm going to keep asking this very simple question to anyone who keeps stating "oh, it's magical, Russia/China/etc just pegs their currency to gold and is instantly entitled to running the world as a result"

because it's pretty fucking obvious the world doesn't work that way

Sat, 03/07/2015 - 13:01 | 5864706 Money_for_Nothing
Money_for_Nothing's picture

China and all the rest want to duplicate USA 1942-1965. Build the mightiest mercantile empire in the world. Won't happen on a gold standard. The world wants to do to the USA what the world did to China 1900-1930.

Fri, 03/06/2015 - 21:50 | 5863584 blindfaith
blindfaith's picture

let them eat cake

Fri, 03/06/2015 - 21:51 | 5863585 Brazen Heist
Brazen Heist's picture

Central bank balance sheets:

http://www.yardeni.com/pub/PEACOCKFEDECBASSETS.pdf

The question is how will they go about unwinding their swelled up asset purchases i.e. bonds on their books, and return the market back towards normalcy? 

 

 

 

Sat, 03/07/2015 - 00:17 | 5863922 TheReplacement
TheReplacement's picture

Argh.  There be monsters here-ra.

Sat, 03/07/2015 - 01:31 | 5864015 Dubaibanker
Dubaibanker's picture

China GDP: USD 10 trillion.....US GDP USD 18 trillion.

China positive cash reserves: USD 3.8 trillion....US DEBT (negative): USD 18 trillion

China bail outs: Almost none or maybe USD 1 trillion over last 10 years...US bailouts: Over USD 10 trillion in the last 10 years.

China population: 1.36 billion....US population: 350m.

China, number of banks in Top 10: 4....US, number of banks in Top 10: 1.

With a population of 350m, US has Fed balance sheet at $4.4 trillion. Why cannot China, with 4 times larger population at 1.36bn have PBOC balance sheet of $5.5 trillion? In my view, it could go higher without any devastating affect. Let us talk ratios and not absolute numbers which are irrelevant. When will economists learn? Answer: Never!

China: keeps buying assets like Thomas Cook, Manhattan buildings, JPM HQ, Rosewood hotels, Heathrow airport, Spanish clubs, Canadian and other oil companies, Motorola, IBM, Volvo, Peugeot, AMC theatres, alfaalfa farms, real estate around the world in every single city etc. i.e. ALL REAL PRODUCTIVE ASSETS.

In comparison, US keeps fighting wars in Ukraine, Libya, Iraq, Afghanistan, Pakistan, Yemen, Syria.......

What does US have to show for its debt?

China too can create this debt but then we would all be asked to learn Mandarin like we had to learn English due to US hegemony in all spheres of our lives. The time is coming to learn Mandarin!

And, why is it bad when China creates debt for its self interest and not bad for US or EU or Japan?

Note - all numbers above are approximations.

Sat, 03/07/2015 - 02:31 | 5864096 napper
napper's picture

US GDP is nowhere near 18 Trillion.

 

Not sure about China's GDP, but if the reported value is 10 Trillion, then chances are it's more than that.

 

Above all, GDP is NOT necessarily a good, much less an accurate, measure of a country's health and power.

Sat, 03/07/2015 - 02:34 | 5864099 Dubaibanker
Dubaibanker's picture

It was an inaccurate approximation. US GDP is at USD 16.8 trillion.

China is at USD 9.2 as of few months ago.

On PPP, China is much higher.

Agree on the health and power perspective.

But just using one data point to make an observation on debt.

Sat, 03/07/2015 - 02:58 | 5864116 napper
napper's picture

I know what you mean. I am saying that the way the US government (if it can be called one) calculates the GDP has been highly fraudulent over the years. Wall St is not alone when it comes to false accounting.

Sat, 03/07/2015 - 11:05 | 5864416 cnmcdee
cnmcdee's picture

It's a really good point I have 50% of my economy working for the government producing paper to process paper all making 50% of the GDP but producing nothing.  So what is my real value GDP? Ans : Half!

