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A $20 Trillion Problem: More Than Half Of China’s Banks Fail Central Bank Stress Test
A $20 Trillion Problem: More Than Half Of China’s Banks Fail Central Bank Stress Test
In our latest look at the turmoil among China’s small and medium banks, which included not only the recent bailouts and nationalizations of Baoshang Bank , Bank of Jinzhou, China’s Heng Feng Bank, but also the two very troubling bank runs at China’s Henan Yichuan Rural Commercial Bank at the start of the month, and then more recently at Yingkou Coastal Bank.
As we further explained, the reason why so many (for now) smaller Chinese banks have found themselves either getting bailed out or hit by bank runs, is that in a time when China’s interbank/repo rates have surged amid growing counterparty concerns, increasingly more banks have been forced to rely almost entirely on deposits to fund themselves, forcing them to hike their deposit rates to keep their funding levels stable.
Meanwhile, cuts in key lending rates since August to stimulate up a slowing economy have only exacerbated net interest margin pressures on banks.
In other words, with less income from lending and without the full suite of funding options available to much larger peers, the interest rates that China’s legion of small banks may have to offer to attract deposits could further undermine their stability. The irony is that to preserve their critical deposit base, small banks have to hike deposit rates even higher to stand out, in the process sapping their own lifeblood and ensuring their self-destruction, or as we dubbed it earlier, China’s own version of Europe’s “doom loop.“
Dai Zhifeng, a banking analyst with Zhongtai Securities, told Reuters the funding difficulties risked distorting small banks’ behavior, making failure even more likely: “Lacking core competitiveness, some of them have turned to high-risk, short-sighted operations,” he said, adding that a liquidity crunch was possible at some institutions.
…click on the above link to read the rest of the article…
China Central Bank Warns Downward Pressure On Economy Increasing
China Central Bank Warns Downward Pressure On Economy Increasing
Several weeks ago, the People’s Bank of China (PBOC) said it would “increase counter-cyclical adjustments” to prevent downward pressure on the economy. Now the PBOC is warning that it might not be able to ward off these downward pressures in the short term, reported Reuters.
The PBOC’s annual financial stability report said China would continue to deploy fiscal and monetary policies to support the economy but warned economic deceleration would continue through year-end.
Policy maneuvering by the PBOC will be limited as it will likely need to cut rates and the amount of money banks put down as reserves to promote credit growth.
The PBOC recognizes the rapid deterioration in the economy, along with the limitations of monetary policy to revive growth.
There Is a Lot of Appetite for Chinese Bonds: Bank Julius Baer’s Matthews
Likely, credit creation via the PBOC won’t be in magnitude seen in the last ten years used to save the world from escaping several deflationary crashes.
The government will likely stabilize its economy or at least create a softer landing through tax cuts and infrastructure spending, the annual report said.
What this all means is that China’s economy isn’t going to save the world as it has done since 2008. China’s credit impulse has rolled over, the probabilities of a massive global economic rebound in the coming quarters are unlikely as China continues slow.
Fathom Consulting’s China Momentum Indicator 2.0 (CMI 2.0) provides a more in-depth view of China’s economic deceleration through alternative data as there’s no evidence at the moment that would suggest a trough in China’s economy.
China’s economy over the last decade has created 60% of all new global debt. This means with China’s economy in freefall, the PBOC powerless over downside, GDP will likely fall to the 5-handle in early 2020. More importantly, this means a global economic rebound of massive proportions is unlikely to happen early next year.
THE WOLF STREET REPORT: How the Fed Boosts the 1%, as Told by the Fed
THE WOLF STREET REPORT: How the Fed Boosts the 1%, as Told by the Fed
Even the upper middle class loses share of household wealth to the 1%. The bottom half gets screwed.
The Fed’s Dilemma Is Our Problem!
The Fed’s Dilemma Is Our Problem!
Pundit Bill Bonner predicts:
“Most likely, the stock market will crash sometime before the 2020 election. We can’t know when.
…. The end of the stock market boom, too, is unpredictable. But each passing day brings us a day closer to when it will crash and burn.”
Bonner’s prediction is in line with our 2017 article, “An Economic Showdown Is Looming”. I suggested the Fed, part of the deep state, was setting up President Trump to be another Herbert Hoover. The deep state wants the market to crash so they can crush capitalism and further consolidate federal government control.
Fed Chair Yellen announced the Fed would begin raising rates in 2015. After one early increase and she held off until after the election. Despite Ms. Yellen’s vehement objections to the politics of holding off on rate increases before the election, it sure looked political.
