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Why China Can't Unleash Major Stimulus (In 3 Simple Charts)

Tyler Durden's picture




 

It appears - according to the narrative assigned by the mainstream media - that any weakness in asset prices should be bought because China will inevitably have to unleash pure QE (as opposed to the modestly watered down version currently underway) or some combination of RRR cuts. This is 'western' thinking as the go to policy of the rest of the world's central banks has been - put on pants, print money, paper over cracks, proclaim victory. However, in China there is one big problem with this... stoking inflation... and most crucially the social unrest concerns when suddenly a nation of newly minted equity losers can no longer afford their pork (which is facing record shortages)...

 

As SocGen notes, the infamous pork cycle is heating up again...

Pork prices in the CPI basket have risen 17.4% since May and were up 16.7% yoy in July, which accounted for half of the headline CPI reading of 1.6% yoy.

 

 

The current cycle is similar to the previous two disruptive cycles in terms of supply shortages... [ZH - but considerably worse!!!]

 

 

Pork prices will probably keep rising and push CPI above 2% yoy in the coming months, but the chance of CPI going much beyond 3% is limited in our view.

 

Nevertheless, this inflation outlook is still likely to restrain the central bank’s scope for policy rate cuts.

 

 

So, as SocGen concludes, judging from recent activity data, the economy is still under immense downward pressure. Furthermore, supply-driven inflation is by nature deflationary, as higher pork prices can squeeze other consumption in the absence of any acceleration in income growth.

 

Therefore, fiscal policy has to step up, and monetary policy is likely to play an assisting role by providing targeted liquidity. It seems that the focus at the moment is on the indirect channels of policy bank funding support to infrastructure investment.

* * *
In other words, do not expect some broad based liquidity infusion (RRR cuts or QE) - policy reaction, just as we have seen in the stock market manipulation, will be piecemeal and focused.

 

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Mon, 08/10/2015 - 18:59 | 6411863 Publicus
Publicus's picture

Print money to increase production of product in short supply is the solution.

Mon, 08/10/2015 - 19:09 | 6411906 kaiserhoff
kaiserhoff's picture

They may be short of pork,

  but they will never run out of "long pig."

Soylent Green, Beeches!

Mon, 08/10/2015 - 19:40 | 6412025 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

Chao Tu Hai Cha Ching

Mon, 08/10/2015 - 20:00 | 6412095 Arnold
Arnold's picture

Whale oil.

Mon, 08/10/2015 - 20:38 | 6412210 logicalman
logicalman's picture

Whale oil beef hooked!

 

Mon, 08/10/2015 - 19:00 | 6411872 bitterwolf
bitterwolf's picture

"All Roman's soldiers" logic

Mon, 08/10/2015 - 19:04 | 6411889 Son of Loki
Son of Loki's picture

They need to unfreeze some of that 40 years old meat.

 

China 'seizes 40-year-old meat in crackdown on smugglers'

 

http://www.bbc.com/news/world-asia-china-33254123

Mon, 08/10/2015 - 19:19 | 6411944 zzz111
zzz111's picture

.

Mon, 08/10/2015 - 19:24 | 6411954 Sudden Debt
Sudden Debt's picture

Blame the pigs.... it's how far we've come.

America has the hamburger index, China the pig index, Europe has the beer index...

Is this to get the average man back interested into the stockmarket?

Mon, 08/10/2015 - 19:31 | 6411986 eddiebe
eddiebe's picture

What, they can't just print pigs?

Mon, 08/10/2015 - 19:58 | 6412089 Arnold
Arnold's picture

Yup, hooked me and reeled me in with pork.

A 260 pounder flounder.

 

Nice.

Mon, 08/10/2015 - 20:05 | 6412115 WillyGroper
WillyGroper's picture

Smithfield to the rescue.

Free air fare.

Mon, 08/10/2015 - 20:06 | 6412117 i_call_you_my_base
i_call_you_my_base's picture

"and push CPI above 2% yoy in the coming months, but the chance of CPI going much beyond 3% is limited in our view."

LOL, give me a break, it is what they say it is.

Mon, 08/10/2015 - 20:09 | 6412127 NorthernPike
NorthernPike's picture

Good for meat business globally. Expect price of pork to jump over next 22 months.

Mon, 08/10/2015 - 20:12 | 6412137 dude_dad
dude_dad's picture

Always wonder why ZH thinks China will launch an QE. look Japan, U.S. EU, the main product of the QE was lower the exchange rate. Do you really think China government dares to low YUAN rate that much? It will be a major capital flee with a lower YUAN. No: China does not have QE option. It only say it can do it to pump the markets.

Mon, 08/10/2015 - 20:32 | 6412154 Arnold
Arnold's picture

I don't pretend expertise, but I believe the technical term for the Government Intervention in their financial markets is 'Shot Their Wad'.

 

Now they are going to have to make up stuff.

(snikker)

Contact: United States Federal Reserve

24 hr hotline for assistance.

1 888 help me ples

Tue, 08/11/2015 - 12:22 | 6414155 Hope Copy
Hope Copy's picture

Uh, du.. they just did a QE, bought all that falling stock, but as a communist country it turns into socialization and the result as shown is immediate, inflation.  Now everyone thinks that inflation is bad, but with debt that is unsubstainable, inflation has to be used to get all that bond money under control by making productivity go up so bonds can be paid from tha availed (tax) reciepts.  This only works if there is forced stabilization of the debt growth (something the US Fed has yet to do).  It is appearing that 'he' who inflates first, does so with more control, a Russia, Venezuela comparison.

Mon, 08/10/2015 - 20:22 | 6412160 itstippy
itstippy's picture

QE does not stoke inflation at the consumer level.  Wage increases stoke consumer inflation, and QE doesn't trickle down to the wage earner.  QE stokes asset values and financial system profits.

Obviously, with that fact in mind, QE would not help wage earners to afford more pork.  It would provide pork for those in the financial system and those who hold assets (stocks, real estate, and the accompanying debt vehicles).

 

Mon, 08/10/2015 - 21:34 | 6412353 Steve556
Steve556's picture

Do a little research before you write.   China annouced US$ 1 Trillion projects early in the year.   Then announced US$1 Trillion New Silk Road project.   In July they announced further US$2 Trillion infrastructure project starting 2nd half 2015.   

Thats $4 Trillions .    Mainstream news media are hush hush till the' owners'   covered their short and go long.      Wonder why market rallied so hard today ?

Mon, 08/10/2015 - 22:15 | 6412471 Jstanley011
Jstanley011's picture

Aren't you going to get in trouble, leaking CIA intelligence like that?

Tue, 08/11/2015 - 12:12 | 6414088 Hope Copy
Hope Copy's picture

So (Steve556.. a rotten round, the 5.56) you suggest that the Silk Road that will need steel and lots of concrete  RR ties (as wood will dry out in desert Kazahstan) and will have to go into Russia anyway, ( as Turkey is exhibiting unstability and a favorable environment for the expansion of the current Syria-Iraq war senerio,) is viable for their pork needs?  No, my boy, you are fantazising.  The Pork will come from the Trans-Siberian with a good will pass and tax from the Russians to the Poles and Germans, as great profits in bulk transport can be made in the winter months and don't forget Belarus, they will be in on it.  Pork prices are worth betting on in Europe this winter as it should spike with beef and poltury following.  Poor Ukraine will have to mix sawdust in with their sausage just to meet local demand.

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