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A tale of two civilisations

October 24, 2021

A tale of two civilisations

In recent years, America’s unsuccessful attempts at containing China as a rival hegemon has only served to promote Chinese antipathy against American capitalism. China is now retreating into the comfort of her long-established moral values, best described as a mixture of Confucianism and Marxism, while despising American individualism, its careless regard for family values, and encouragement of get-rich-quick financial speculation.

After America’s defeat in Afghanistan, the geopolitical issue is now Taiwan, where things are hotting up in the wake of the AUKUS agreement. Taiwan is important because it produces two-thirds of the world’s computer chips. Meanwhile, the large US banks are complacent concerning Taiwan, preferring to salivate at the money-making prospects of China’s $45 trillion financial services market.

The outcome of the Taiwan issue is likely to be decided by the evolution of economic factors. China is protecting herself against a global credit crisis by restraining its creation, while America is going full MMT. The outcome is likely to be a combined financial market and dollar crisis for America, taking down its Western epigones as well. China has protected herself by cornering the market for physical gold and secretly accumulating as much as 20,000-30,000 tonnes in national reserves.

If the dollar fails, which without a radical change in monetary policy it is set to do, with its gold-backing China expects to not only survive but be able to consolidate Taiwan into its territory with little or no opposition.

Introduction

On the one hand we have America and on the other we have China. As civilisations, America is discarding its moral values and social structures while China is determined to stick with its Confucian and Marxist roots. America is inclined to recognise no other civilisations as being civilised, while China’s leadership has seen America’s version and is rejecting it…
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The Real “Helicopter Money”: Since 2009, China Has Created $21 Trillion Of New Money, More Than Double The US

September 1, 2019

The Real “Helicopter Money”: Since 2009, China Has Created $21 Trillion Of New Money, More Than Double The US 

Back in the days of the Fed’s QE, much of thinking analyst world (the non-thinking segment would merely accept everything that the Fed did without question, after all their livelihood depended on it), was focused on how massive, and shocking, the Fed’s direct intervention in capital markets had become. And while that was certainly true, what we showed back in November 2013 in “Chart Of The Day: How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water” is that whereas the Fed had injected some $2.5 trillion in liquidity in the US banking system, China had blown the US central bank out of the water, with no less than $15 trillion in increases to Chinese bank assets, all at the behest of a juggernaut of new credit creation – be it new yuan loans, shadow debt, corporate bonds, or any other form of debt that makes up China’s broad Total Social Financing aggregate.

Now, almost six years later, others are starting to figure out what we meant, and in an Op-Ed in the FT, Arthur Budaghyan, chief EM strategist at BCA Research writes about this all important topic of China’s “helicopter” money – which far more than the Fed, ECB and BOJ – has kept the world from sliding into a depression, and yet is blowing the world’s biggest asset bubble. 

Budaghyan picks up where we left off, and notes that over the past decade, Chinese banks have been on a credit and money creation binge, and have created RMB144Tn ($21Tn) of new money since 2009, more than twice the amount of money supply created in the US, the eurozone and Japan combined over the same period. In total, China’s money supply stands at Rmb192tn, equivalent to $28 TRILLION. Why does this matter?

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Chinese Shadow Bank Lending Unexpectedly Crashes, Sending Total Credit Creation To Two-Year Low

June 13, 2018

Chinese Shadow Bank Lending Unexpectedly Crashes, Sending Total Credit Creation To Two-Year Low

According to most flow-tracking economists (and not their clueless, conventionally-trained peers) when one strips away  the noise, there are just two things that matter for the global economy and asset prices: central bank liquidity injections, and Chinese credit creation. This is shown in the Citi charts below.

And if indeed it is just these two variables that matter, then the world is set for a turbulent phase because while global central banks liquidity is set to reverse a decade of expansion, and enter contraction some time in Q3 as the great “liquidity supernova” begins draining liquidity for the first time since the financial crisis…

… the latest Chinese credit creation data released on Tuesday, added significantly to the risk of a “sudden global economic stop” after the PBOC reported that in May, China’s broadest monetary aggregate, the Total Social Financing, just posted it smallest monthly increase since July 2016, confirming that Beijing’s shadow deleveraging campaign is accelerating and gaining even more traction, even if the threat of a global deflationary spillover is rising by the day.

A quick look at the numbers reveals that there was not much of a surprise in traditional new RMB loans, which rose RMB1150bn in May, slightly below consensus RMB1200bn, growing 12.6% yoy in May.

However, it was the sharp, unexpected plunge in Total social financing growth, which attracted attention and which rose only RMB 760.8bn in May, almost half the consensus print of RMB1300bn, and sharply below April’s RMB1560bn increase.

Of the main TSF components, the drop in shadow bank lending was particularly sharp: this has been the area where Beijing has been most focused in their deleveraging efforts as it’s the most opaque and riskiest segment of credit. And, as the chart below show, the aggregate off balance-sheet financing posted its biggest monthly drop on record in May.