CNN Money reports:
“Federal Reserve Chair Janet Yellen gave the U.S. economy a nearly clean bill of health, two days before Donald Trump arrives at the White House.(Emphasis mine)
“Now, it’s fair to say, the economy is near maximum employment and inflation is moving toward our goal.”
CNBC quoted Ms. Yellen:
“Would I say there will never, ever be another financial crisis? …. That would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.”
In 2018, the Atlantic Article, “The Federal Reserve Chair Is Ignoring President Trump”, Fed chairman Powell reassured us:
“Not every business cycle is going to last forever, but no reason to believe this cycle can’t go on for quite some time, effectively indefinitely.”
The underlying Fed message – Bush broke it, Obama fixed it, and now Trump is responsible.
…click on the above link to read the rest of the article…
Fed Goes Nuts with Repos & T-Bills but Sheds Mortgage Backed Securities
Fed Goes Nuts with Repos & T-Bills but Sheds Mortgage Backed Securities
The fastest increase in assets for any two-month period since the post-Lehman freak show in late 2008 and early 2009.
Total assets on the Fed’s balance sheet, released today, jumped by $94 billion over the past month through November 6, to $4.04 trillion, after having jumped $184 billion in September. Over those two months combined, as the Fed got suckered by the repo market, it piled $278 billion onto it balance sheet, the fastest increase since the post-Lehman month in late 2008 and early 2009, when all heck had broken loose – this is how crazy the Fed has gotten trying to bail out the crybabies on Wall Street:
Repos
In response to the repo market blowout that recommenced in mid-September, the New York Fed jumped back into the repo market with both feet. Back in the day, it used to conduct repo operations routinely as its standard way of controlling short-term interest rates. But during the Financial Crisis, the Fed switched from repo operations to emergency bailout loans, zero-interest-rate policy, QE, and paying interest on excess reserves. Repos were no longer needed to control short-term rates and were abandoned.
Then in September, as repo rates spiked, the New York Fed dragged its big gun back out of the shed. With the repurchase agreements, the Fed buys Treasury securities and mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, or Ginnie Mae, and hands out cash. When the securities mature, the counter parties are required to take back the securities and return the cash plus interest to the Fed.
Since then, the New York Fed has engaged in two types of repo operations: Overnight repurchase agreements that unwind the next business day; and multi-day repo operations, such as 14-day repos, that unwind at maturity, such as after 14 days.
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BOJ To Start Lending ETF Shares To Prevent Market Freeze
BOJ To Start Lending ETF Shares To Prevent Market Freeze
While most central banks are contemplating how to gently break it to the public that since they are out of ammo with interest rates at all time low, and $15 trillion in global sovereign debt is now yielding negative – a financial abortion which suggests the value of money is negative – the only hope markets have to avoid collapse is for central banks to start buying stocks in the open market, the BOJ has no such problems: after all the Japanese central bank (alongside its Swiss peer) has for years been quite open that it purchases stocks and ETFs directly. Unfortunately, in its efforts to stabilize the market, the BOJ has been purchasing a little too many ETFs and it now owns far too much.
Last May, speaking to Japanese parliamentarians, BOJ Governor Haruhiko Kuroda noted that the central bank now owns nealry 80% of the country’s stock of ETFs, the result of a program begun in 2010 and ramped up in 2013.
Unfortunately, the program failed in its immediate task: the main goal of ETF buying was to lower Japan’s equity-risk premium – the extra returns investors expect for buying stock rather than simply parking their money in riskless government debt. A lower premium should raise stock prices and make equity financing easier for listed companies. But at just shy of 7%, Japan’s premium remains stubbornly above the U.S.’s 6%—with the gap little changed in six years – according to Aswath Damodaran, professor of finance at New York University’s Stern School of Business.
Now what is truly terrifying is that the impact of the BOJ’s massive equity purchases is actually not easily visible in Japanese stock valuations as share prices have actually fallen as a multiple of earnings during the course of the program.
…click on the above link to read the rest of the article…
Central Bank Issues Stunning Warning: “If The Entire System Collapses, Gold Will Be Needed To Start Over”
Central Bank Issues Stunning Warning: “If The Entire System Collapses, Gold Will Be Needed To Start Over”
It’s not just “tinfoil blogs” who (for the past 11 years) have been warning that a monetary reset is inevitable and the only viable fallback option once trust and faith in fiat is lost, is a gold standard (something which even Mark Carney hinted at recently): central banks are joining the doom parade now too.
