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How China's Rehypothecated "Ghost" Steel Just Vaporized, And What This Means For The World Economy

Tyler Durden's picture




 

One of the key stories of 2011 was the revelation, courtesy of MF Global, that no asset in the financial system is "as is", and instead is merely a copy of a copy of a copy- rehypothecated up to an infinite number of times (if domiciled in the UK) for one simple reason: there are not enough money-good, credible assets in existence, even if there are more than enough 'secured' liabilities that claim said assets as collateral. And while the status quo is marching on, the Ponzi is rising, and new liabilities are created, all is well; however, the second the system experiences a violent deleveraging and the liabilities have to be matched to their respective assets as they are unwound, all hell breaks loose once the reality sets in that each asset has been diluted exponentially.

Naturally, among such assets are not only paper representations of securities, mostly stock and bond certificates held by the DTC's Cede & Co., but physical assets, such as bars of gold held by paper ETFs such as GLD and SLV. In fact, the speculation that the physical precious metals in circulation have been massively diluted has been a major topic of debate among the precious metal communities, and is the reason for the success of such physical-based gold and silver investment vehicles as those of Eric Sprott. Of course, the "other side" has been quite adamant that this is in no way realistic and every ounce of precious metals is accounted for. While that remains to be disproven in the next, and final, central-planner driven market crash, we now know that it is not only precious metals that are on the vaporization chopping block: when it comes to China, such simple assets as simple steel held in inventories, apparently do not exist.

From Reuters:

Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place.

This means that in an economy in which the creation of liabilities, and pledging of assets took place at a furious pace in the past 5 years, nobody really knows just what the real state of credit creation truly was. What is 100% certain is that as a result of this revelation, the GDP number of the country, which is and always has been a derivative of credit formation and expansion (and heaven forbid contraction), is massively overrepresenting what it is in reality, and that the Chinese economy has been expanding at a far slower pace if defined not only by the creation of liabilities, but by matched assets. Most importantly, it means that every single Renminbi in circulation is impaired as a country-wide liquidation event would see huge losses by every creditor class. It also would mean, naturally, zero residual value left for the equity.

And just like that the Chinese growth "miracle" goes poof... as does its steel first, and soon all other commodities (coughcoppercough) that served as the basis of "secured" liability creation.

Reuters continues, even if the punchline is already known:

China's demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth.

 

As defaults have risen in the world's largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said.

 

Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world's steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments.

 

"What we have seen so far is just the tip of the iceberg," said a trader from a steel firm in Shanghai who declined to be identified as he was not authorized to speak to the media. "The situation will get worse as poor demand, slumping prices and tight credit from banks create a domino effect on the industry."

Ultra-rehypothecation 101:

Police have arrested an employee from Baoyang Warehouse in Shanghai and are investigating documentation for steel stocks that the employee issued to a trading firm, said an official with the surname Ou at Baoyang. Baoyang is owned by China Railway Materials Shanghai Company Limited.

 

The trade firm used the stocks more than once as collateral to obtain loans, said an executive at Shanghai Minlurin, another trading firm that had steel stocks in the warehouse. The receipts used were for steel worth around 380 million yuan ($59.96 million), the executive said.

 

Similar cases have prompted some trading houses to temporarily halt transactions related to warehouse receipts, disrupting China's steel business, traders said.

If the above makes readers queasy, it should: after all rehypothecation of questionable assets is precisely what serves as the backbone of that critical component of the shadow banking system: the repo market, where anything goes, and where those who want, can create money virtually out of thin air with impunity as long as nobody checks if the assets used for liability creation are actually in the system (and with JPM as the core private sector tri-party repo entity, secondary only to the Fed, one can see why this question has never actually arisen).

In the meantime, the entire Chinese economy is unraveling:

Banks, too, are giving less credit against warehouse receipts.

 

"Fake warehouse receipts have become a problem for some banks and because of this, many banks have boosted monitoring of existing stocks at warehouses and temporarily stopped accepting steel stocks as collateral for loans," said a Shanghai-based branch manager from a Chinese bank who declined to be identified as he was not authorized to speak to the media.

 

Steel mills and end users rely heavily on trading firms to keep steel flowing from producers to consumers. Steel traders often buy consignments with full payment, ensuring cash flow to the mills. End users can buy small volumes from the traders, more convenient for them than the big volumes the mills sell.

 

Industry sources estimated cases that have already come to light account for about 5 billion yuan ($787.50 million) of bad debt in Shanghai, one of China's biggest steel trading centers.

 

At another warehouse, a logistics unit of giant steelmaker Baosteel rented a small office to a company called Shanghai Yiye Steel Trade Market Management Co Ltd. Documents were forged stating Yiye was the owner of some of the steel stored in the warehouse, said Wang Xueying, the spokeswoman for the unit called Shanghai Baosteel Logistics Co Ltd.

 

Yiye used the documents in dealings with two companies, China Railway Harbin Logistics and Wuhan Iron Yitong, the spokeswoman said.

 

The two companies came to the warehouse to collect the stocks only to find that Yiye did not own the materials, she said. The case is still under investigation, she added.

 

Nobody answered telephone calls to Yiye made by Reuters to request comment for this story. Both China Railway Harbin Logistics and Wuhan Iron Yitong declined to comment when contacted.

In conclusion we can only add that we hope none of this comes as a surprise to our regular readers: we have been warning for years that i) the inventory of the world's credible assets is literally evaporating in absence of technological efficiency and CapEx spending (which is also the reason for the ECB's endless lowering of collateral requirements) and ii) illegal rehypothecation of assets, which infinitely dilutes claims on real assets, can and will lead to total losses even for investors who thought they had strong collateral backing.

We now know that this has been happening in China with the most critical component of its economic growth miracle: steel. We will soon discover that all other assets: stocks, bonds, commodities (including gold and silver) and finally cash (think deposits) have been comparably rehypothecated and criminally commingled. The end result will be the most epic bank run in world history, which incidentally is precisely what the central banks are attempting desperately to delay as much as possible by generating excess inflation to "inflate" away the debt, leading to rematching of finite assets and virtually infinite liabilities. Alas, in a world in which credit-money liabilities are in the quadrillions, and in which the real assets are in the tens of trillions, only hyperinflation can seal the deal.