Or I have 40% of GDP going to pay people on every government service imaginable - what is my real GDP - lop off 40%!

Sat, 03/07/2015 - 03:21 | 5864134 tarabel
tarabel's picture

 

 

China rose on the back of technology transfers from the West. Given that all of its customers economies are stagnant and that multi-nationals have gotten wise to the Chinese theft of intellectual property, China has already reached its apogee and is on the way back down.

Considering the iron grip that the authorities have on all forms of information transmission, the country will appear to be going along quite nicely right up to the day when they put a rod through the block just like the old Empire of Evil.

 

Sat, 03/07/2015 - 10:06 | 5864362 post turtle saver
post turtle saver's picture

bingo... I crack up watching people post numbers about China like they're absolute fact and treating US numbers like "impossible! all lies!"... these idiots actually trust Chinese accounting, two words that when put together define comedy...

you see who is truly strong by inspection... King Dollar bitchez... flight to quality... flight _out_ of China...

Sat, 03/21/2015 - 16:24 | 5913581 Max Steel
Max Steel's picture

theft of ipr ? common idiots 

International patent filings: Chinese company Huawei leads the pack

. Brush up .

http://www.thehindu.com/business/Industry/international-patent-filings-h...

Sat, 03/07/2015 - 12:13 | 5864589 JoWazzoo
JoWazzoo's picture

What makes you think they will sell?  Why should they? With poerhaps the exception of Canada a few years ago (though they of course reversed course) has any sovereign eliminated its debt?  No.  US 18 T and climbing 1/2 T a year.

QE can be thought of as a leveraged buy out.  The difference is that there are no market forces to reduce or eliminate the CB leverage.  Is there? Congress gonna force the Fed to sell?  The Dictator?

Fri, 03/06/2015 - 21:58 | 5863592 Yen Cross
Yen Cross's picture

 Chinese charts are my specialty.

  The CNY fix just before Tokyo every day sets the carry$ trade in Asia.

 Don't believe me? Wait for the cny fix and short $usd risk.emand

  I'm already parking liquidity in the new system.

  Liquidity+ Demand=arbitration.

Fri, 03/06/2015 - 22:08 | 5863634 Crawdaddy
Crawdaddy's picture

If you were pontificating on this topic, holding a beer and a braut, around a campfire, where would you tell the fellow amigos to park their 401ks/roths?

Fri, 03/06/2015 - 22:52 | 5863742 Crawdaddy
Crawdaddy's picture

No biggie and I love it that nobody here would feel obligated to give a rats ass. I lost my internet bet that someone would reply before the amigos here around the campfire lost focus. Not at all unusual. Now ESPN is once again the place where life is determined. Thanks ZH!

Sat, 03/07/2015 - 08:15 | 5864262 new game
new game's picture

i'll answer, dollar. at least for now. post every which way but inevitable war, well that is hard to predict. there will be a time to trade dolla for gold, and that is coming. china is great popcorn watcking event. eat slowly though, only in the 3rd inning...

Fri, 03/06/2015 - 21:54 | 5863595 reader2010
reader2010's picture

There is nowhere to hide. Participation is mandatory. 

Fri, 03/06/2015 - 21:56 | 5863603 davidalan1
davidalan1's picture

China is FUCKED, rhey were idiots to buy are debt and serve our pathetic need for all things electronics. They have no transparency in banking, NONE...did i say they are fucked? wath and learn...

Fri, 03/06/2015 - 21:59 | 5863611 Yen Cross
Yen Cross's picture

 You're correct... China is FUBAR!  It's going to take a couple of years.

Fri, 03/06/2015 - 22:07 | 5863632 Brazen Heist
Brazen Heist's picture

From 13% GDP growth in 2007, to 7% in 2015...

Fri, 03/06/2015 - 22:11 | 5863637 Yen Cross
Yen Cross's picture

More like 3.5-4%?

