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China Floats QE Trial Balloon, PBoC May Launch LTROs
A little over a month ago we suggested that QE in China may take the form of local government debt purchases by the PBoC. As a reminder, China is allowing local governments to refinance a portion of their ~17 trillion yuan debt pile by swapping it for lower yielding bonds. As a percentage of GDP, local government debt has grown to 35% and because a sizeable amount was accumulated off balance sheet via shadow banking channels, it carries relatively high interest rates.
The pilot program will allow for the refinancing of around 1 trillion of that debt, a move which could save local governments some 50 billion yuan in interest payments. As a reminder, here’s what the local government debt picture looks like in China:
The problem with the scheme however, is that the banks who purchase the newly issued local government bonds will have that much less cash to lend at a time when the central bank is keen to keep liquidity flowing and as we’ve seen over the past several months, several factors are conspiring to undercut or otherwise limit the effectiveness of interest rate and RRR cuts. Essentially, China is caught between a peg to the strong dollar, decelerating economic growth, and capital outflows, meaning that devaluation to bolster flagging exports risks aggravating capital flight while not devaluing gets more costly by the quarter. It’s this currency conundrum that has led us to predict that in the end, China will resort to QE.
Given the new refinancing progam, it seemed logical to suggest that if China wanted to integrate QE into its current efforts to assist local governments with their debt load, the central bank could simply buy the local government debt. Here’s what we said last month: “It seems as though one way to address the issue would be for the PBoC to simply purchase a portion of the local debt pile and we wonder if indeed this will ultimately be the form that QE will take in China.” As the WSJ reports, China may do just that, although the program, should it become a reality, will still be one step away from outright QE:
China’s central bank is considering taking a page from Europe’s financial-crisis handbook to free up more credit as growth in the world’s second-largest economy slows.
The proposed strategy would allow Chinese banks to swap local-government bailout bonds for cash as a way to bolster liquidity and boost lending, said people familiar with the People’s Bank of China talks.
Adopting the strategy would mark a major shift in the central bank’s money-supply policy and underscore the leadership’s deep concern about missing already lowered growth expectations...
The central bank is concerned about one issue in particular, according to Chinese officials and advisers to the PBOC: preventing a stranglehold on liquidity in the financial system at a time when local governments are about to begin a debt-for-bond replacement program to try to alleviate their repayment burdens.
The debt-restructuring program, announced by China’s finance ministry last month, seeks to reduce localities’ financing costs and stretch out the time they have to pay off debts. But it risks choking off funds available for lending, and could drive up interest rates at a time when many economists say more and cheaper credit is needed.
To stave off the undesirable consequences of the debt plan, the PBOC first tried freeing up more funds for banks to make loans. But officials at the central bank are weighing other ways to help mitigate the potential downsides, according to people with direct knowledge of the discussions.
One option involves giving banks access to long-term loans with the aim of improving lending to sectors that leaders see as crucial for China’s prosperity, such as farming, affordable housing and small and private businesses. To obtain the loans, Chinese banks would use bonds issued by local governments as collateral…
Borrowing by China’s various levels of government is a big reason the country’s debt load is expanding...
Under the debt-for-bond program, localities are allowed to sell 1 trillion yuan of “special” local bonds to replace their existing debts. The program, which likely will be expanded this year, could save China’s local governments a total of up to 50 billion yuan in interest payments a year, the finance ministry estimates.
China’s commercial banks, long the main providers of credit to local governments and a key investor in Chinese bonds, are expected to be the major buyer of those local bonds once they are issued, as the banks would essentially replace the higher-risk loans on their books with bonds with explicit government guarantee.
However, if banks use funds that could otherwise have been used for lending to purchase those bonds, overall money supply would tighten. Meanwhile, given the limited size of China’s bond market, a large-scale bond sale by local governments also risks pushing up market rates just as the authorities are struggling to drive down borrowing costs...
Under the LTRO-like strategy, commercial banks would be permitted to use local-government bonds they purchase as collateral to take out low-interest-rate, three-year loans from the central bank. By doing so, officials at the PBOC would try to direct the banks to lend to small and private businesses, among other sectors favored by the government.
Put simply, local governments refinance their debt by issuing new bonds which are purchased by commercial banks which in turn pledge the bonds to the central bank for cash loans.