Or, in other words, lose-lose.

 

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Mon, 09/17/2012 - 17:44 | 2805142 Sweet Chicken
Sweet Chicken's picture

Speaking of, how in the world is that not already happening?!?!?!?

It remindas me of the silly arguments my wife tries to use against ZH logic.

Me - "Babe let's dump our 401K and mutual funds and buy as much physical as we can (with cash of course)"

wifey - "But what about the fees, I'm not comfortable doing that" "Can we do it sometime next year after txes?"

Me - "WTF?! In a year our 401K won't buy us shit in physical!"

Me - "Hun the idea is to get your hands on as much of the goods NOW WHILE WE CAN AFFORD THEM BEFORE THEY ROCKET TO THE MOON BITCH(ez)"

DOH!

Mon, 09/17/2012 - 18:59 | 2805335 i_call_you_my_base
i_call_you_my_base's picture

I did it and ate the fees and taxes. F it, I'd rather have control over my money and not make political decisions based on the market. A 401k is a form of slavery. But then again, so is marriage...

Mon, 09/17/2012 - 19:45 | 2805488 donsluck
donsluck's picture

Classic debt revulsion, classic.

Mon, 09/17/2012 - 20:22 | 2805612 The Gooch
The Gooch's picture

+1

Mrs. Gooch = deaf ears.

A "trusted source" tells her it's all a "market correction". (!)

The Horror...

 

Tue, 09/18/2012 - 04:57 | 2806242 Tapeworm
Tapeworm's picture

That's why I got rid of all of the hypothecated and physical stuff. My wife has no use for it and never had a clue on why one should attempt to hold the physical.

 I dumped it all and have essentially given the management of all assets to her.

 I am now a pauper with mostly scrap miners and resource junk of little value. (see GBG for a clue)

 

She is quite certain that I was wrong. I am willing to let her live with her apathy and her decisions. I feel like shit all of the time and will likely die fairly soon.

 

Mon, 09/17/2012 - 17:38 | 2805113 SmittyinLA
SmittyinLA's picture

Sometimes when I look at finished Chinese goods and their prices I wonder how can they fabricate a finished product and ship it here for less than the cost of raw materials?

Is their economy and distribution system all that much more efficient than ours that they can afford to buy the raw materials (somehow for less than me) , build their products and ship them to America all for less than the raw materials here, or are they selling at a loss to promote a political agenda?  

I think this is good news for Rio Rinto as the Chinese "raw materials hording" is apparently wildly overestimated and may not even exist.

Mon, 09/17/2012 - 20:52 | 2805693 Kayman
Kayman's picture

SmittyinLA

So what is the cost of "raw materials" when the product is made from the dental fillings of executed Chinese Prisoners ?

Mon, 09/17/2012 - 17:39 | 2805114 Sweet Chicken
Sweet Chicken's picture

I'm SHOCKED!!!!

Mon, 09/17/2012 - 17:39 | 2805116 buzzsaw99
buzzsaw99's picture

so whatever happened to that supposed 600 bazillion tons per year of high grade steel bitchez? put pee pee on butcher block chop chop!

Mon, 09/17/2012 - 21:43 | 2805820 Whoa Dammit
Whoa Dammit's picture

It's fabricated steel :-)

Tue, 09/18/2012 - 02:52 | 2806180 Dr. Sandi
Dr. Sandi's picture

yessssss!

Mon, 09/17/2012 - 17:40 | 2805123 TrustWho
TrustWho's picture

FOOCK. FOOCK, FOOCK... (>: )

Mon, 09/17/2012 - 17:40 | 2805124 Börjesson
Börjesson's picture

If it turns out that there's a lot less steel than they thought there was, then surely that's bullish for steel? (The real, existing kind.)

Mon, 09/17/2012 - 18:53 | 2805324 Element
Element's picture

But can they pay for it ... with what ... gold? ;)

Mon, 09/17/2012 - 18:53 | 2805326 cougar_w
cougar_w's picture

Probably not.

This is a Ponzi scheme between shady dealers and the banks. Crooks are claiming to have steel they do not and are taking out loans using the metal as collateral. They never intended to deliver it and probably never had contracts with buyers. The loan goes sour, the bank goes looking for their collateral and it's not there. The loan with the bank will go poof and the Ponzi will dissolve.

Anyone who was actually buying steel probably had a viable trading partner. They get theirs. The banks get ziltch and go bust.

Mon, 09/17/2012 - 19:53 | 2805516 Just Ice
Just Ice's picture

Agreed.   Or they piled stacks for show, not due to legitimate industrial demand but for use as an ATM, (ka-ching!)...and at multiple lenders.

Mon, 09/17/2012 - 22:57 | 2805911 BidnessMan
BidnessMan's picture

The Chinese will have their own version of the Bernanke, who will buy all the steel warehouse receipts at par.  Problem fixed!  

Mon, 09/17/2012 - 17:41 | 2805125 Cult_of_Reason
Cult_of_Reason's picture

This is a subprime-like mess on steroids.

Mon, 09/17/2012 - 18:04 | 2805203 Winston Churchill
Winston Churchill's picture

Rinda Gleen was there.

Mon, 09/17/2012 - 18:29 | 2805272 Dasa Slooofoot
Dasa Slooofoot's picture

ROR!

Mon, 09/17/2012 - 19:08 | 2805361 Cult_of_Reason
Cult_of_Reason's picture

By 2006, half of all subprime loans in the US were also liar loans. But at least these liar loans had overinflated and overpriced houses as a collateral (US banks could recover ~50-60% by selling the houses).

In China, banks have a gigantic motherload of liar loans sitting on their books without any collateral.

Mon, 09/17/2012 - 17:43 | 2805129 JenkinsLane
JenkinsLane's picture

Great post

The centre cannot hold.

Mon, 09/17/2012 - 18:21 | 2805251 eddiebe
eddiebe's picture

Or as in the I ching: the ridge pole sags to the breaking point.