 China tried over the last 3-4 years to let the yuan "power up" for internal consumption, to offset their external deficite.

 The euro @ 1.08 vs usd? lmfao. China exports lots of trinkets priced in $usd to europe. Commodities are priced in $usd.

 Raw materials> $usd

Sat, 03/07/2015 - 00:14 | 5863911 sun tzu
sun tzu's picture

Why is euro 1.08 vs USD LMFAO? The euro is toast. I just made a pretty penny with put options on FXE from 1.12 to 1.08. Closed my position right before expirations today for 150% + gain. The USD is a piece of turd, but the rest of the world is even worse. 

Sat, 03/07/2015 - 10:09 | 5864366 post turtle saver
post turtle saver's picture

... and those numbers are inflated, not to mention completely unsustainable...

Fri, 03/06/2015 - 22:45 | 5863725 downwiththebanks
downwiththebanks's picture

Nonsense.  China is going to do the smart thing and get those dollars as expensive as they can go.  DUring this time, they're cashing out of treasuries for gold, for the BRICS bank, etc.

Once they milk it for long enough, China/Russia/Iran/India... jointly pull the trigger on the Petrodollar.  See what happens to all those expensive dollars once that goes down.

Fri, 03/06/2015 - 23:04 | 5863769 lazysunday
lazysunday's picture

What evidence do you have of that? all the evidence points towards that China is a house of cards and the banking cartel of the west has China in a box.... But because all you do is hate the west, you fail to see that there are no unicorns to supplant these overlords....

Sat, 03/07/2015 - 00:14 | 5863913 cigarEngineer
cigarEngineer's picture

There is a reason why they park their money in London/NY and not Beijing/Shanghai. USA is for sale and it's the cleanest dirty shirt. As bad and totalitarian as the US is, the BRICs are even worse. They just don't have 80K SWAT raids on their citizens every year.

Sat, 03/07/2015 - 16:36 | 5865172 napper
napper's picture

would you care you list your evidence in support of your claims?

Fri, 03/06/2015 - 21:57 | 5863605 Unknown Poster
Unknown Poster's picture

What are the Chinese banks doing with their new stash of fiat bucks?  It is outside of the fed's control. 

Fri, 03/06/2015 - 22:05 | 5863616 Yen Cross
Yen Cross's picture

 They'll use them to finance there new global trading conglomerate.  UST

 I'm teasing you. China is liquidating it's UST holdings. The PBoC is capping borrowing costs with RRR deductions.

Fri, 03/06/2015 - 22:14 | 5863641 Brazen Heist
Brazen Heist's picture

China's holdings of UST have been approximately flatlining in the past year to around $1260b. Russia on the other hand has dumped $50b in UST in the past year, - a small amount and a drop in the ocean compared to what China could do if it decided to dump hard. But China wouldn't want to dump all of a sudden since it will devalue their remaining holdings. A smart approach would be to dump slowly over time, but I haven't seen it yet from the numbers.

Sat, 03/07/2015 - 00:16 | 5863919 cigarEngineer
cigarEngineer's picture

I don't think we can trust the numbers. Why would they telegraph a move? They certainly have less in treasuries than they're reporting.

Sat, 03/07/2015 - 08:43 | 5864279 new game
new game's picture

you don't believe the feds reports? ha,...

Sat, 03/07/2015 - 12:42 | 5864664 MollyHacker
MollyHacker's picture

Most Likely the fed will QE4 to cover a more rapid sell~off of treasuries from China if necessary. China will most likely take interest rates to nirp as slowly as possible to soften instability in its own market behaviors buying time against outright depressionary forces. Printing outright has severe consequences at the bullion banks.

Sat, 03/07/2015 - 14:29 | 5864908 HenryHall
HenryHall's picture

Yep. China needs to sell a bunch of US Treasuries for greenbacks and use the greenbacks to buy Yuan and gold in the international exchanges.