So there you have it: China's QE trial balloon and it may take precisely the form we suggested it would last month. One interesting thing to note here is that it's widely expected that China will expand the scope of the local government debt refinancing operation later this year. 1 trillion yuan is actually not that large in comparison to the total amount of local government debt outstanding which means the PBoC could effectively launch multiple iterations of Chinese LTROs (contingent on any caps the PBoC puts on loans to commercial banks) simply by expanding the local debt refi operation.
We suspect it's just a matter of time before someone at the Ministry of Finance is paraded out to remind the world that "there's no such thing as Chinese QE."
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For 150k, Ben Bernanke can tell you how to keep your slave labor job.
I made $7,000 USD in just one hour hiring your mom as a bukakke catcher.
Thank God. The global economy is once again..... saved..... or something.
As if all this financial jumbo-jumbo has helped the US and Japan and EU?
Feel the desperation.
The next liquidity crisis has started despite the coordinated central bank ultra loose monetary policy and flooding the globe with cheap fiat for 6 1/2 years, and ask a bond trader how things are going now versus 6 months ago, and then versus 6 years ago (hint: very badly).
Yeah, but this time it's China doing it. We got a ways to run yet.
no, it's means that China is fucked up like everyone else. Desperation to survive
China is ready to print
They're giving the market a hint
An LTRO
Will make some new dough
Their collapse will resemble a sprint
The yen and euro haven't just collapsed against the dollar but also the yuan as well.
You already have capital flight on a stupendous scale going on PLUS a collapse across the board in all commodities.
The only thing that will be bought hand over fist with Chinese QE will be US treasuries.
Every Bank in Europe looks bankrupt to me right now.
Standard Chartered and HSBC have already said they're going to abandon London to head back to East Asia via New York.
100 million "migrants" are on their way to Europe as I type this even...
Think about this simple FACT (that most of you know already):
Both German & Swiss government bonds have been sold yielding NEGATIVE interest - IOW, buyers of those bonds paying the German & Swiss governments to take their money in the form of a loan.
IOW, they will get less than their principal back BEFORE inflation is taken into account, and much less than their principal back after inflation is taken into account.
AND THERE'S BOTH A LACK OF LIQUIDITY IN BOND MARKETS AND
A SHORTAGE OF INVESTMENT GRADE BONDS AVAILABLE FOR PURCHASE!!!
Central banks, via interest rate suppression, have broken (literally) global markets. Markets are irrational and broken.
World economics IS QE
This is quandary economics and QE is a cheap bandaid which will fix nothing at this point in the cycle here in the US. Actually cause more damage than in the first place now if peeps admitted the truth instead of the propaganda needed to finance this black hole!
And they damned if they do things and they're damned if they don't and that doesn't include the things they do which have the opposite effect!
We know that virtually All countries are pumping cash into their economies directly or through lending, and have been for years now. We all know that it is not sustainable...why? Because it fake, it's printing, it's counterfeiting. But we also know that it is only confidence that sustains any economic system. What if this delusion is sustainable simply because the majority of players want it to sustain, or are simply indifferent? In the past we would have competing economies that would eventually demonstrate the folly, but in this world of universal bankruptcy, who will throw rocks while living in a glass house.
People don't give two shits whether our money is backed, of worthless of any real value as long as they can still shop and spend, and as it evaporates (as it has been doing for the last forty years at least) our governments will do as China is today, simply loaning us the bucks to cover the loss.
I bought a fully loaded tahoe in 2000 with a sticker of $33k. Today the same vehicle is twice that and no one cares because they can borrow at low interest for ten years.
Turk's book, "The Money Bubble" is looking more and more spot-on. I shudder to think how this bubble based on virtual wealth ends.
put your faith and trust in Synthetic Debt!
It's the Chinese version of kick the can.
Gotta keep up with the Jones (FED and ECB).
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"Under the LTRO-like strategy, commercial banks would be permitted to use local-government bonds they purchase as collateral to take out low-interest-rate, three-year loans from the central bank. By doing so, officials at ***the PBOC would -try to direct the banks- to lend to small and private businesses, among other sectors favored by the government.*** "
Interesting.
"TRY to direct the banks...
...Sectors favored by the Government."
??? We will bail out the banks -and intervene in the restructuring of finacing of the municipalities- if the banks will lend as instructed. ???
