Originally published at MacroBusiness. WHERE IS CHINA AT TODAY VS. WHERE THE US WAS AT AHEAD OF THE SUBPRIME CRISIS? At the peak of the US subprime bubble before the failure of Bear Stearns in Mar. In our view, this is a very important dynamic to track given it foretells where a country is at in the credit cycle. WHAT ARE THE SIGNS WE ARE SEEING? DOES CHINESE PRESIDENT XI JINPING HAVE ALL OF THIS UNDER CONTROL? In a word, increasingly, it seems the answer is no. Well, in March, interbank rates spiked WAY past the upper corridor of 3.

And, admittedly, while there are levers the PBoC can pull, FX reserves are at scary low levels discussed belowsuggesting the PBoC is quickly running out of bullets. Furthermore, corporate bond issuance in China was negative in C1Q, which means M2 is going to be VERY hard to grow when MO is negative ; at risk of stating the obvious, without M2 growth in China, economic growth i.

Thus, for China, the equation is as follows: Stated differently, based on the IMFs formula, sharply contrasting the Consensus view that China has years of reserves to burn through, China is already below the critical level of minimum reserve adequacy. The early analogy is a good one. This is coming at some point in the next few years.

I remain on guard but skeptical at this point given China does have other levers it can pull to keep the credit running and is indeed pulling them in fiscal policy. Authorities are, after all, bringing this on. That is why we say to you get your money offshore today.

There is a strong political imperative on Xi to keep things stable at the moment. China still has many policy instruments to hand, but there is plenty of evidence that more and more credit is needed in the economy to produce the same amount of growth as just a few years ago.

As the always interesting and insightful Michael Pettis points ou t:. But, as I have been arguing for years, China was not on the verge of a financial collapse and was never likely to collapse as long as regulators were credible and able to restructure liabilities in the banking system with relative ease. Financial crises are caused not by insolvency or economic downturns, but rather by highly inverted asset-liability mismatches severe enough to cause a breakdown when evaporating liquidity prevents the rolling over of liabilities.

On paper, the Chinese financial system seems plagued by such mismatches, but liabilities in a closed banking system with all-powerful regulators are much more stable than they seem because the regulators have many ways to restructure liabilities through the banking system.

As Pettis again points out, the Chinese essentially use the same economic policy as 19th Century America. The core question is whether China follows the US, UK and South Korea in following through successfully, whether it goes the route of Japan and long term stagnation, or follows countries like Brazil and Argentina, who stagger backwards as often as they stride forward. The Chinese are acute students of economic history, so they are well aware of the dangers.

They may, however, not be able to control things if it goes out of control. Pettis, btw, has said that while he thinks there is a real danger of a financial crisis, he thinks it is more likely that China will soon fall into a low growth pattern, similar if not quite as bad as post Japan. That said, there is I think a unique danger in China.

Bear Stearns' Big Bailout - Bloomberg

It is that so many of the Chinese rich have stashed enough money abroad that they may find it better to flee than to work their way through a difficult period. There is a real possibility I think that even if the regulators do everything right, a panic reaction to some bad news could lead to a huge financial run.

There is also a multiplicity of informal lending schemes in every Chinese town and city many of which, I suspect, are ponzi schemeswhich could potentially run badly out of control.

China is experiencing the same awkward issue as the US and Europe: Run for your lives! Presumably the Chinese authorities still have a few more tricks up their sleeve before the deal goes down. Kyle Bass is massively overrated just like pretty much every guy who made their name during ulukartal forex gvenilir mi subprime crisis.

Another example is John Paulson. From the perspective of a companies stock market debut abbreviation entirely obsessed with bear stearns cash reserves, NeoLib Capitalism, bear stearns cash reserves is difficult to imagine the tools and opportunities of a system with profoundly different values.

The authors of this paper are hampered by such an obsession buy berkshire hathaway stock split price seems to me.

Bearn Stearns: Collapse and Bailout Timeline

No doubt the Chinese leadership is as keen to hold on to power as ours is, but they see different means due to different values and power structures. Posting as a lay-person, the answer I think you are looking for is no, they have not had depressions or recessions like the United States and Europe, or even Japan.

However, again as a lay-person, this is no reason for me to think that the system is necessarily better-managed. The free markets, for all of their downsides regarding income inequality and slow gentrification, tend to be much more efficient than state-run economies like China. The point of this article and other like it, I believe, is that eventually, everything must succumb to woodstock market antiques. China is no different.

I am too young to remember the seventies when people thought Japan would rule the world, but I predict that this growth miracle will have a very similar ending.