An article published by the De Nederlandsche Bank (DNB), or Dutch Central Bank, has shocked many with its claim that “if the entire system collapses, the gold stock provides a collateral to start over.”
Wow
Dutch National Bank goes ‘Big Reset’:
‘Aandelen, obligaties en ander waardepapier: aan alles zit een risico [..] Als het hele systeem instort, biedt de goudvoorraad een onderpand om opnieuw te beginnen. Goud geeft vertrouwen in de kracht van de balans van de centrale bank’.
While gloomy predictions of a monetary reset are hardly new, they have traditionally been relegated to the fringe of mainstream financial thought – after all, as Mario Draghi stated on several occasions in recent years, the mere contemplation of a “doomsday scenario” is enough to create the self-fulfilling prophecy which materializes it. As such, it is stunning to see a mainstream financial institution open up about the superior value of limited supply, non-fiat, sound money assets. It is also hypocritical given the diametrically opposed Keynesian practices regularly engaged in by central banks and official institutions worldwide: after all, just a few months back, the IMF published a paper bashing Germany’s adoption of the gold standard in the 1870s as the catalyst for instability in the global monetary system.
Fast forward to today, when the Dutch Central Bank is admitting not only did gold not destabilize the monetary system, but it will be its only savior when everything crashes.
…click on the above link to read the rest of the article…
As Hong Kong ATMs Run Out Of Cash, Central Bank Steps In To Prevent “Panic Among The Public”
As Hong Kong ATMs Run Out Of Cash, Central Bank Steps In To Prevent “Panic Among The Public”
As the violence in Hong Kong escalates with every passing week, culminating on Friday with what was effectively the passage of martial law when the local government banned the wearing of masks at public assemblies, a colonial-era law that is meant to give the authorities a green light to finally crack down on protesters at will, one aspect of Hong Kong life seemed to be surprisingly stable: no, not the local economy, as HK retail sales just suffered their biggest drop on record as the continuing violent protests halt most if not all commerce:
We are talking about the local banks, which have been remarkably resilient in the face of the continued mass protests and the ever rising threat of violent Chinese retaliation which could destroy Hong Kong’s status as the financial capital of the Pacific Rim in a heart beat, and crush the local banking system. In short: despite the perfect conditions for a bank run, the locals continued to behave as if they had not a care in the world.
Only that is now changing, because one day after a junior JPMorgan banker was beaten in broad daylight by the protest mob, a SCMP report confirms that the social upheaval has finally spilled over into the financial world: according to the HK publication, the local central bank, the Hong Kong Monetary Authority, was forced to issue a statement warning against a “malicious attempt to cause panic among the public” after rumors were spread online about the possibility of the government using emergency powers to impose foreign-exchange controls.
…click on the above link to read the rest of the article…
The Fed Created The Everything Bubble And A Liquidity Crisis – What Happens Next?
The Fed Created The Everything Bubble And A Liquidity Crisis – What Happens Next?
It’s an interesting dynamic that the Federal Reserve has conjured in the decade after the 2008 credit crash. They spent several years using artificial stimulus measures to inflate perhaps the largest financial bubble in the history of the US, and then a couple years ago something changed. They addicted markets and investors to easy cash only to then cut off the flow of monetary heroin. The system was so dependent on the Fed’s “China White” that all it took to give everyone the shakes was interest rate hikes to the neutral rate of inflation and a moderate balance sheet selloff. Now, the system is dying from shock and it’s too late for intravenous stimulus to save it.
For many this might seem unprecedented, but it’s really rather common. The Fed has a long history of inflating bubbles using easy liquidity and then imploding those bubbles with the tightening of credit. It also has a long history of pretending like it is trying to save the economy from crisis when it is actually the source of the crisis. As Congressman Charles Lindbergh Sr. warned after the panic of 1920:
“Under the Federal Reserve Act, panics are scientifically created; the present panic is the first scientifically created one, worked out as we figure a mathematical problem…”
In the latest theatrics of the Fed, a new trend has emerged – The “disappointing Fed”. In order to understand this disappointment, we have to define exactly what markets want from the central bank. Obviously, they want QE4; a massive liquidity program. For the past year at least they have been clamoring for it, and they still have yet to get it. But what does QE4 entail? In order to institute a new QE marathon the Fed would have to:
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Dollar Liquidity Crisis Accelerates As Month-End Nears, Record $92 Billion Demand
Dollar Liquidity Crisis Accelerates As Month-End Nears, Record $92 Billion Demand
As month-end looms, demand for dollar liquidity is accelerating dramatically with today’s Fed operation oversubscribed – with around $92 billion of demand for The Fed’s $75 billion offering…
This is the heaviest demand yet for this new Fed liquidity spigot…
As we noted previously, some banks appear to have been simply waiting to get closer to the quarter end before tipping their cards: after all, just like the Discount Window, the repo operation has become the modern “stigmatizing” equivalent, and if reporters or clients get a whiff that a bank is in a dire liquidity state, the consequences could be dramatic.