Problem solved.

Fri, 03/06/2015 - 22:17 | 5863647 Unknown Poster
Unknown Poster's picture

The chinese banks must want a return on their US$ assets. Funnel them to NY real estate?

Fri, 03/06/2015 - 22:23 | 5863667 Brazen Heist
Brazen Heist's picture

My guess its got to do with their semi-fixed exchange rate regime, where they still must keep USD reserves to maintain the peg. Once they decide to unpeg from the USD, then they can start kissing the UTS goodbye.

Fri, 03/06/2015 - 22:31 | 5863692 Unknown Poster
Unknown Poster's picture

I thought they used fixed bayonets to maintain their semi-fixed exchange rate regime. ;]

Fri, 03/06/2015 - 23:07 | 5863773 lazysunday
lazysunday's picture

And once they remove the peg, there numbers can't be do with pencils and erasers either anymore. Also they will have to open up there borders and allow real people into investigate these numbers.... Suddenly GDP isn't 8% every year and is 3%. I am sure there will be hoards of people who want to buy there bucks backed by ghost cities built with powder concrete....

Sat, 03/07/2015 - 10:12 | 5864367 post turtle saver
post turtle saver's picture

yep, "Chinese accounting"... it's all bullshit and anyone who trusts their numbers deserves what's coming to 'em...

Sat, 03/07/2015 - 08:45 | 5864281 new game
new game's picture

just like japan did. how did that work out? buy the boat, but if it sinks, then what cha got?

Sat, 03/07/2015 - 10:13 | 5864369 post turtle saver
post turtle saver's picture

yep time to break out all of my '80s "Tokyo chic" action movies where the Japanese villains do their monologues about Japan buying up everything in the US and eventually running the world... good Saturday matinee fare...

Fri, 03/06/2015 - 22:04 | 5863627 suteibu
suteibu's picture

At what point do these reports reflect reality or are attempts to create that reality?  You do not see these types of reports about the US in the mainstream financial media and yet we read similar things about the US on ZH. 

How can you trust Western banks and financial media reporting on nations about which the West does not particularly want to be successful?

Fri, 03/06/2015 - 22:06 | 5863631 Clowns on Acid
Clowns on Acid's picture

Does the Chinese Gov't like gold better than USTs ? That has to he trade of the century. Short a negative yield Euro Bond and go long PMs.

Fri, 03/06/2015 - 22:21 | 5863661 Wild Theories
Wild Theories's picture

QE is inevitable - according to "analysts"

The sky is falling and the only proper response is more easing - according to banks

 

tell me when a hooker doesn't want money and just want my love...

Fri, 03/06/2015 - 22:35 | 5863699 jldpc
jldpc's picture

Why a shooting war? Embargo + high tariffs are far more effective as financial punishment and less bloodshed, until the local population rises up to throw of their masters. Anybody got a better solution to generate The Final Solution to the Bankster Problem? How about a fund to finance  bounties to be  offered to ISILand their like  - let them roam where they can do the most good. Kind of stupid to waste such effort and talent fighting over bare desert and killing other muslims. Be creative match attitude and willingness to cause mayhem where more of us can benefit. Wern't Washington, et al; and Lenin et al, and Mao et al,and those French Revolutionairies  just trying to rid themseles of the oligarchs? Of course the well intentioned initiators got overrun bt the violent types as it went along.  But the historical templates are there, and the need is obvious, the central bankers all over and thir political incubuses are doing us all in. Why not hire talent - better than watching them destroy thousands of years of Western Civilations antiquities. WE could call it The Banker Final Solution Fund - BFSF. We could even make it non-sectarian, non-denominational, non-jingoistic, non-racial, non ethnic, non religious, etc. Hell there are Banksters everywhere - why have discrinination. Maybe we could even make it non-profit and qualify as a tax exempt charity for the benefit of all mankind. 