Mon, 09/17/2012 - 17:42 | 2805131 General_Disarray
General_Disarray's picture

This is all great, but how does one make money off this info?  With special attention to timing, what's the catalyst and respective trade that one should put on?  I like ZH for its point of views, but in terms of making money, it would be helpful to hear more ideas (from ZH and commenters) on what trades to implement...   Or maybe I am missing the point - maybe ZH is not about making money?

Mon, 09/17/2012 - 17:53 | 2805169 zerotohero
zerotohero's picture

Buy some fucking gold buddy and hide your ass.

Mon, 09/17/2012 - 18:37 | 2805293 Citxmech
Citxmech's picture

. . . and don't forget to take a canoe trip after delivery.

Tue, 09/18/2012 - 00:50 | 2806105 Almost Solvent
Almost Solvent's picture

Silver has way more upside

Tue, 09/18/2012 - 02:53 | 2806181 Dr. Sandi
Dr. Sandi's picture

Not when it's in a canoe.

Mon, 09/17/2012 - 20:19 | 2805173 booboo
booboo's picture

General observation, as much as I like ZH news it is still old news, new news to us, old news to the fuckers that make the rules. Trades are for pussies anyways cause we all know traders and pussies bleed on a regular schedule. There are pussies and big swinging dicks and if you are trading and not a big swinging dick that makes you a pussy and the only way to not be a pussy is to not trade cause you cant make a big swinging dick out of a pussy but you can make a pussy out of a big swinging dick. Either way you end up a pussy. Straight?

Tue, 09/18/2012 - 01:31 | 2806139 billsykes
billsykes's picture

I will stick it out there, I am getting tired of ZH or truth fatigued by bad news after more shit.

Fill my mind up to the brim of yrs of zh and how the world really works but its all academic.  where the knowledge and time spent, not only here but with all the supplemental and extra reading and learning is 99.99% non applicable in the outside world. Usually if you know how the game really works, you can play better, but it seems, at least to me that this is not the case.

Maybe distilled buy guns buy gold and get a second passport.

That I knew in 95. I am just starting to evolve and looking at the spin in all news and how its manipulated so I am getting leery of what zh is truly doing,  read too much of this and its paralyzing.

Maybe a "Gold bitchez!!" shoutout so I don't get neg'ed into infinity. 

Something to think about.

 

 

Tue, 09/18/2012 - 03:07 | 2806193 Radical Marijuana
Radical Marijuana's picture

Yeah, that is me too!

I have reached the point where I am 100% objectively depressed by reality, and do not have a shred of idealism or optimism left. I do not even believe that gold and guns will be worth shit. I have been getting more and more worried about this since I was a teenager, several decades ago, whien I first realized that the world around me was based on exponential growth, backed by weapons of mass destruction. I have spent my whole life attempting to better understand that, and attempting to do something about it.  However, everything regarding that, which I am aware of, just continued to get worse and worse, faster and faster. The only thing learning more, and working more to try to change things, did was prove the original diagnosis was correct. We are like people who are told they have a fatal illness, which has no cure. The difference is that fatal illness is in the society around us, rather than inside our body. However, the end result is the same. We are reduced to living one day at a time, with no reasonable way to make any plans for the future.

Other than sublime philosophy, which could rationalize ANYTHING, even like the Sun going supernova, I am not able to believe there are any sane responses possible to how totally insane the real world is! We ARE living in a world controlled by global electronic fiat money frauds, backed up by mass destruction weapons, and there is NOTHING that I am aware of that can do anything practical to change that from being a runaway madness, that will drive civilization to self-destruction. Like I said, my view is that the diagnosis is we have those fatal social sicknesses, that have no known cure, and so, we can only live one day at time, until they kill us.

There are an abundance of possible creative alternatives. However, the most insane people, who were the most dishonest, and most violent, are ACTUALLY in control, and I believe it will be relatively easy for them to continue to cause financial collapses and world war. They are clearly way ahead with that agenda now ...

I can only day dream that somebody will survive, and then some of those creative alternatives will have a chance to be implemented. However, although there surely are plenty of creative alternatives, the essential central core is completely crazy fiat money frauds, backed by mass destruction weapons, and that makes it way too easy for those who are doing that to continue to do it, until they have caused insane economic collapses, and genocidal wars, and democidal martial law. The more one learns about that, the less and less realistically possible it becomes to imagine any practical ways to stop it ... Those who were the best at being dishonest and violent are getting more wealthy and powerful, while their opposition is going broke, and being broken down.

Tue, 09/18/2012 - 05:37 | 2806258 Peter Pan
Peter Pan's picture

It's not ZH that is tiring all you old fellows out but the fact that the whole system should have collapsed a while ago but hasn't yet done so. You guys need to stop living with reference to hours and minutes and at least broaden your horizons to days and weeks, otherwise the detail can be daunting.

My advice to you is to make a note of some markers such as price of PM's, stock markets, number of friends unemployed, price of your average grocery bill etc. In other words tie things you read back to your ordinary lives.

I am not trying to offend you guys because it IS quite easy to get addicted to Zero Hedge as if it is the only source of reliable information.

Mon, 09/17/2012 - 18:24 | 2805256 Ralph Spoilsport
Ralph Spoilsport's picture

Read the ZH manifesto. This isn't a stock tip or trading advice website.

Mon, 09/17/2012 - 18:27 | 2805258 frenzic
frenzic's picture

I hear there's a ton of useful information @ CNBC.

Mon, 09/17/2012 - 19:20 | 2805397 SAT 800
SAT 800's picture

I'm short the S&P500 from 1463 today; I may be wrong; I've noticed that happens a lot. but that's my two bits worth.

Mon, 09/17/2012 - 18:58 | 2805333 Element
Element's picture

it would be helpful to hear more ideas (from ZH and commenters) on what trades to implement...   Or maybe I am missing the point - maybe ZH is not about making money?

 

It's information.

You do your own research, you make your own decisions.

Mon, 09/17/2012 - 19:34 | 2805450 blunderdog
blunderdog's picture

First, get a few billion dollars together.

Then we can start talking turkey on how you might be able to make some dough "trading."