Never mind though, it’s probably all transitory.
Forget the Russians: It’s the Federal Reserve Seeking to Meddle in Our Elections
Forget the Russians: It’s the Federal Reserve Seeking to Meddle in Our Elections
The US Constitution never granted the federal government authority to create a central bank. The Founders, having lived through hyperinflation themselves, understood that government should never have a printing press at its disposal. But from the very beginning of America’s founding, the desire for a crony central bank was strong.
In fact, two attempts were made at creating a permanent central bank in America prior to the creation of the Fed. Fortunately, the charter for The First Bank was allowed to expire in 1811, and President Andrew Jackson closed down the Second Bank in 1833.
But, unfortunately, a third attempt was successful and the Federal Reserve was unconstitutionally created by Congress in 1913. Americans have been living under a corrupt and immoral monetary system ever since. The Federal Reserve is the printing press that has financed the creation of the largest government to ever exist. Endless welfare and endless military spending are both made possible by the Federal Reserve. The Fed can just print the money for whatever the US establishment wants, so those of us who long for a Constitutional and limited government have few tools at our disposal.
Despite all the propaganda claiming “independence,” the Fed has always been a deeply political institution. Because the Fed is a government-created monopoly with key government-appointed employees, its so-called “independence” is a mere fiction. However, the US Congress created the Fed with legislation; it can also abolish the Fed with legislation.
Last week, the facade of Federal Reserve “independence” was dealt a severe blow. Ironically, the person who broadcast to the world that the Fed is anything but “independent” was ex-New York Fed President Bill Dudley. Dudley wrote that, “Trump’s re-election arguably presents a threat to the United States’ and global economy, and if the goal of monetary policy is to achieve the best long-term economic outcome, the Fed’s officials should consider how their decisions would affect the political outcome of 2020.”
…click on the above link to read the rest of the article…
The Precog Fed: Vice Chair Clarida Says Fed Shouldn’t Wait For Economy To Turn Down To Cut Rates
The Precog Fed: Vice Chair Clarida Says Fed Shouldn’t Wait For Economy To Turn Down To Cut Rates
There was something bizarre in yesterday’s latest Beige Book: it painted an unexpectedly strong picture of the economy. Here, again, are the key points we pulled from the summary of various regional Feds’ takes on the current state of the US economy:
- In most Districts, sales of retail goods increased slightly overall,
- Activity in the nonfinancial services sector rose further
- Tourism activity was broadly solid, with Atlanta and Richmond recording robust growth in this sector,
- Some Districts continued to report healthy expansion in the transportation sector.
- Home sales picked up somewhat, but residential construction activity was flat.
- Nonresidential construction activity increased or remained strong in most re-porting Districts, and commercial rents rose
- A modest pickup in manufacturing activity since the last reporting period was observed in a few Districts
- Increased demand for loans was broad-based, with all but two Districts noting some growth in financing activity
- Employment grew at a modest pace, as labor markets remained tight; contacts across the country experiencing difficulties filling open positions.
- The reports noted continued worker shortages across most sectors, especially in construction, information technology, and health care.
- Compensation grew at a modest-to-moderate pace, similar to the last reporting period, although some contacts emphasized significant increases in entry-level wages.
- Rate of price inflation was stable to down slightly from the prior reporting period. Districts generally saw some increases in input costs, stemming from higher tariffs and rising labor costs.
- Reduced supply boosted prices for some agricultural goods; some Districts noted increased upward transportation pricing pressures, while others highlighted price declines due to reduced demand for shipping services.