Has the Party lost control of the banking sector AND the municipal financing ponzi?
Well folks. It seems the only answer is to borrow and borrow big. The race is on to be TBTF and while most of us will never qualify for that status, everything is relative. So the only hope I see is debt. Massive debt. Everything I have rejected, my only religion...no debt. But, as they say, it is what it is. So lets lever the fuck out of it. Borrow big, so big and so levered that they will do anything to avoid foreclosing on the loan. We have watched this happening for years in America, but if China can pull this off, all bets are off and our only recourse is to go full in. Borrow the hell out of them and sit and wait for negative rate rollovers.
Confidence is all they have, that is our power over them. They have to keep us engaged, keep us in the game.
Debt slavery only works if we labor under the fear of losing everything, of debt retribution. I'm beginning to question if it is not the slaves that will end up with the ultimate power.
Couldn't have put it better myself Oldwood, I have been thinking the same nagging nawing thoughts recently.
I read some of Daniel Amerman [ http://danielamerman.com ] free readings on Inflation & use of debt (he has a 2015 updated free ebook that gets emailed in parts over time), might be somewhere to start.
Did u hear that here that? Here comes state own debt defaults and will China bail them out and in the end will they have the money to do so....
This is no time for China to be stimulating!,,,,,, they're asking for a depression
Another incestuous scam!
It's worked so far in Japan, the US, and Europe. Why not China?
And to the best of our knowledge, none of their Central Bankers have yet tried the Madoff or the Zimbabwe gambits!
bullish
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Cash for crap! Debt for dreams! Liar loans for living large!
It's the new global definition of "Winning!"
Sorry serfs, no coke and hookers for you!
Get back to work!
Won't be long until the Federal Reserve renames Quantative Easing to Pipe Bomb economy infusion..
Yay! The Jew-job spreads to China, creating real value out of nothing. What's not to like?
Thimble-headed gerkhins who think every single thing in the world is a Jewish plot.
I mean, I just don't get the envious hatred. The Jews believe in taking care of their own first. They believe in the virtue of hard work and saving their money and the value of a good education. They do not allow their children to marry scum. They deplore being in debt and many of the ones I know still practice the old ways of paying off every single bill they have before midnight on December 31st of every year. That sounds like a pretty good model to follow, if you ask me.
Are you complaining that they've lent you money so you could pursue something that was important to you and didn't really read the fine print or understand the terms? That's your problem. Put your assets into gold and silver, move out into the country where you can grow your own food and start practicing the Jeffersonian virtues of the yeoman farmer. Let the corrupt all stew in their own shit, if that's how the world turns.
But you could do far worse than to adopt the cultural habits of the Jews.
I mean, apart from genocidal wetdreams, what's your real solution for yourself?
It's the way the Jews as a people treat the palestian's and there easy ability to be manipulated buy there ZION reptillian masters that makes me think Jews are cruel joke on humanity.
The MBA of choice by many posters
http://news.yahoo.com/ss-accountant-auschwitz-going-trial-germany-082634...
BERLIN (AP) — Hedy Bohm had just turned 16 when the Nazis packed her and her parents onto a cattle car in May 1944 and sent them from Hungary to the Auschwitz death camp in occupied Poland.
After three days and nights in darkness, crammed into the standing-room-only car with babies wailing, the doors were flung open. "An inferno," is how she remembers the scene she saw.
"The soldiers yelling at us, guns and rifles pointed at us," she recalled. "Big dogs barking at us held back on their leashes by the soldiers."
One of the black-uniformed men on the ramp was likely SS guard Oskar Groening. Today 93, he goes on trial Tuesday in a state court in the northern city of Lueneburg on 300,000 counts of accessory to murder. Two of those deaths were Bohm's parents, who are believed to have been killed in the gas chambers immediately upon arrival in Auschwitz.
Groening's trial is the first to test a line of German legal reasoning opened by the 2011 trial of former Ohio autoworker John Demjanjuk on allegations he was a Sobibor death camp guard, which has unleashed an 11th-hour wave of new investigations of Nazi war crimes suspects. Prosecutors argue that anyone who was a death camp guard can be charged as an accessory to murders committed there, even without evidence of involvement in a specific death.