Mon, 09/17/2012 - 23:50 | 2806038 tenpanhandle
tenpanhandle's picture

righto.  The easiest way to make a small fortune in trading is start with a large one.

Mon, 09/17/2012 - 22:41 | 2805918 pods
pods's picture

Become a bank.

Pick up phone.

Call Ben.

Easy as pie.

pods

Mon, 09/17/2012 - 22:47 | 2805924 BooMushroom
BooMushroom's picture

Before attempting to make money in the stock market, first dig two graves...

Mon, 09/17/2012 - 17:42 | 2805132 humblepie
humblepie's picture

Things are so bad in China that only a war with Japan will do the trick.

Mon, 09/17/2012 - 17:48 | 2805153 Haager
Haager's picture

Lets bomb Sentoku-Islands first. Take that, bitchesss.

Mon, 09/17/2012 - 18:11 | 2805220 Winston Churchill
Winston Churchill's picture

Wooden bombs ?

Mon, 09/17/2012 - 18:41 | 2805298 The Gooch
The Gooch's picture

Bamboo(yah)

Mon, 09/17/2012 - 17:43 | 2805136 Quinvarius
Quinvarius's picture

How long until this guy is in the US Senate?

Mon, 09/17/2012 - 17:44 | 2805141 lolmao500
lolmao500's picture

They better get real steel fast because they won't sink Japanese ships with phantom ships.

Mon, 09/17/2012 - 17:44 | 2805143 roadsnbridges
roadsnbridges's picture

Will this affect gold miners tomorrow?  I mean, are there really mines out there?

Mon, 09/17/2012 - 19:18 | 2805388 SAT 800
SAT 800's picture

A wise man once said that a mine is a hole in the ground with a liar standing next to it. You can have my share of the mining shares; I'm not really interested.

Mon, 09/17/2012 - 19:36 | 2805457 blunderdog
blunderdog's picture

Things have improved over the years.  The liar sits in a boardroom now. 

But right next to the hole in the ground you can expect to find lots of strikers and cops with guns.

Mon, 09/17/2012 - 17:45 | 2805146 fonzannoon
fonzannoon's picture

Should'nt this discovery send the price of steel skyrocketing and make people wonder about the stockpiling of other commodoties? Hello? Is this thing on?

Mon, 09/17/2012 - 17:52 | 2805165 Haager
Haager's picture

(rigged) marketzz heard the rumour at 12:15 and reacted completely wrong.

Mon, 09/17/2012 - 19:51 | 2805259 centerline
centerline's picture

One would think.  But, it seems the game goes on.  Like we peek into the closed box and don't like what we see - so we creep over to another edge and try again.  Normalcy bias on a global scale - the Bernanke put - denial by those who still hear the music and are circling the remaining imaginary chairs - lol.

Mon, 09/17/2012 - 22:56 | 2805941 BooMushroom
BooMushroom's picture

These are not the warehouses you're looking for.

Mon, 09/17/2012 - 19:05 | 2805350 MiltonFriedmans...
MiltonFriedmansNightmare's picture

The market is not a market but merely a staged show put on by central planners in an attempt to convince the world it's not bankrupt (to the nth power).

Mon, 09/17/2012 - 21:25 | 2805781 gina distrusts gov
gina distrusts gov's picture

So the chines should be irked about sending there people to learn about how to steal in American economics schools

Mon, 09/17/2012 - 17:47 | 2805150 Haager
Haager's picture

I hope that tungsten is still there where it should be.

Mon, 09/17/2012 - 17:56 | 2805181 roadsnbridges
roadsnbridges's picture

No worries, your counterfeit gold is fine, wherever it may be.

Tue, 09/18/2012 - 00:16 | 2806076 CPL
CPL's picture

It's out past the unicorn ranch.  If you've got the time, stop by the spaghetti tree and pick some for the family before heading out.

Mon, 09/17/2012 - 17:52 | 2805161 ArrestBobRubin
ArrestBobRubin's picture

As Mike Kreiger said in his blog post today, if steel isn't even in the warehouses it's supposed to be in, what are the chances that Gold and Silver are where THEY'RE supposed to be???

So when does "fully allocated" likely mean "fully f*cked"? When it comes to most gold and silver "holdings" that you can't actually touch. And now steel has vanished as well.

Whose world is this? Who has worked so hard for so long to bring it into existence?

I think you know.

Mon, 09/17/2012 - 17:52 | 2805163 Hannibal
Hannibal's picture

If you "believe" it exist (as in religion, the free market etc), well then, that's all person needs,...eh!

Mon, 09/17/2012 - 17:53 | 2805167 roadsnbridges
roadsnbridges's picture

So, APPL really is real?

Mon, 09/17/2012 - 17:56 | 2805177 MarsInScorpio
MarsInScorpio's picture

Obviously, the only way to take your PMs is by having them delivered to you.
-30-

Mon, 09/17/2012 - 18:00 | 2805193 roadsnbridges
roadsnbridges's picture

Mine is starting to feel like rehypothecated holograms....

Tue, 09/18/2012 - 02:56 | 2806184 Dr. Sandi
Dr. Sandi's picture

Better to go pick PMs up yourself. Less paper trail and fewer eyeballs involved.

Mon, 09/17/2012 - 17:56 | 2805179 LULZBank
LULZBank's picture

Confucius said: Man who starts wrecking business needs ball of steel.

Mon, 09/17/2012 - 17:57 | 2805186 Pancho Villa
Pancho Villa's picture

OK, who stole that steel?

Mon, 09/17/2012 - 18:09 | 2805216 KickIce
KickIce's picture

It was never there, phantom receipt while executive takes the bank money.

Mon, 09/17/2012 - 20:41 | 2805669 putaipan
putaipan's picture

sounds vaugely familiar....is this what the world trade center was made of? or did they rehypothicate the vaporized steel they shipped away from the crime scene so quickly...

Mon, 09/17/2012 - 18:00 | 2805194 LULZBank
LULZBank's picture

Was the counterparty Japanese? They might get a delivery in a different form then.