Sat, 03/07/2015 - 09:42 | 5864337 Charming Anarchist
Charming Anarchist's picture

Why bother? 

Let the banksters eat themselves.  They have a greater and more immediate incentive to "hire talent" than the rest of us do. 

Fri, 03/06/2015 - 22:53 | 5863743 Dragon HAwk
Dragon HAwk's picture

Data out of China.. hey that's funny...

  Methodoligical Changes.. isn't  that Fed speak For Rigged ?

 

Fri, 03/06/2015 - 23:01 | 5863762 Consuelo
Consuelo's picture

"Because if China wants to enter the global currency wars, and it will soon have no choice, it has - according to Cornerstone - several options with which to stabilize its economy"

Not one of which mentioned, involves gold.   There Is a reason - and I don't necessarily have the answer, why China has been and continues to scoop it up.   In fact, I wonder - after 8:31 AM today, how much was purchased - nice & quietly, so as to not disrupt 'harmony'...?

Fri, 03/06/2015 - 23:04 | 5863768 malek
malek's picture

The article sounds like redefining cause and effect to me...

Fri, 03/06/2015 - 23:13 | 5863786 not a yahoo
not a yahoo's picture

Yes, but by the time Chna starts monetizing $20T of local debt, I'd say the chicken have left town.

Fri, 03/06/2015 - 23:34 | 5863829 Teamtc321
Teamtc321's picture

Posted 1-21-2014............ Chickens left town over a year ago also.....

"Did you know that financial institutions all over the world are warning that we could see a "mega default" on a very prominent high-yield investment product in China on January 31st? We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in "sky-high interest rates" and "a precipitous plunge in credit". In other words, it could be a "Lehman Brothers moment" for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that "hot money" has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?"

http://www.zerohedge.com/news/2014-01-21/guest-post-23-trillion-credit-b...

Sat, 03/07/2015 - 00:13 | 5863910 indygo55
indygo55's picture

ALl this forecasting and here we are over a year later and Zzzzzzzzzzzzzzzzzzzzzz nothing major has happened. I know no one thought it would go on this long but this is turning into a doom porn industry all by itself.

Sat, 03/07/2015 - 01:20 | 5864010 q99x2
q99x2's picture

Once China resorts to the financial terrorism of QE none of it will work. Its over becuase the only way QE works is if can be used to steal from somewhere. Everybody does and it has on effect except to hasten the collapse.

Sat, 03/07/2015 - 06:22 | 5864215 RaceToTheBottom
RaceToTheBottom's picture

China has long had various forms of QE.  They have printed more than the US.  Just that they printed on the back of growth, whereas the US printed after having outsourced its industries

Sat, 03/07/2015 - 02:03 | 5864056 disabledvet
disabledvet's picture

Ruble collapse strikes me as the bigger deal.

 

Suddenly all these goods and raw materials will start flooding through the Baltic and Barents.  With Europe an economic wasteland "there's just one consumer left standing." 

 

Could go long Iceland of course.  Bjork is big these days...

Sat, 03/07/2015 - 02:20 | 5864079 Kirk2NCC1701
Kirk2NCC1701's picture

Meanwhile, America's 51 State -- Canada -- had its currency lose (CAD) 25% against the USD. So much for Canucks doing cross-border shopping in US border towns.

But bullish for shopping in Canadian border towns, if you got USDs. As long as you don't have to pay the high sales tax.

Sat, 03/07/2015 - 02:25 | 5864091 napper
napper's picture

that's 52nd state.

Sat, 03/07/2015 - 09:48 | 5864346 Charming Anarchist
Charming Anarchist's picture

You guys are counting backwards. 

Sat, 03/07/2015 - 11:16 | 5864435 cnmcdee
cnmcdee's picture

And it was done to protect Canadian export industries.  And the banks lowered interest rates to shore up the balance sheets of the companies and house holders.

