China Crash 2011 - Part I: The repetition compulsion of central bankers - Eric Janszen

[jk]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

http://www.telegraph.co.uk/news/worl...s-US-says.html


http://online.wsj.com/article/SB1000...091744070.html


http://www.dvidshub.net/news/63417/g...military-talks


http://www.asahi.com/english/TKY201101110268.html

anyone have any predictions on how long the new u.s. defense austerity approach lasts?

[FRED]

China raises interest rates again

China raises interest rates again

By Annalyn Censky, staff reporterApril 5, 2011: 7:56 AM ET

NEW YORK (CNNMoney) -- For the fourth time in six months, China's central bank is hiking interest rates to combat rising inflation in the country.

The People's Bank of China said Tuesday that it will raise its one-year lending rate to 6.31% from 6.06%, effective Wednesday.

China has raised interest rates incrementally over the last six months in an ongoing effort to tame rapidly rising prices there. Consumer prices surged 4.9% over the 12 months ending in February -- a rate far outpacing price increases in the United States and Europe. more...

[touchring]

Re: China raises interest rates again

China raises interest rates again

By Annalyn Censky, staff reporterApril 5, 2011: 7:56 AM ET

NEW YORK (CNNMoney) -- For the fourth time in six months, China's central bank is hiking interest rates to combat rising inflation in the country.

The People's Bank of China said Tuesday that it will raise its one-year lending rate to 6.31% from 6.06%, effective Wednesday.

China has raised interest rates incrementally over the last six months in an ongoing effort to tame rapidly rising prices there. Consumer prices surged 4.9% over the 12 months ending in February -- a rate far outpacing price increases in the United States and Europe. more...

I'm not optimistic that raising interest rates will help. Why would anyone bother about an additional 1% interest rates when there's no intention to return the money? ;)

Pass a law that imprisons anyone who doesn't pay his bank loans will be far more effective. And maybe also jail the mortgage or loan officer that gave out the delinquent loan also! lol

[ST]

Re: China raises interest rates again

China raises interest rates again

By Annalyn Censky, staff reporterApril 5, 2011: 7:56 AM ET

NEW YORK (CNNMoney) -- For the fourth time in six months, China's central bank is hiking interest rates to combat rising inflation in the country.

The People's Bank of China said Tuesday that it will raise its one-year lending rate to 6.31% from 6.06%, effective Wednesday.

China has raised interest rates incrementally over the last six months in an ongoing effort to tame rapidly rising prices there. Consumer prices surged 4.9% over the 12 months ending in February -- a rate far outpacing price increases in the United States and Europe. more...

Hmm...... Two more 'til crash (?)

[aaron]

Re: China raises interest rates again

If they continue to raise interest rates, does that not attract even more hot money? Doesn't it make sense to loan money to the Chinese ("invest" in China via money borrowed here) when the return is higher? In other words, isn't raising interest rates just going to lead to more inflation ?

One more thing, I know that if I were making 10% on my savings (Chinese have/used to have a lot of savings), I would be spending a lot more money. Won't all the old misers start buying more stuff when they get paid more for their savings?

While I have the utmost faith in Bernanke controlling inflation here in the United States, I do not have the same faith in the Chinese Central Authority being able to control inflation.

[touchring]

Re: China raises interest rates again

I believe that interest rates won't work in China due to corruption. State companies borrow money to build monuments, and we all know how government officials make money - by building stuff - you get kickbacks from contractors. Passing a law that puts the loan officer in jail for issuing delinquent loans will be a better way. lol

If they continue to raise interest rates, does that not attract even more hot money? Doesn't it make sense to loan money to the Chinese ("invest" in China via money borrowed here) when the return is higher? In other words, isn't raising interest rates just going to lead to more inflation ?

One more thing, I know that if I were making 10% on my savings (Chinese have/used to have a lot of savings), I would be spending a lot more money. Won't all the old misers start buying more stuff when they get paid more for their savings?

While I have the utmost faith in Bernanke controlling inflation here in the United States, I do not have the same faith in the Chinese Central Authority being able to control inflation.

[Chomsky]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

Here comes the cinder block at 500mph. From ZH:

Chinese Real Estate Bubble Pops: Beijing Real Estate Prices Plunge 27% In One Month


Could the Chinese monetary tightening be working? The National Bureau of Statistics has released its latest food price update for the period April 1-10, which shows that while most foods continue to rise modestly, several food products have plunged particularly cucumbers and rapes, both falling 8.8%, kidney beans 6.3% and kidney beans down 6.3%. Yet this is nothing compared to what is happening to Chinese real estate: it appears Chanos' long anticipated property bubble may have popped... but the supersonic boom is so loud that nobody has heard it yet.

From Market News:

Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission.

Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.

Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government's crackdown on speculation in the real estate market.

Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December, according to National Bureau of Statistics data.

The central government has launched several rounds of measures since last year designed to cool the housing market, though local government reliance on land sales to plug fiscal holes mean enforcement hasn't been uniform.

The only question is how much actual equity buffer was used in these purchases. For all intents and purposes a drop of this magnitude levered even 2 times (assuming 50% or so equity down) means that China is on the verge of a complete bubble implosion. If the pummelling in the Beijing real estate market shifts to other cities not only is the Chinese tightening regime over, but the SHCOMP in the next few weeks could get very interesting as people understand the world's biggest marginal bubble has popped.

http://www.zerohedge.com/article/chi...e-27-one-month

[Chomsky]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

Another take on this:

http://www.creditwritedowns.com/2011...happening.html

[touchring]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

Big swings in Chinese real estate prices are common. I wouldn't take it serious unless it continues falling for another 2 months.