Mon, 09/17/2012 - 18:03 | 2805200 kevinearick
kevinearick's picture

JPM...silver...JPM...silver...

need credit, buy an apple...

oh, the boys got hurt today..

reserve, what reserve?

vote with your talent, or your spending if that is the best you can do, but in ant case, discount assets with discernment. direct the economy or it will direct you, into the black hole. don't expect the robots to change course anytime soon

Mon, 09/17/2012 - 20:08 | 2805205 Democratic koolaid
Democratic koolaid's picture

The communists state that is known as the peoples republic of China not to be confused with the Republic of China (Tawian) is a socialist based finacial scheme based on manipulated statistics to project a perception of stability and growth.

https://www.cia.gov/library/center-for-the-study-of-intelligence/kent-csi/vol4no3/html/v04i3a01p_0001.htm

"When there are to many liabilities to deny the earth will shake and any unwanted spects of sand will fall threw the trayers screen." -unknown 

Mon, 09/17/2012 - 18:08 | 2805213 Muppet Pimp
Mon, 09/17/2012 - 19:22 | 2805389 Element
Element's picture

I guess they had to be somewhere.

It's hard to recommend a video like that, but people really should see this.

If simply to reflect on the nature of the cruel-madness that's blotted out all that ever distinguished us ... from slime.

Mon, 09/17/2012 - 19:33 | 2805446 SAT 800
SAT 800's picture

Well, it's not like there's a shortage of warm bodies there, you know. Population pressure does funny things to people.

Mon, 09/17/2012 - 20:33 | 2805651 blunderdog
blunderdog's picture

It's a really disturbing video, but it's not a "cultural" commentary.  That'd happen in plenty of places in the USA under the right circumstances.

Basically: MOST PEOPLE these days are not paying much attention to their immediate surroundings. 

Forget the reason for that for a moment, and just consider the implications. 

The fact that billions of people go through their day with little interest in the world around them results in ALL KINDS OF CRAZY SHIT happening.

Mon, 09/17/2012 - 22:43 | 2805920 Son of Loki
Son of Loki's picture

Catherine Susan "Kitty" Genovese (July 7, 1935[1] – March 13, 1964) was a New York City woman who was stabbed to death near her home in the Kew Gardens neighborhood of the borough of Queens in New York City, on March 13, 1964.[3]

The circumstances of her murder and the lack of reaction of numerous neighbors were reported by a newspaper article published two weeks later;[4] the common portrayal of neighbors being fully aware but completely nonresponsive has since been criticized as inaccurate.[5] Nonetheless, it prompted investigation into the social psychological phenomenon that has become known as the bystander effect or "Genovese syndrome"[6] and especially diffusion of responsibility.

 

 

http://en.wikipedia.org/wiki/Murder_of_Kitty_Genovese

Tue, 09/18/2012 - 02:58 | 2806185 Dr. Sandi
Dr. Sandi's picture

You sure that's not NYC?

Mon, 09/17/2012 - 18:09 | 2805217 besnook
besnook's picture

didn't the usa get caught with claims against non existent assets awhile ago? causing a reset of the world's monetary system sans gold? causing a global financial meltdown eventually because ponzi schemes always run into the reality of numbers? leading the world to realize war is the answer?

 

the reset is imminent.

Mon, 09/17/2012 - 18:32 | 2805280 moskov
moskov's picture

I would be far more worried when Republicans would decide to go back gold standard as they promised for when all the 8000 gold in Fort Knox are to be found out as ghosts

Mon, 09/17/2012 - 19:31 | 2805436 SAT 800
SAT 800's picture

I've heard from reliable sources, that it's hard to worry when you're dead.

Mon, 09/17/2012 - 18:13 | 2805230 Darkness
Darkness's picture

Its all about the Benjamins baby. 

Mon, 09/17/2012 - 18:16 | 2805236 Urban Redneck
Urban Redneck's picture

Where's Simon Black singing the praises of Chinese metal warehouses when they need him most?

Mon, 09/17/2012 - 18:25 | 2805261 Democratic koolaid
Democratic koolaid's picture

China had GDP growth rates of over 30% in the 90s what a joke. China must be getting fat because they are slowing down at a still ridiculous 17.5% GDP growth rate.

Mon, 09/17/2012 - 18:36 | 2805265 Element
Element's picture

 

 

Oh boy ... great article!  This is like the warehousing version of "The Cloud", but at least you know your 'data' in storage is just an abstraction.

 

To get rich is glorious” - Deng Xiaoping

 

Once upon a time there was an uppity currency, that curiously was still pegged to the US dollar, it was called the 'Renminbi', but nobody trusted it once it was discovered that ... [complete the sentence]

 

Mon, 09/17/2012 - 19:03 | 2805345 Jendrzejczyk
Jendrzejczyk's picture

...the steel vaults echoed when you let out a holla?

Mon, 09/17/2012 - 18:29 | 2805271 moskov
moskov's picture

Just a few warehouse got caught with corruption and that means a big drama.

Tell that disgusting Libro Scandals and have those criminals have been investigated by police yet? You should be thankful for somebody who still work in the steel industry in the 21st century

Mon, 09/17/2012 - 19:04 | 2805347 buzzsaw99
buzzsaw99's picture

your kung fu is weak today moskov

Mon, 09/17/2012 - 18:35 | 2805287 topspinslicer
topspinslicer's picture

To quote the great economist who happens to be a piano player Billy Joel "honesty is mostly what I need from you....."

So many planned economies so I guess it must be going according to plan....

Mon, 09/17/2012 - 18:42 | 2805300 steve from virginia
steve from virginia's picture

 

Not as much steel as someone wanted there to be. Probably a good thing because there is far less demand for steel.

 

The resource countries are going to take a real beating, no wonder crude prices were down $3 a barrel today.

Mon, 09/17/2012 - 19:26 | 2805424 SAT 800
SAT 800's picture

probably a good thing? wow, I wish I had some of what you're smoking.

Mon, 09/17/2012 - 18:42 | 2805303 CosmicDebris
CosmicDebris's picture

About halfway thru this article I started hearing circus music.

da da nananana da da da da

da da nananana da da da da

da dada na na

da dada na na

It won't leave my head.