But I know that a major major correction is coming to places like Alberta - when? How long can people collect EI and scrape together their house mortgage payments?  When their savings + EI can no longer make the mortgage and they are forced to sell at market your going to see rapid price drops.

Everybody is waiting and a stand off is buidling in Calgary right now.  Everybody knows the price is going to drop so the buyers are all parking and positioning.  And the sellers are digging in for a long entrenched hold out to see if they can survive the correction.

 

Sat, 03/07/2015 - 02:24 | 5864086 napper
napper's picture

It was reported in early 2014 that China had been slowly gaining influence on the operations of the Fed due to its increasing share holdings of the private central bank. (around the time of JP Morgan's fire sale of its headquarters to a Chinese conglomerate. Did JP Morgan default on something?)

 

Doubt that China would be surprised by any future Fed moves.

 

Sat, 03/07/2015 - 02:31 | 5864095 AbbeBrel
AbbeBrel's picture

Well of course the government will want to protect the banks and their loan portfolios. Therefore housing prices MUST be floated.

In Germany the mortgage rates have dropped below 2% (!!) and so you can expect the housing market to go NUTZ there. (Source Deutsche Bundesbank interest rate statistics)

In China it is critical that the worker-slaves can continue to afford that all important monthly payment, therefore interest rates MUST go down down down. Thereby keeping the Ponzi afloat.

My guess is that China will join the NZIRP crowd at some point. This whole thing might blow up first, but that might not keep China from getting there anyway, just to keep their Ponzi rolling.

Sat, 03/07/2015 - 05:17 | 5864198 Panic Mode
Panic Mode's picture

Yes and No.

Chinese people have a much stronger habit of saving, US is just spend, spend, spend. 

Chinese people are much more fanatic about gold. US think it is junk metal.

Chinese people work harder than then US people.

Sat, 03/07/2015 - 08:00 | 5864250 vyeung
vyeung's picture

true to an extent. I'm Chinese and I can attest to the overall working ethics of the Chinese, but I would not put such a blanket statement about the West. They have people who work just as hard and save, just its a minority.

I think the message I'm trying to send is its not the West vs the East, its more we need to evict the criminal Fed based private central banking network and reset to a more equitable financial infrastructure.

American's use to love gold, until the controlled media started to brain wash a generation of people. Actually, there are still alot of young, middle aged American's that are stackers and they know quite alot. Actually, quite a few patron forums such as this. Sadly they are the minority and the atmosphere does not promote ownership like the East. Not that people in the East are more clever, just there is a historical precedent that has not been white washed by the criminal powers at be.

 

Sat, 03/07/2015 - 16:50 | 5865196 combatsnoopy
combatsnoopy's picture

I'm part Asian and I disagree that the Chinese have "work ethics".   MANY have good work ethics, others fake it.  They only care about face.  They don't even care about the whole, they just care about face. 
Esp not the people in government that wrote up the accounting standards in English.  

The parasitic real estate flippers have no work ethic or face.  

Not the baby beating psychos like Amy Chua (or whatever she's trying to promote).  Definately not the gamble holics or the drug addicts. 

I know Asian kids in US schools cheat. 

"Work Ethic" is definately not the rich Asian kids who isn't even aware that somebody else's welfare in Asia and the US as a meal ticket was sacrificed so ugly mummy can trendy jeans in high school.    The Chinese kids who got to tour the world at fine establishments before the age of 7.... and not knowing who was sacrificed for their fortune.  

It's not the parasites who used the abused traumatized and neglected HAPA to get citizenship others had no access to.
Not the con jobs at clinics in CA where Asian illegals can have anchor babies.

The cheating backstabbers from Japan, Korea and Vietnam. 

The uglies who demanded that the US go into Triffin's Paradox  

The piggies from certain alpha sororities in the UC School system nepotists in the entertainment sector- they are def. not the hardest working people.  Def not Asians. 
The Asians who bring legal trouble home from drugs and forcing the GOOD family members to suffer homelessness on their behalf because they're not rich.   That's not a hard work ethic.
 
