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zugzwang

Aep: China To Instigate Domestic Qe Program

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Crash landing ahoy for the concrete and terror regime?


A front-page article in the China Securities Journal – regulated by the central bank – reported growing concerns about the weakness of the money supply and bad debts accumulating in the financial system.

The authorities may have to widen the range of possible options for “targeted monetary loosening”. These include surgical stimulus for the West and Central regions, as well as “direct asset purchases by the central bank”, mostly government bonds, financial and railroad debt, as well as state-backed housing bonds.

It is the first hint of quantitative easing in China, and has left analysts scratching their heads. The central bank has many other tools available that would normally be used first to combat incipient deflation. The Reserve Requirement Ratio (RRR) is still 20pc. This could be slashed to low single-digits if need be, generating up to $2 trillion of stimulus through higher lending.

Any move in this direction would be a radical policy shift. China has been clamping down on credit deliberately over recent months in order to slow the economy and puncture the property bubble before it becomes any more dangerous, but officials have clearly been having second thoughts for several weeks. Premier Li Keqiang announced a targeted cut in the RRR on Thursday, with lower rates for banks lending to agriculture and small business.

“Chinese-style’ QE is being considered, but would only happen after a sharper economic slowdown,” said Stephen Greene and Becky Liu from Standard Chartered.

They said the central bank is looking at all options except RRR cuts, and could circumvent a ban on direct financing of government debt by using intermediate buyers. One motive would be find a new source of stimulus as the central bank slows the accumulation of foreign reserves, a policy now deemed counter-productive as holdings near $4 trillion.

Standard Chartered said it would amount to “money printing”, and would be a remarkable turn of events given Beijing’s caustic comments about the “irresponsible” monetary policy of the US Federal Reserve.

“For the Chinese to consider domestic bond purchases would be a significant move,” said George Magnus, a senior adviser to UBS. The authorities might conclude that QE packs more punch than further RRR cuts, and would be a better way to steer stimulus directly into social housing or local government finances where it is most needed without reigniting the lending boom in the wrong places.

http://www.telegraph.co.uk/finance/china-business/10868381/China-explores-bond-buying-in-first-hint-of-QE.html

Edited by zugzwang

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I hope it's just a feint.

Mischievous forward-guidance used to do one thing, keep things calm, whilst they actually continue to follow their main intention of tightening.

You can't take your bearings from the MSM.

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Crash landing ahoy for the concrete and terror regime?

From the article

'Home sales dropped in China’s 27 largest cities dropped 30pc in January from a year earlier. Inventory has risen above 24 months supply in nine of these cities, according to the property group Vanke.'

and

'There is an intense debate over whether deflation risks becoming lodged into the economy. Producer prices have fallen for the last 26 months, dropping by 2pc in April. Consumer price inflation has fallen to 1.8pc, far below the central bank’s de facto target of 3.5pc.

The balance sheet of the Chinese central bank has already grown enormously since 2008, matching the QE in the US, but it has done so by accumulating foreign bonds to hold down the yuan. Purchasing bonds internally would be leap in the dark, but strange things are happening in China’s economy.'

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The thing its, it's blatantly obvious that, across the world, we need pay rises, and on a serious scale.

The bottom 90-95% need more cash in their pocket to buy stuff and pay debt. Then the economy might actually start moving of it's own accord. Instead it seems like every possible alternative is being tried first..

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Quick, favoured business may need more profits. Can't allow new entrants, or other money to come in at lower prices.

Just a snippet of things playing through, but not in full context, not as negative as suggested overall in quotes below - yet still indicative of a tightening.

The Times

Tuesday June 3, 2014

The economic slowdown in China will shave $700 million off the predicted profits of airlines this year and erode returns from an industry that makes $5.42 profit from each passenger, aviation industry leaders said yesterday.

A slowdown in world trade and declining business confidence this sprint spurred by lower economic growth in China were likely to pare profits back to $18 billion ($10.7 billion) this year, the International Transport Association (Iata) predicted. Falling business confidence was driving a decline in business-class travel as more executives fly economy class, the chief economist of Iata said on the sidelines of the organisation's annual meeting in Doha.

Goes on about European airlines, high infrastructure and regulatory costs, net profit forecast of $2.8bn this year, or $3.23 a passenger, margin of 1.3%. US carriers most profitable by some margin (forecast $11.09 per passenger). African airlines least profitable at $1.64 a passenger, or profit margin of 0.8% forecast. Even growth region of Asia Pacific, profits of $2.98 a passenger and margins of 1.6% lower than the industry average.