Mon, 09/17/2012 - 18:57 | 2805329 cougar_w
cougar_w's picture

You need to take the red pill.

Mon, 09/17/2012 - 21:55 | 2805843 Whoa Dammit
Whoa Dammit's picture

You need to tune your head a little better. The correct music for this story goes like this:

"Na na na na, na na na na, hey hey-ey, goodbye" :-D


Mon, 09/17/2012 - 18:46 | 2805309 NorthPole
NorthPole's picture

One does't need complicated arguments, long reasonings and whatnot to see the financial system for the sham it really is. It is enough to know that the size of the derivatives market is in the ballpark of hundreds of trillions, possibly even a quadrillion bucks.

This one number says it all. once you know this one number, you know everything. Presto!

Mon, 09/17/2012 - 18:45 | 2805311 yarro
yarro's picture

The amount of steel that is in Chinese Wharehouse stocks are correct.  They don't count steel by asking how much in loans are held against it.  They survey wharehouses every month.  What is wrong is that companies went to banks, suppliers, and the shadow banking system and pledged their own stocks multiple times, pledged others stocks using forged documents, or plain forged documents for wharehouses that did not exist. Think subprime liar loans on steroids.  The banks never made an effort to verify documentation before handing out cash.  Sound familiar?  They still have piles of unused steel.  What they are missing is money that was loaned to companies that lacked actual collateral.  This actually hurts steel and other commodity demand in China becuase suddenly those loaning money don't want to loan against commodities that companies claim to have.  If they are doing it for one commodity, then they are probably doing it to one degree or another in all of them.

Think how easy it is to become really wealth before you have to flee.  You buy X amount of steel.  Get two or three loans. Sell it for export to get your original money back, which is deposited in another country.  You then do it again at 2X or 3X.    Once they are comfortable with you doing this,  you just forge documentation as that really increases return on your scam.  Just have to flee before the gig is up otherwise you get the bullet or deferred death sentence.  Chinese like to gamble so many kept at too good a thing.

Tue, 09/18/2012 - 02:31 | 2805585 Just Ice
Just Ice's picture

Well stated.  And speculatively driven demand, theft and fraud occur at cycle tops. 

Tue, 09/18/2012 - 03:01 | 2806189 Dr. Sandi
Dr. Sandi's picture

Vancouver's housing market sends a big howdy and a thank you to all the crooks who brought their families and millions of reypothecated steel bucks to the Lower Mainland.

Mon, 09/17/2012 - 18:46 | 2805314 GlomarHabu
GlomarHabu's picture

 

 

Good money, bad money

Obama don’t care

Cause he’s mak’n sure all get a share

Productive get less, cause they didn’t make it

The welfare mommas get it fo  crack and they take it

Obama makes sure since he wants ta come back

To his office

 and he ain’t ashamed

He’s gaming the system

Burma Shave

 

Mon, 09/17/2012 - 18:47 | 2805315 EscapingProgress
EscapingProgress's picture

Deflationary force from the unwinding of the massive global paper bubble just put a little more downward pressure on the Bernank's nutsack.  PRINT BENNY PRINT!  Your nuts depend on it!

Mon, 09/17/2012 - 18:52 | 2805323 The Gooch
The Gooch's picture

<---1 oz. brass = your ass.

 

<---1 oz. steel = $?$ 

 

Being in the machine trades, this is bullish. <sarc on/sarc off>

Senkaku, It's what's for breakfast. 

 

 

 

 

 

Mon, 09/17/2012 - 18:57 | 2805332 Tombstone
Tombstone's picture

China and America are now so much alike in that central planning by the Communsits is a complete failure.  There is no longer any credibility in either government.

Mon, 09/17/2012 - 19:08 | 2805360 SAT 800
SAT 800's picture

What; you don;t believe Obummer, and his buddy Felonious Hillary?  "I'm shocked, shocked, to find there's gambling going on here Rick".

Mon, 09/17/2012 - 19:02 | 2805343 q99x2
q99x2's picture

Never trust a person that speaks with an English accent. Especially not a descendant of the penal colonies.

Now when it comes to China you won't have to worry about trusting them because they're going to F'n attack us.

The markets are so tight, fragile, ice neined up that even a slight drop now will lead to lock-up. Per Ray Dalio's interview.

It is coming and as it builds momentum it will sweep over the lands like a tsumami. Hope the ATM's are working at the end of the month if not...

Run.

Mon, 09/17/2012 - 21:53 | 2805837 CPL
CPL's picture

Black swan number 736, have a seat next to Oil reserve.

Mon, 09/17/2012 - 19:05 | 2805352 SAT 800
SAT 800's picture

Excellent reportage. There must be some way out here, said the joker to the thief. But, maybe not. world wide bank collapse, anyone? Wait till they start trying to collect on the loans on the shit that isn't there.

Tue, 09/18/2012 - 00:27 | 2806088 CPL
CPL's picture

Which is what a bank uses for what?

Collateral. You take out a loan, a bond, a lien.  You put something in hock to borrow against the value of the item.

 

Now what if you've been lying about everything on the item you've used as collateral?

 

That's fraud.

 

Now what if you trade phony steel futures to buy real silver and gold, real buildings, islands...Africa...then get accidently found out because eventually someone is going to come and check.

 

That's theft.

Tue, 09/18/2012 - 03:03 | 2806192 Dr. Sandi
Dr. Sandi's picture

And what if the people you borrow from refuse to check to see if you're lying about the collateral?

That's STUPID!

(Or else criminal complicity.)

Mon, 09/17/2012 - 19:09 | 2805366 lostcause
lostcause's picture

 When was the last time China had a recession? All I hear on TV is double digit growth from now until eternity.  I guess if you lie long enough it becomes the truth.

Mon, 09/17/2012 - 19:10 | 2805369 Stanley Lord
Stanley Lord's picture

That is what David Stockman thinks, the system will break before hyperinflation or deflation takes hold.

Mon, 09/17/2012 - 19:24 | 2805417 SAT 800
SAT 800's picture

David Stockman? What, a former Federal Government financial officer with lots of private phone numbers and lots of high level information? Ah, what does he know. (sarc. off).