Flatbackers.  The only difference between Asian and American flatbackers is that American women can do it without standing on a street corner.   

Flatbacking isn't a work ethic.   

The "hard work ethic" isn't the 1st grader japanese girl in Torrey Pines school system where she told her mom that she was embarrassed that she wasn't being driven to school in a Lexus SUV- so Japanese mummy went right out and got one.   Humility and character stands for something.  

If good strong character doesn't stand out of a person of ANY race- they don't have that ethic.  I promise you that.

I could attest that more Chinese/Asians obey the law.  But work?  If backstabbing and stealing was a job, Asians do it as much as everyone else.  Thats' the goal, right?  Thriving on negativity and using moral relevance 
 to save fake face.  

Okaaay!!!! 

I know Asians work hard, a lot of them don't.  And stab in the back people who are good to them.  Which makes them dumber than a monkey and a politician on rat poison.  GET OVER YOURSELF.  

Sat, 03/07/2015 - 10:17 | 5864373 post turtle saver
post turtle saver's picture

... and US guys have bigger dicks than Chinese guys...

hey, if you're gonna believe the myths, you have to believe all of them...

Sat, 03/07/2015 - 11:20 | 5864441 cnmcdee
cnmcdee's picture

China being the masters of copying everything I suspect that they will copy European plan of negative interest rates which should force growth as people would rather spend than watch the purchasing power of their savings erode.

Sat, 03/07/2015 - 06:38 | 5864219 Kokulakai
Kokulakai's picture

Give a banker a hammer, and he will find that everything he encounters needs pounding.

Sat, 03/07/2015 - 06:47 | 5864222 Majic
Majic's picture

I sometimes wish that it would just crash already myself, but calling articles like this doom porn?  Hey, this shit is real, myself and lots of friends have really been hurt by these years of declining real wages and declining interest rates.  Just because a few are fortunate and are making bank on the phony stawk market does not negate the damage done to tens of millions of savers and workers.  IT ALREADY HAS CRASHED FOR US!

     A couple of years ago I had to help with a car wreck near where I live...The guy puts his rig in the ditch because of slick roads.  While he and a samaritan are standing near the wreck, another car slides on the same ice and kills both of them.  Right now, the middle class is those two guys standing by the wreck...middle class, get away from the wreck and seek safety...there is a big truck coming and its driven by Greece, QE,FED, etc., and they have been drinking and are not paying full attention to the road conditions. ( And you are the least of their worries)

Sat, 03/07/2015 - 07:50 | 5864245 vyeung
vyeung's picture

Actually the whole discussion is based on a dollar $$$ centric financial world as in the status quo. As ZH know BRICS and other nations are building the momentum for bilateral trades (by passing the dollar) and with a big enough size of trading partners, this charade does not need to be entertained. Albeit if we continue with the status quote, yes China has no alternative but to go through what has been stated above, but if the whole financial paradigm is about to be re-structured, this scenario will not appear. I believe in the current status, we will have some degree of the enactment, but it will be performed until the new paradigm can hit the tarmac. All things point to this years, but like over and over, you dunno until it happens. Its going to be one very unpleasant ride whether you are the BRICS or the West, but at some point your going to have to bit the bullet. Yes, and GOLD will be the fulcrum and the BRICS trans-national orgs will be the infrastructure. We are close as evident fro the recent update by Andrew Maguire with regards to SGE national/international fix and the LBMA finally desperate enough to give China a seat for the London fix. Its very telling.

Sat, 03/07/2015 - 12:53 | 5864685 bobjamaica
bobjamaica's picture

It seems the only place reporting the Andrew Maguire/HSBC gold vault clousure story is King World News.  What do others think of that site and that particular story? 