... the chief economist of Iata, said "We think that the global upturn will resume, but we are still in fragile conditions." .... said that historically high fuel costs had dogged the airlines for the past three years. "In many ways it is remarkable that the industry is generating any profit at all," he said. "Business travel is down absolutely because confidence has been falling recently. Even corporate buyers are sensitive to price."
Edited by Venger

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I know that we can't trust the GDP figure, but for amusement let's presume it's correct.

Chinese growth is 7-9% YoY of GDP and they now need an economic rescue and QE way before there is any hint of a "recession".

Perpetual growth is the new economic model, it's so stupid even the "experts" don't question it!

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central banks have only one tool in a credit glut....get more credit out there.

exponential growth is possible and sustainable in their maths.

it is impossible to sustain in the real world/economy.

however, the channels have been set, the rut has been laid and all they can do is continue along their route, so successful in the short term without a care for the cliff ahead....but then, they couldnt possibly see it because they are engrossed in the passage of the Earth beneath and behind them.

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The thing its, it's blatantly obvious that, across the world, we need pay rises, and on a serious scale.

The bottom 90-95% need more cash in their pocket to buy stuff and pay debt. Then the economy might actually start moving of it's own accord. Instead it seems like every possible alternative is being tried first..

Except for allowing deflation. Don't need pay rises if things are getting cheaper. That is what the market is trying to do but governments won't allow the market to work. The consequence of that can only be much greater pain later rather than taking some pain now.

Edited by mikthe20

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The thing its, it's blatantly obvious that, across the world, we need pay rises, and on a serious scale.

The bottom 90-95% need more cash in their pocket to buy stuff and pay debt. Then the economy might actually start moving of it's own accord. Instead it seems like every possible alternative is being tried first..

I agree but how would this be done in a globalized labor market? It's a classic tragedy of the commons dilemma- it's in the self interest of every employer to reduce wages as much as possible-in fact they have no choice if they are to compete globally- but in aggregate this kills the demand those employers depend on to stay in business.

And it's also self perpetuating- as demand falls it becomes more important than ever to keep those wages low in order to be able to compete for what demand remains- but once again this reduces demand still further.

The ongoing currency war is really all about a desperate grab for dwindling world demand- and QE and it's various siblings are another attempt to solve the same problem via increasing lending.

It seems to me that in Globalisation the Elites have built a doomsday machine that constantly sucks the demand out of the global economy and funnels the wealth upwards into the hands of people whose propensity to spend is low, and away the hands of those whose propensity to spend high.

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It seems to me that in Globalisation the Elites have built a doomsday machine that constantly sucks the demand out of the global economy and funnels the wealth upwards into the hands of people whose propensity to spend is low, and away the hands of those whose propensity to spend high.

They've been outbidding me on property, with their big stretched mortgages, making values for older owners of better housing stock worth even more.

The answer is not to create a solution to help people who love to spend. It's just more of the same of what we've got. They should be saving.

We need a HPC, and proceed-able demand would come back.

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They've been outbidding me on property, with their big stretched mortgages, making values for older owners of better housing stock worth even more.

The answer is not to create a solution to help people who love to spend. It's just more of the same of what we've got. They should be saving.

We need a HPC, and proceed-able demand would come back.

They've been outbidding you with borrowed money and you are right, just extending more credit is not the answer.

But more saving is not the answer either;

On a global scale, the wealthiest one percent now have 65 times more wealth than the entire poorest half of the global population does.

That is an astounding figure.

Most people don't realize this, but the ultra-wealthy have approximately 32 trillion dollars (that we know about) stashed in offshore banks around the planet. That amount of money would almost be about enough to pay off the entire U.S. national debt and buy every good and service produced in the United States for an entire year.

http://www.zerohedge.com/news/2014-06-06/greed-good-where-will-americas-sick-obsession-wealth-and-money-end

So there's plenty of savings around- 32 trillion is a big number- the problem is that most of the worlds wealth is concentrated in the hands of people who are not spending it, which is starving the system of the demand it needs to function.

The best way I have seen this described is the following,

Imagine that you are a mobile phone salesman who works on a commission for every phone you sell. In front of you are two doors, behind one door is a single billionaire and behind the other door are a thousand ordinary people.

Which door offers you the highest chance of earning the best commission?

Common sense tells us that it must be the door that leads to the thousand ordinary people, because no matter how rich someone is they are unlikely to buy more phones than they actually need.

So in order for the system to work it's not enough that wealth is created and saved- that wealth must find its way into the hands of people who will spend it into the economy- if it ends up sitting in offshore bank accounts it's just adding to the claims on the system but adding no value to the system.