Mon, 09/17/2012 - 19:16 | 2805380 Pumpkin
Pumpkin's picture

The gold market has been dealing with this for a long time, about time it crept into a market where someone (who matters) will notice.

Mon, 09/17/2012 - 19:17 | 2805385 chump666
chump666's picture

The SSEC collapsed 2.14% last session.  China is in trouble, huge problems.  USD bids will start again, which world indicate that China is grappling with breakouts of inflation - namley from oil inflation, that is becoming uncontrollable.  What will be interesting with QE3, is that Bernanke may not be able to get indust commodities to rally (China crashes), but will rally oil on war tensions.  Great.  China will love that.

Not only is Bernanke and Obama running America into the ground, they are also pushing China into a corner.  Don't think that would be a wise thing to do.

 

Mon, 09/17/2012 - 19:49 | 2805503 fonzannoon
fonzannoon's picture

I think it's awesome that USD bids could possibly start up again with Bernanke firing piles of cash out of a bazooka at everyone.

Mon, 09/17/2012 - 20:00 | 2805539 chump666
chump666's picture

I know, it's funny, here he is specifically attempting to force USD nominated holdings to liquidate, buy up USTs and drop rates.  The opposite happened when Asia opened last session.  Also, I think he looked nervous when he announced QE3 unlimited - the oil price goes over 100, Obama will sweat.  We are going to see some wild swings in volatility now.  Crazy times.

 

Mon, 09/17/2012 - 20:01 | 2805547 chump666
chump666's picture

and... CRB down 2.1%

With or without QE3

Mon, 09/17/2012 - 19:19 | 2805390 jonjon831983
jonjon831983's picture

Here is something not phantom:

"Russia reveals shiny state secret: It's awash in diamonds"

http://www.csmonitor.com/World/Global-News/2012/0917/Russia-reveals-shin...

"'We are speaking about trillions of carats': Russia reveals vast diamond source under 62-MILE-WIDE asteroid crater which could supply world markets for next 3,000 years"

http://www.dailymail.co.uk/news/article-2204566/Russia-diamonds-Source-S...

 

 

 Commence conspiracy theories of why they reveal this now and cheer F U diamond cartel.

 

If this story pans out - a lot of people are going to be disappointed.  My buddy who just got married was already like... f this!

 

Shoulda just bought a cultured diamond.

Mon, 09/17/2012 - 19:20 | 2805398 jonjon831983
jonjon831983's picture

Ah nice - just looked up top and saw GW posted

 

http://www.zerohedge.com/contributed/2012-09-17/russia-sitting-“trillions-carats”-diamonds

Mon, 09/17/2012 - 19:31 | 2805440 Piranhanoia
Piranhanoia's picture

long sandpaper

Mon, 09/17/2012 - 20:01 | 2805544 jonjon831983
jonjon831983's picture

 First I got conned by buying typewriter stocks, now sand paper? r u serious? thanks ... I just lost my life savings...

Mon, 09/17/2012 - 19:20 | 2805396 PSegTrader
PSegTrader's picture

PIK,PIK,PIK......

Mon, 09/17/2012 - 19:25 | 2805408 robertocarlos
robertocarlos's picture

There are at least 7 billion assets in the world. They only need to be mined.

Mon, 09/17/2012 - 19:24 | 2805409 jonjon831983
jonjon831983's picture

Now imagine if this story was about gold and silver

 

*heart attack*

Mon, 09/17/2012 - 21:58 | 2805846 CPL
CPL's picture

It means prices would have to be upwardly revised on price because supply is low.

Mon, 09/17/2012 - 19:31 | 2805438 Piranhanoia
Piranhanoia's picture

Sounds like the supply chain could be totally broken, and the dominoes will roll over to other hypothecated supply chains and industries.  A collapse could be faster than a tsunami.

 

Mon, 09/17/2012 - 19:37 | 2805462 GlomarHabu
GlomarHabu's picture

 

 

Some observations on Aussies.

  • It was the penal colony for the Brits ..all offspring of Aussies have a criminal gene
  • It's called "Down Under" which is very much like fumunda cheese.
  • Men call their male "friends" mates ..hmmm ..down under, then mates..gotta be queer country.

and if you drive down under you're on the wrong side of the road..and get this..say you're driving on a two lane main artery and see a car up ahead trying to pull out on to the main artery ....well YOU have to yield to them ..thats right..you're riding along at 60mph and some sheep rancher is attempting to access the highway..YOU MUST COME TO A STOP IF THAT
S WHATS NEEDED ...now how fucked up is that...plenty kimosabe

 

Good one Habu

Thanks

Mon, 09/17/2012 - 21:27 | 2805787 Non Passaran
Non Passaran's picture

fuck off Haboon

Tue, 09/18/2012 - 00:44 | 2806101 chump666
chump666's picture

"sheep rancher" ??? What the f*ck do you smoke?

Get off the drugs buttnut.

 

Tue, 09/18/2012 - 02:27 | 2806168 sherryw
sherryw's picture

Lucky for us Aussies you went home!

Mon, 09/17/2012 - 19:42 | 2805480 gregga777
gregga777's picture

Richard Maybury writes the Early Warning Report @ http://www.chaostan.com.  He questions the "trust factor" behind modern accounting and its dependence on computerized records keeping.  Do accounting firms actually visit the corporations various locations and verify the existence and ownership of the assets in their annual reports and other SEC filings?  Or, do they audit the paper reports produced by the corporations computerized reporting system?  The potential for fraud is massive and it seems that some Chinese corporations have fully exploited that potential.  

There are already many outright examples of corporate fraud in public, exchange listed Chinese companies such as: ChinaCast Education Corporation, SinoTech Energy, Sino-Forest Corporation, China MediaExpress Holdings, China Sky One Medical, China Energy Savings Technology, etc.  Some obtained stock exchange listing via reverse mergers. 