And besides the last curb involves a ban on buying homes!

http://en.huanqiu.com/business/china...02/623836.html

Local residents with Beijing hukou, who already own two apartments, and non-locals who already own one apartment, will be temporarily forbidden from purchasing houses, China Central Television reported on Wednesday, citing the new guidelines.

[Chris Coles]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

The whole thing depends upon what they have paid and the manner of raising the money. Without that detail, all bets are off ..... for the time being

[Chomsky]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

China raises reserve requirements again.

http://www.bloomberg.com/news/2011-0...inflation.html

[touchring]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

China raises reserve requirements again.

http://www.bloomberg.com/news/2011-0...inflation.html

How are we to know that Chinese banks actually follow the requirements? Giving out loans is so profitable, we all know bank officers get a cut.

[jk]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

WEDNESDAY, MAY 4, 2011
UBS’s Magnus Warns of Risk of Chinese Minsky Moment

UBS strategist George Magnus helped popularize economist Hyman Minsky’s thinking in the runup to the financial crisis by warning of the likelihood of a “Minsky moment.” For those not familiar with Minsky’s work, a short overview from ECONNED:

Hyman Minsky, an economist at Washington University, observed [that] periods of stability actually produce instability. Economic growth and low defaults lead to greater confidence and, with it, lax lending.

In early stages of the economic cycle, thanks to fresh memories of tough times and defaults, lenders are stringent. Most borrowers can pay interest and repay the loan balance (principal) when it comes due. But even in those times, some debtors are what Minsky calls “speculative units” who cannot repay principal. They need to borrow again when their current loan matures, which makes
them hostage to market conditions when they need to roll their obligation. Minsky created a third category, “Ponzi units,” which can’t even cover the interest, but keep things going by selling assets and/or borrowing more and using the proceeds to pay the initial lender. Minsky’s observation:

Over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight of units engaged in speculative and Ponzi finance.

What happens? As growth continues, central banks become more concerned about inflation and start to tighten monetary policy, meaning that

. . . speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently units with cash flow shortfalls will be forced to try to make positions by selling out positions. That is likely to lead to a collapse of asset values.

Ouch.

From that, Magnus coined “Minsky moment” in early 2007, which occurs when

…lenders become increasingly cautious or restrictive, and when it isn’t only over-leveraged structures that encounter financing difficulties . . The risks of systemic economic contraction and asset depreciation become all too vivid.

Given that Magnus was one of the few prior to the financial meltdown (and not too long before either) to see the possibility of a generalized credit contraction, as opposed to, say, a “contained” subprime crisis, his warning on China is worth considering. He highlights, as other commentators have, that China’s dependence on investments, now 47% of GDP, is unprecedented, particularly in a large economy. In addition, half that total is in property investments, which is not necessarily productive.

But what troubles Magnus most about Chinese investment is the degree to which it depends on lending. From the Financial Times:

But a more immediate worry is the growing credit intensity of China’s economy. What China calls “total social financing” – conventional bank loans and most other external sources of finance – was still 38 per cent of GDP in the first quarter of 2011, almost as high as in 2009 when China implemented a credit-centric stimulus programme. The credit intensity of growth, or the amount of new credit generated for each unit of GDP growth, has risen from 1-1.3 before 2009 to 4.3 in 2011.

Despite a 500 basis points rise in bank reserve requirement ratios since January 2010, and four 25bp increases in interest rates since October, credit demand and supply seem barely affected. In real terms, interest rate levels are the lowest for 13 years: the three-month deposit rate stands at -3 per cent, and the one-year lending rate at 1 per cent. Companies are borrowing more as cash-flows weaken, with energy, utility and wage bills rising.

Although formal bank loan volumes are subject to restraint, they only comprise about half of TSF. Companies can also access plentiful liquidity in Hong Kong, where the renminbi deposit market has increased eightfold since mid-2010 to more than RMB400bn and where offshore renminbi financing is rising fast….

But financial instability, arising from excessive credit, increasing inflation and weak investment returns, is always an important catalyst…..In this, the leadership changeover in 2012, a reluctance to compromise growth or alienate workers, and political interests in rising property prices could lead to a premature call of victory over inflation. This might boost asset price and growth in the short term, but increase the likelihood the new leadership will have to deal with a credit-fuelled Minsky moment.

Magnus does depict another set of choices which would steer clear of that result, that of increasing interest rates both to stanch inflation and shift the economic model away from lending-stoked investment towards more consumption. But putting on the brakes will slow growth short term. This is a tricky bit of economic management, and as the experience in the US and other major economies in the 1970s and 1980s showed, politicians are reluctant to induce a recession (which is what it might take in China to shift gears) until the alternative is painful. And even then, the temptation is to abandon the course. Carter pressured Volcker to abandon his squeeze on financial firms and the economy generally; can you imagine either Greenspan or Bernanke showing Tall Paul’s resolve? Today’s nominally independent Fed chairmen have been pre-screened for their bankster friendliness.

Given that preventing labor unrest is a major priority in the Chinese officialdom, it seems they have a non-win situation: either see worker real incomes squeezed further by rising prices, or deprive some, perhaps many, of jobs by putting the brakes on growth. As much as the entire world has every reason to hope for a happy outcome, soft landings are notoriously hard to engineer even in a command economy like China’s.

http://www.nakedcapitalism.com/2011/...ky-moment.html

[bart]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

And from the things that makes one want to go hmmmm department:

[jk]

Re: China Crash 2011 - Part I: The repetition compulsion of central bankers – Part I: Let us raise up then crash the economy, again - Eric Janszen

welcome back, bart. your post reminds me how much we've been missing in your absence.