But why good news bizarre? Because as NY Fed president John Williams made clear today, not only is the Fed cutting in July, but the Fed will likely continue cutting until we get back to ZIRP again:
…click on the above link to read the rest of the article…
Turkey’s Erdogan Vows To “Significantly” Cut Rates As Trump Set To Roll Out Sanctions Over S-400 Purchase
Turkey’s Erdogan Vows To “Significantly” Cut Rates As Trump Set To Roll Out Sanctions Over S-400 Purchase
Lately not a week passes without some dismal news involving Turkey hitting the tape, and yet the lira continues to levitate, blissfully ignorant of the storm clouds headed for Ankara, levitating on hopes the Fed will cut rates and sprinkle golden showers on emerging markets. However, in light of the two latest developments, the Mrs Watanabe sellers of USDTRY may finally pay attention.
On Sunday, Turkish President Recep Tayyip Erdogan – who last weekend fired the head of the central bank for not cutting rates fast enough, and who has now become the de facto head of the CBRT – promised “significantly lower interest rates by the end of the year“, Bloomberg reported.
“We aim to reduce inflation to one digit by the end of this year,” Erdogan told journalists in Istanbul, according to the state-run Anadolu news agency. “As we achieve this, we will achieve our year-end interest rate target as well.” Of course, should interest rates drop to one digit, the USDTRY will promptly collapse to two, as the rate differential between the lira and the dollar collapses, removing the main incentive to go long the lira at a time when the Turkish economy remains in crisis.
Having founded the economic school of Erdoganomics, according to which inflation can be achieved only by lowering rates, the Turkish president and his US counterpart have quickly become kindered spirits when it comes to monetary policy. And just as Trump heaps pressure and insults on Fed Chair Powell, Erdogan has frequently accused the central bank of keeping borrowing costs too high. Last month, he complained that while the Fed was moving toward a rate cut, Turkey’s policy rate of 24% “is unacceptable.”
…click on the above link to read the rest of the article…
Gold Will Rise Even If The Fed Doesn’t Cut Interest Rates
Gold Will Rise Even If The Fed Doesn’t Cut Interest Rates
There has been much speculation lately on the Federal Reserve and its ongoing tightening policy. If you were to only read mainstream economic news you would think the Fed had already reversed course and “capitulated”, but this is not the case. The Fed continues to hold interest rates at their neutral rate of inflation while also moving forward with asset dumps from their balance sheet. Nothing has changed since December/January when the Fed first made minor changes to its public statements hinting at “accommodation”.
By leaving such wording completely ambiguous and refraining from any specifics, the central bank has allowed the media and the investment world to assume that the phrase changes can mean whatever they want the changes to mean. In other words, the Fed has bamboozled the mainstream into projecting their own fantasy outcome. Meaning, they believe that the outcome they desperately want (near zero interest rates and QE4) is the outcome they are going to get. Not only that, but they also think they are going to get it all very soon.
In the alternative economic media, I have noticed that there is also a presumption that the Fed will revert back to stimulus measures at any given moment. In fact, I have heard predictions of Fed rate cuts every month for at least the past seven months. And, each time the Fed doesn’t cut rates, the same analysts argue that “this time was close and next month is certain.”
To be fair, many analysts are basing their assumptions partly on the current financial reality. They are aware of factors that the average person is mostly oblivious to. Even now in the wake of swift declines in almost every sector of the economy there are still economists and portions of the public arguing that we are in the midst of an economic renaissance.
…click on the above link to read the rest of the article…
Mark Carney Says Climate Change Will Bring Economic Disaster. Will the Powerful Listen?
Mark Carney Says Climate Change Will Bring Economic Disaster. Will the Powerful Listen?
Global bank heads say urgent action needed to prevent a ‘Minsky moment’ collapse in asset prices.
They may find themselves feeling just a little shaky, however, after a recent open letter written by Canadian Mark Carney, governor of the Bank of England, with Banque de France governor François Velleroy de Falhau and Frank Elderson, chair of the Network for Greening the Financial Services (NGFS).
These guys are not shaggy Extinction Rebellion protesters being busted in London. And teenage activist Greta Thunberg would likely ask why they took so long to admit what’s been obvious since long before she was born in 2003.
But Carney and his colleagues advise the masters of the universe; they are the consiglieri of the world’s corporate capos, and when they murmur a warning in the capos’ collective ear, wise capos heed them.
Their open letter announced the first report of the Network for Greening the Financial Services, a group that includes central bankers from around the world. That report tells the capos that “climate-related risks are a source of financial risk.” (Greta Thunberg and billions of other girls would roll their eyes.)
The report continues with equally obvious warnings: climate change will affect the economy on all levels from households to government; it’s highly certain; it’s irreversible; and it depends on short-term actions (right now, this minute) by “governments, central banks and supervisors, financial market participants, firms and households.”
Back to 1960
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