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The bottom 90-95% need more cash in their pocket to buy stuff and pay debt.

that wealth must find its way into the hands of people who will spend it into the economy

All solved with lower house prices.

Except for allowing deflation. Don't need pay rises if things are getting cheaper. That is what the market is trying to do but governments won't allow the market to work. The consequence of that can only be much greater pain later rather than taking some pain now.

Ding ding ding we have a winner.

Salary Inflation is debt forgiveness for those that over stretched and priced out the responsible. They cannot be allowed to get off the hook. Poor decisions that harm us all MUST have consequences for those making those decisions. The decision to borrow more than they can afford and so price out the more responsible from housing must not be shielded from the consequences of their actions by harming the innocent. It is morally wrong and financially incoherent.

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All solved with lower house prices.

Lower house prices would certainly help- but HPI itself is just a symptom of the fact that easy credit was the solution the elites chose to deal with the failing demand caused by wage stagnation.

Thus we have 'help to buy'- Osborne understands the one trick pony that the UK economy has now become- a credit driven bubble was his only hope for a Tory win in 2015.

The ability of capital to arbitrage wages downward using both cheap offshore labor and technology is the real problem- a problem that the current 'let them eat credit' strategy does not address and only exacerbates.

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Lower house prices would certainly help- but HPI itself is just a symptom of the fact that easy credit was the solution the elites chose to deal with the failing demand caused by wage stagnation.

Thus we have 'help to buy'- Osborne understands the one trick pony that the UK economy has now become- a credit driven bubble was his only hope for a Tory win in 2015.

The ability of capital to arbitrage wages downward using both cheap offshore labor and technology is the real problem- a problem that the current 'let them eat credit' strategy does not address and only exacerbates.

Exactly so. House prices can deflate but the high inequality of wages means that surplus income that the system cannot absorb, will immediately start to build up again as the wealthy try and save. That will then flow into some asset causing another round of bubbles within the global economy. It will be the last 30 years of bubble-dom repeated yet again.

What we need is a system that does not have continual mega-booms and mega-busts. For that to happen wages must rise. There is simply no other choice.

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They always cite the fact that consumers will put off purchases as the evil of deflation. That's boll*cks.

The issue is that deflation and FRB don't compute.

Banks need higher prices basically to stop going bust.

China thread, so I'll keep this short.

All those homes owned outright are dead money, for the banks. They do serve some purpose, I suppose, in giving book value to other mortgages.

Can only 'hope' when balance sheets cleaned up sufficiently, they'll let the market go, and get volume fresh lending, at much lower prices - bringing out a cascade of sellers trying to get out before their homes fall even further in value. Writing £1 trillion of new mortgage at 5% would be very healthy for the banks, and the Government, I would have thought. Although on source below, I think they mean 8.4million (not billion) unmortgaged owner occupiers.

27 January 2014

UK housing stock value climbs to £5,205,000,000,000 but the gap between the haves and the have nots grows
Total value of UK’s housing stock now £5.2tn, from £3.6tn in 2003
Total value rose £186bn in 2013, of which >£100bn in London
10 wealthiest London boroughs worth 9% more than Scotland, Wales and Northern Ireland combined
Westminster and Kensington & Chelsea are together worth >£200 billion, 15% more than Wales
Since 2008:
Private rented sector has risen £275bn to almost £1 trillion
Wealth of 8.4 billion unmortgaged owner occupiers has risen £86 billion to £1.8 trillion
But mortgaged owner occupied sector down -£172bn, an average fall of £11,000 per mortgaged household
Most indebted owner occupiers are in South are Slough (75% debt) and Newham (76%), but Blackpool (79% debt) and Burnley (80%) top the list of most indebted locations
The total value of the UK’s housing stock has risen from £3.6 trillion to £5.2 trillion over the past ten years, but the balance of housing wealth continues to tilt from North to South and become ever more concentrated in the hands of mortgage free homeowners, according to new data from international real estate adviser, Savills.

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From that report: "Total value of UK’s housing stock now £5.2tn, from £3.6tn in 2003".

Last year, from what I could see, most bog standard accommodation was at 2003 prices. Nasty conflict ahead.

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From that report: "Total value of UK’s housing stock now £5.2tn, from £3.6tn in 2003".

Last year, from what I could see, most bog standard accommodation was at 2003 prices. Nasty conflict ahead.

It's possible I suppose, many bog standard homes at 2003 just about hold their value, and any crash sweeps through all of the mid to higher end.

Some of those owners of lower end homes, valued now at around 2003 prices, will have a clear interest in seeing the mid-to-upper fall in value, when they want to upsize, and improve their circumstances.