The above companies apparently represent only the tip of the massive iceberg-sized fraud perpetrated in China.  How severe will the "hard landing" in the Chinese economy be as the global de-leveraging exposes worthless bank loans secured by ghost assets?  How will the Chinese people be affected and how will they respond?  Will the economic fallout lead to massive unrest in China?

How much trust worldwide will remain in the global financial system in the aftermath of the global deleveraging?

Mon, 09/17/2012 - 20:58 | 2805708 insanelysane
insanelysane's picture

Sino Forest - See no forests and apparently see no steel.  Local seafood store did same thing a few years ago.  Went with new bank and got a business line of credit.  Took the cash and fled.  Bankers showed up and there was nothing in storage.  Nothing at all.

Mon, 09/17/2012 - 19:44 | 2805486 robertocarlos
robertocarlos's picture

The worst part must be when you are still halfway to NY from Beijing.

Mon, 09/17/2012 - 20:03 | 2805554 jonjon831983
jonjon831983's picture

Kept reading this reuters article today and asking myself if I read correctly, so far $787.50 million in losses due to this fraud?

 

 

"Industry sources estimated cases that have already come to light account for about 5 billion yuan ($787.50 million) of bad debt in Shanghai, one of China's biggest steel trading centers."

Mon, 09/17/2012 - 20:06 | 2805561 BlackholeDivestment
BlackholeDivestment's picture

''In The Great Wal Mart Of China We Trust'' 

http://www.youtube.com/watch?v=dwRjzlt8QnE&feature=BFa&list=PL20274DAACBC51F79

 

 

 

 

 

 

 

Mon, 09/17/2012 - 20:10 | 2805570 Pejorative Requiem
Pejorative Requiem's picture

Yeah, but that gold in Fort Knox is safe......... and those MBS's the Fed has on the books (and is buying ad infinitum) are worth every penny that the Fed says they are.

Mon, 09/17/2012 - 20:11 | 2805575 robertocarlos
robertocarlos's picture

People should have known. You can't stockpile metals and expect them to outpace inflation and cover overhead due to the shear size of the stockpile. You'd have to arrange free and secure storage somewhere or you'd be under water in no time.

Mon, 09/17/2012 - 20:27 | 2805628 GlomarHabu
GlomarHabu's picture

 

Sounds like rather restrictive thinking. In todays world with GPS one can hide a huge amount of gold and silver in all kinds of out of the way places which will never be discovered. You don't need any "formal" storage area, and certainly not a bank safe depoit box. The only overhead is the sky above you.

Surprisingly the stuff weathers quite nicely ...for thousands of years actually.

Mon, 09/17/2012 - 21:45 | 2805822 andrewp111
andrewp111's picture

Maybe. But if you bury it in the ground, you may find that the groundhogs stole it when you go to dig it up.

Mon, 09/17/2012 - 20:15 | 2805584 GlomarHabu
GlomarHabu's picture

 

 

 The two Californian Senators are stranded on a desert island.  One day, a raft floats up
to the island. So, they used the wood to make a hot tub.

Mon, 09/17/2012 - 20:43 | 2805677 gwar5
gwar5's picture

Bang Dai Ho:  "She say, me have shaft of steel. Me say, mmm... she only find it riveting because of two big nuts. She make big laugh!"

Mon, 09/17/2012 - 20:52 | 2805691 cherry picker
cherry picker's picture

The blame game, everyone is a target for blame and not without reason.

That tells me something is broken besides the system.

There are too many people going without and they see what others have and want some of it. 

Luther Standing Bear once said "As a child I understood how to give, I have forgotten this grace since I have become civilized."

Mon, 09/17/2012 - 21:21 | 2805765 fuu
fuu's picture

Gold Bitchez!

Mon, 09/17/2012 - 21:38 | 2805810 delivered
delivered's picture

Two words - Due Diligence. I guess the Chinese financial industry learned from the best of the best in how not to underwrite loans (i.e., the US financial industry from 2005 through 2007 as they figure out a way to approve every real estate loan request that came down the pipe and then, repackage, rebundle, and resell to what ever sucker was at the end of the food chain). BTW and I'm not sure but does the lending system in China use some type of public reporting such as UCC filings to properly notify the market of a secured interest? Finance 101 in the states so I'm not sure if China's system is that ass backwards or just rampant with fraud. Oh well, time to man-up and sell this crap off to the goverment and the PBofC in the grand style of the US from 2008 through?

Mon, 09/17/2012 - 22:22 | 2805886 BidnessMan
BidnessMan's picture

Next QE will be the Fed buying steel backed securities at par....  Big biz in ginning up steel warehouse receipts for the Bernanke to buy. 

Bernanke's term expires in Jan 31, 2014.  Will he be able to keep the Ponzi going for 16 more months?

Mon, 09/17/2012 - 21:43 | 2805818 pain_and_soros
pain_and_soros's picture

Not sure why this post made me think of this song...

http://www.youtube.com/watch?v=OMAIsqvTh7g

but it did (maybe it was the steel in Stealers Wheel?)

Mon, 09/17/2012 - 21:52 | 2805834 Coldfire
Coldfire's picture

The muppets at HKEx who just paid 100 times earnings for the London Metal Exchange will be all over this. Of that you can be sure.

Mon, 09/17/2012 - 22:09 | 2805866 sosoome
sosoome's picture

prolly just had some boating accidents

Mon, 09/17/2012 - 22:17 | 2805875 shanearthur
shanearthur's picture

Tyler, I've learned a ton here, and I've read countless articles about how Fooked everything is and where it's leading. If anything would instigate a global collapse, this shoud be it, correct? I've been constantly amazed, though, how the corrupt systems holds itself up from collapsing.

Mon, 09/17/2012 - 22:21 | 2805882 mickeyman
mickeyman's picture

I guess this means that I'm lucky being too broke to have anything in the bank. My only remaining assets, after the boating accident, are about a hundred thousand nickels.

Mon, 09/17/2012 - 23:02 | 2805948 hedgehog9999
hedgehog9999's picture

Tungsten anyone????

 

Mon, 09/17/2012 - 23:06 | 2805956 Zgangsta
Zgangsta's picture

There's plenty of steel in China.  You just have to get it from all of the white elephant ghost towns.

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