Bohm is today 86 and lives in Toronto where she moved after the war. She will testify as a witness about her Auschwitz experience, although she doesn't remember Groening. She is one of some 60 Holocaust survivors or their relatives from the U.S., Canada, Israel and elsewhere who have joined the prosecution as co-plaintiffs, as is allowed under German law.
Groening has openly acknowledged serving as an SS non-commissioned officer at Auschwitz, though denies committing any crimes. His memories of the cattle cars packed with Jews arriving at the death camp are just are vivid as Bohm's.
"A child who was lying there was simply pulled by the legs and chucked into a truck to be driven away," he told the BBC in an interview 10 years ago. "And when it screamed like a sick chicken, they then bashed it against the edge of the truck so it would shut up."
His attorney, Hans Holtermann, has prevented Groening from giving any new interviews, but said his client will make a statement as the trial opens. Earlier, Groening said he felt an obligation to talk about his past to confront those who deny the Holocaust.
View gallery
FILE - A picture taken just after the liberation by the Soviet army in January, 1945, shows a group …
"I want to tell those deniers that I have seen the crematoria, I have seen the burning pits, and I want to assure you that these atrocities happened," he said. "I was there."
Though acknowledgement of his past could help mitigate the 15-year maximum sentence Groening faces if convicted, the court's focus will be on whether legally he can be found an accessory to murder for his actions.
Groening is accused of helping to operate the death camp between May and June 1944, when some 425,000 Jews from Hungary were brought there and at least 300,000 almost immediately gassed to death.
His job was to deal with the belongings stolen from camp victims. Prosecutors allege among other things that he was charged with helping collect and tally money that was found, which has earned him the moniker "the accountant of Auschwitz" from the German media.
"He helped the Nazi regime benefit economically," the indictment said, "and supported the systematic killings."
Efraim Zuroff, the head Nazi hunter at the Simon Wiesenthal Center, said even low-ranking guards were necessary for Adolf Hitler's genocidal machine to run.
"The system that the Nazis put in place in order to annihilate the Jewish people and the others they classified as enemies was made up of all sorts of people who fulfilled all sorts of tasks," Zuroff said in a telephone interview. "Obviously Oskar Groening is not as guilty as (SS head) Heinrich Himmler... but he contributed his talents to helping the system carry out mass murder."
No pleas are entered under the German system and Holtermann would not comment on his defense ahead of the trial.
View gallery
FILE - The Jan 17, 2005 file photo rails in the former Nazi death camp Auschwitz-Birkenau in Oswieci …
"According to the indictment t
What happened to all the people who, just yesterday, were saying that China had no debt and was sitting in a pretty good place?
Kyle Bass was saying he didn't think their reserves were there years ago (see his Japan lecture in Chicago), shame he called it about 3-4 years to early.
Should be no surprise that the charade will pervade every corner of the CB globe
If it appears broke, and it ain't fixed, but it appears fixed, why fix it?
I don't understand the finer points of the bond markets. It just sounds like a last ditch effort to keep the juggling circus going. Until it all comes crashing down, inluding the tent.
Take the drugs away from a banker and all you're left with is an unhappy tweaker.
Some truth (for once) from CNBS:
http://www.cnbc.com/id/102600028?trknav=homestack:topnews:1
"Crazy things like a 100 bps RRR cut are not going to help confidence. It's going to make people respond in the short term, but people will remain negative in the long-term,"
Fuckers still cant keep it green today between RRR cut and threat/promise of LTRO
Remember gamblers are gamblers and can easily switch from green to red in the casino..I mean stock market
Yea have u seen some of the currency charts..... Bouncy and one was doing backflips .... USD-IDR
After a while one has to ask what are they all so terrified of .... Which central banking isn't going to fix.
Whatever it's a mess. I don't think I am running from my shorts as there is too many issues out there that throwing money at it isn't going to fix.
It is a possitive news that China is allowing local governments to refinance a portion of their ~17 trillion yuan debt pile by swapping it for lower yielding bonds. http://www.swiftairportparking.co.uk/meet-and-greet.php.
At this point the wealthy are simply controlling the printing of money so they can buy more shit. There is simply no sound economic reason, or unsound either for that matter, for QE other than greed. The wealthy get "do overs" through QE, end of story.
Looks like China is going to engage in the same fiat folly as theEU, fed reserve, etc.