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The Central Bank Bubble: It Will Be Ugly

March 21, 2018

The Central Bank Bubble: It Will Be Ugly

21
Mar

The global economy has been living through a period of central bank insanity, thanks to a little-understood expansion strategy known as quantitative easing, which has destroyed main-street and benefitted wall street.

Central Banks over the last decade simply created credit out of thin air. Snap a finger, and credit magically appears. Only central banks can perform this type of credit magic. It’s called printing money and they have gone on the record saying they are magic people. 

Increasing the money supply lowers interest rates, which makes it easier for banks to offer loans. Easy loans allow businesses to expand and provides consumers with more credit to buy goods and increase their debt. As a country’s debt increases, its currency eventually debases, and the world is currently at historic global debt levels. 

Simply put, the world’s central banks are playing a game of monopoly.

With securities being bought by a currency that is backed by debt rather than actual value, we have recently seen $9.7 trillion in bonds with a negative yield. At maturity, the bond holders will actually lose money, thanks to the global central banks’ strategies. The Federal Reserve has already hinted that negative interest rates will be coming in the next recession.

These massive bond purchases have kept volatility relatively stable, but that can change quickly. High inflation is becoming a real possibility. China, which is planning to dethrone the dollar by backing the Yuan with gold, may survive the coming central banking bubble. Many other countries will be left scrambling. Some central banks are attempting to turn the current expansion policies around. Both the Federal Reserve, the Bank of Canada, and the Bank of England have plans to hike interest rates. The European Central Bank is planning to reduce its purchases of bonds. Is this too little, too late?

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Global Deflation Alert: Chinese Credit Creation Tumbles To 27 Month Low

December 14, 2017

Global Deflation Alert: Chinese Credit Creation Tumbles To 27 Month Low

At the end of November, we showed a troubling observation for China – and global – macro watchers from Axiom’s Gordon Johnson: for the first time ever, record Chinese credit creation had failed to stimulate the economy, and in fact the exact opposite appeared to be unfolding – economic growth is slowing across a number of data points despite massive new credit injected into the economy over the past year.

In economic terms, this meant that China’s credit impulse had hit rock bottom, and was perhaps at its lowest level ever, something UBS hinted at over the summer when it showed that no matter how much credit China creates, it can no longer keep the first derivative, i.e. impulse, surging at is had in the past despite record amounts of nominal debt created. Quite the contrary.

And while one can debate the definition of credit impulse, and its impact on the global economy, one thing is clear: China’s credit creation – the growth dynamo of the entire world – is rapidly slowing. We got the latest confirmation of this earlier this week, before last night’s battery of economic data which painted a very mixed picture of the Chinese economy, with retail sales missing, while IP and CapEx barely met expectations…

… when the PBOC reported November new loans of Rmb1.12Trillion and Total Social Financial of Rmb1.6Trillion. While on the surface both numbers appeared solid, beating consensus, a careful read between the lines showed some very troubling details which confirmed that not only was November not the upward “turning point” for monetary policy some expected it to be, worse, China’s credit slowdown was accelerating.

For one, adjusting for municipal bonds and equity raising, as Deutsche Bank did, showed that system credit growth slowed further to 14.4% yoy from 14.9% the prior month.

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The world economic order is collapsing and this time there seems no way out

October 11, 2015

The world economic order is collapsing and this time there seems no way out

Europe has seen nothing like this for 70 years – the visible expression of a world where order is collapsing. The millions of refugees fleeing from ceaseless Middle Eastern war and barbarism are voting with their feet, despairing of their futures. The catalyst for their despair – the shredding of state structures and grip of Islamic fundamentalism on young Muslim minds – shows no sign of disappearing.

Yet there is a parallel collapse in the economic order that is less conspicuous: the hundreds of billions of dollars fleeing emerging economies, from Brazil to China, don’t come with images of women and children on capsizing boats. Nor do banks that have lent trillions that will never be repaid post gruesome videos. However, this collapse threatens our liberal universe as much as certain responses to the refugees. Capital flight and bank fragility are profound dysfunctions in the way the global economy is now organised that will surface as real-world economic dislocation.

The IMF is profoundly concerned, warning at last week’s annual meeting in Peru of $3tn (£1.95tn) of excess credit globally and weakening global economic growth. But while it knows there needs to be an international co-ordinated response, no progress is likely. The grip of libertarian, anti-state philosophies on the dominant Anglo-Saxon political right in the US and UK makes such intervention as probable as a Middle East settlement. Order is crumbling all around and the forces that might save it are politically weak and intellectually ineffective.

The heart of the economic disorder is a world financial system that has gone rogue. Global banks now make profits to a extraordinary degree from doing business with each other. As a result, banking’s power to create money out of nothing has been taken to a whole new level. That banks create credit is nothing new; the system depends on the truth that not all depositors will want their money back simultaneously.

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