Sat, 03/07/2015 - 09:22 | 5864317 buzzsaw99
buzzsaw99's picture

china proudly proclaims the yuan as the new world currency when it sucks really badly and is getting worse by the day. hold yuan if you want to be poor.

i said who do, who do you think you're foolin?

Sat, 03/07/2015 - 09:55 | 5864349 Handful of Dust
Handful of Dust's picture

Money flooding out of China, sinking currency, restless millions, slower growth, urban areas packed with unemployed peasants from the farms, moar control, pollution, corruption....seems like the pot may boil over there soon.

Sat, 03/07/2015 - 12:14 | 5864594 ich1baN
ich1baN's picture

Yea they don't have 80k swat raids.... they have 800 Million a year. Do you really not know this about china? Forced sterilizations with mobile sterilization vans? 

Jeezus people in the US are fawking blind. 

Sat, 03/07/2015 - 13:11 | 5864735 hackne
hackne's picture

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Sat, 03/07/2015 - 14:01 | 5864845 besnook
besnook's picture

the biggest difference between china and the usa, the yuan and the dollar.

 

first the dollar still controls the majority of trade in the world. it is stilll the reserve currency of the world but the dollar is tied to a dying economy where rehypothefication is called economic growth. the yuan is tied to the largest economy in the world growing at 7%(or 5% if the chinese fudge is adjusted). they actually make value added stuff, the real economy.

the chinese would love to float the yuan. they will when domestic consumption cracks 50% of the economy. if they do float the yuan it will mark the official end of the dollar.

Sat, 03/07/2015 - 14:26 | 5864903 raywolf
raywolf's picture

a weaker Yuan is good for China and doing QE will not strengthen the Yuan or give more confidence in the Yuan, it will weaken and debase it further.... the article is chasing its tail with a wrong argument.

a weaker Yuan is good for China, labor becomes cheaper, which is exactly why the Chinese kept the Yuan semi pegged in the first place... meanwhile a stronger dollar doesn't effect them so much, because commodities (for manufacturing) are all based in USD.

 

Sat, 03/07/2015 - 15:34 | 5865053 Herdee
Herdee's picture

With depreciating currencies worldwide,their currencies are fleeing into the USD and then into U.S. assets like stocks,bonds realestate,takeovers.The Fed must have obviously planned it this way because the Fed members openly say that they pay very little attention to the strength of the USD.They've said "get used to it" and "they'll do what's right".Also they say that at meetings there's very little discussion if any,of the level that the Dollar is at.Must mean they don't give a "flying F" about anybody else.Tuff luck for all the suckers that borrowed in U.S. Dollars on the biggest carry trade in history.No,things don't go down forever.

Sun, 03/08/2015 - 03:25 | 5866383 hedgiex
hedgiex's picture

Yes, the trust deficit is so high in China that the capital flight is undergirded by fear of the even more extreme FX control. The Party has to weigh the consequence of closing gates to global flows of trade and investment against the massacre to their export juggernaut. This export juggernaught has to be managed with a soft landing otherwise unemployment shall accelerate leading to social unrest that is not ACCEPTABLE to the Party.

Yes, the poison of imported deflation to invade the weak cell of high household leverage in residentail real estate is another tinker to the fire that has to be contained. Apart from many thinking Chinese that deflation is bad for their debt that they cannot see the guiding hand delivering real growth to wages to get out of it, there is the immediate meltdown of their traditional savings trust in properties. ( Much worse as they never have real alternative trusted savings schemes).

All the pressures exacerbated by a currency war is for China to devalue. (Never mind to the common folks or to the huge reservoir of tainted funds that the temporary carpark is the US$ ore real assets outside the Party's eye).

 

Sun, 03/08/2015 - 21:42 | 5868244 heisenberg991
heisenberg991's picture

China is losing out to countries like Vietnam that offer cheaper labor.  And they thought they would be the new economy king...wrong.

Tue, 03/10/2015 - 16:59 | 5875069 JenkinsLane
JenkinsLane's picture

Fucking hell.

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