And hpc wouldn't badly affect others who bought bog standard lower end market value homes more recently, if their own homes don't fall too heavily in value. Older owners tend to own the better housing stock outright.

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It's possible I suppose, many bog standard homes at 2003 just about hold their value, and any crash sweeps through all of the mid to higher end.

Some of those owners of lower end homes, valued now at around 2003 prices, will have a clear interest in seeing the mid-to-upper fall in value, when they want to upsize, and improve their circumstances.

And hpc wouldn't badly affect others who bought bog standard lower end market value homes more recently, if their own homes don't fall too heavily in value. Older owners tend to own the better housing stock outright.

To clarify: by bog standard I mean 2-bed flat on leasehold, with ground rent + service charges. Much of the borrowing was backed by income from tax credits.

I had good insight on this until last year, with inside info on forced sales etc. Not so much anymore - and I don't understand the change. Maybe there is a recovery! The manipulation is a bit boring. Change the channel, Marge!

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They always cite the fact that consumers will put off purchases as the evil of deflation. That's boll*cks.

I saw Paul Mason on the BBC mindlessly parroting this nonsense recently- why are we paying a licence fee for this juvenile level of analysis?- does Mason own a mobile phone or a tablet computer? If so I would love to ask him why, after all if he telling the truth he should still using a landline and a paper notebook while waiting for the prices of mobiles and tablets to fall even further.

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They always cite the fact that consumers will put off purchases as the evil of deflation. That's boll*cks.

The issue is that deflation and FRB don't compute.

Banks need higher prices basically to stop going bust.

I agree with parts of that, and disagree with others.

Like yourself, I don't think consumers will put off purchases for consumption... but they may well put off speculative/investment purchases.

One wouldn't buy shares in a previously nationalized bank, say - even if they were to be priced "below market value" - if one were to be confident that their capital value would shrink.

The only way to get private sector investment in already over-priced assets is to create an environment in which it is credible to expect that their price will be even more ridiculously inflated in future... and it is these purchases, not the purchase of services or consumer goods that is desperately needed - in order to de-leverage the financial system.

It is very interesting how China announces its own QE... it is reminiscent of the pre-Euro squabbles throughout Europe as each nation strived to devalue their currency more than the next. It strikes me as being a dangerous game - though I can't put my finger on the specific things I think are dangerous about it.

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I agree with parts of that, and disagree with others.

Like yourself, I don't think consumers will put off purchases for consumption... but they may well put off speculative/investment purchases.

One wouldn't buy shares in a previously nationalized bank, say - even if they were to be priced "below market value" - if one were to be confident that their capital value would shrink.

The only way to get private sector investment in already over-priced assets is to create an environment in which it is credible to expect that their price will be even more ridiculously inflated in future... and it is these purchases, not the purchase of services or consumer goods that is desperately needed - in order to de-leverage the financial system.

It is very interesting how China announces its own QE... it is reminiscent of the pre-Euro squabbles throughout Europe as each nation strived to devalue their currency more than the next. It strikes me as being a dangerous game - though I can't put my finger on the specific things I think are dangerous about it.

*Everything* is bought on margin to take advantage of leverage. If it isn't going up in price you're not going to make a profit. Without a profit you can't cover your own costs and repay the margin man. The expectation of profit is what determines whether wages go up or not.

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And it's also self perpetuating- as demand falls it becomes more important than ever to keep those wages low in order to be able to compete for what demand remains- but once again this reduces demand still further.

The ongoing currency war is really all about a desperate grab for dwindling world demand- and QE and it's various siblings are another attempt to solve the same problem via increasing lending.

It seems to me that in Globalisation the Elites have built a doomsday machine that constantly sucks the demand out of the global economy and funnels the wealth upwards into the hands of people whose propensity to spend is low, and away the hands of those whose propensity to spend high.

A succinct analysis of the problem.We're doomed if we do,we're doomed if we don't.Everyone's fiddling with the money supply and noone's addressing declining velocity.

Edited by Sancho Panza

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They always cite the fact that consumers will put off purchases as the evil of deflation. That's boll*cks.

The issue is that deflation and FRB don't compute.

Banks need higher prices basically to stop going bust.

Deflation/FRB aren't natural bedfellows but stable prices and low leverage would also prevent bank failures on a massive scale.

It seems to me that the inducement inherent within FRB in it's current form is that bonuses are calcualted solely on the prvious years performance.

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China thread, so I'll keep this short.

All those homes owned outright are dead money, for the banks. They do serve some purpose, I suppose, in giving book value to other mortgages.

Homes owned outright have helped to squeeze supply and aid leverage higher

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