I remember the seventies very well. And, yes, there was a great deal of fear re: Japan ruling the world. How wrong that prediction turned out to be. I had a prof who was a world-renowned authority on the Chinese economy. The biggest challenge in his field? If the Chinese rich try to flee in some visible manner, would the ChinaGov be able to use all its armed and police power to physically stop them from fleeing. The big driver of US growth then was population increase, period. The US went from 5 million people in to 76 million people in The US was giving away land penny stock to buy today most of that century to have it exploited, ie, farmed.

The US did build railroads…. They were more important as vehicles for stock market speculation than as productive companies. The US of course had great advantages in population and resources, but so did Argentina and Brazil. I suspect Pettis focused on the US to emphasise that there is really nothing particularly new about the Chinese growth model — in reality Japan and South Korea are closer examples.

He actually suggests that the railroads is a good example of what the US got right. They went bust, they the equity risk premium on the swedish stock market bought up cheap, and the new owners were able to reduce carriage costs significantly as the debt load had been wiped out.

PBoC will allocate funding more tightly, focusing on the banks which have a genuine need. Very odd to see the UK as an exemplar of economic growth.

So the yuan is not quite in that position as a global currency yet, but it is still a tool for the Chinese. Of course they will supply the money for as long as it takes. We can forget trading journal spreadsheets for futures as we once knew it — putting nickels in our piggy banks.

The US may want China to grovel, but it does not want it to collapse — because supply chains. The reserves are made of gold or a specific currency.

S&P Rates Bear Stearns U.S. Cash Reserves ’AAAm’

They can also be special drawing rights and marketable securities denominated in foreign currencies like treasury bills, government bonds, corporate bonds and equities and foreign currency loans. It is easy for westerners to forget the amount of control the government of China has over everything and also the amount of power Chinese businesses have over people persons and businesses who owe them money. I think the Chinese government will do everything and anything to avoid a mess.

I guess enough realized the subscription was a waste of money. I stopped reading MB a couple years ago happily. Talking his book, perchance? Granted, it makes sense. Australia is in the unhappy position of dependence on a single customer. Sadly there could be some rocky times ahead for the Lucky Country.

Way too dependent on the Chinese. I know some people who are shorting HSBC, my former employer, and StanChart in anticipation of such an event. What will Xi do if and when it collapses? Can he pull an Obama and let the banking authorities off or will heads literally roll? They say they do, so why not, right? The problem is that this growth rate has been propped up by tremendous credit expansion, particularly over the last seven to ten years, since the GR.

The Fed - Bear Stearns, JPMorgan Chase, and Maiden Lane LLC

Now, every dollar of GDP expansion is costing more and more debt. With regards to FX reserves, the article speaks about what the minimum required FX reserves are for a currency, in this case the RMB. I know it states it in terms of the country, but the FX reserves to me are really a function of the value of the currency. This could be a misconception on my part, but there it is.

Anyway, there really is no choice but to play until the deck is exhausted. I am interested to see how the next two to three years plays out. If China makes it through alright, then maybe all the folks talking about the invulnerable command economy will be proven right, and we can look back on these kinds of articles with a sort of vague amusement of how paranoid we were.

In a couple of Bear Stearns hedge funds went bankrupt. No Bear Stearns most decidedly collapsed in March The run started in early March and it was toast by Friday March Thankfully the South China Morning Post [cf.

This is total bullshit. China has many problems but it still has a large balance of payments surplus, extremely large domestic deposits and at least a meaningful part of their debt burden was to finance the larger infrastructure and industrial apparaturs in the world.

In the meantime, UK has an absurdly high balance of payments deficit, the industrial apparatus is foreigners owned and is a huge energy importer what will happen when oil be back to 80 or more? I think analysts do really exist anymore? Then, yes, there is China too. Universities in developed countries have large contingents of Chinese students in their STEM programs. I have a grandson in a primary school in Canada where entrance is by competitive examinations and auditions.

Over applicants and 23 positions, one third of the students admitted are Chinese. The school was founded by the Irish and is still run by the Irish Catholic so there is no question of ethnic pull or money favourably biasing the selection.

As to which country will thrive in the long run, I would put my money on China. Nothing is likely to happen until after October when the 19th National Congress occurs.

Xi will use everything in his arsenal — figuratively and literally — to not let the economy implode until after that point when he further consolidates power. Your email address will not be published.

Fearless commentary on finance, economics, politics and power Follow yvessmith on Twitter Feedburner RSS Feed RSS Feed for Comments Subscribe via Email SUBSCRIBE. Home About Archives Bloggers Policies Documents Limited Partnership Agreements Contact. Originally published at MacroBusiness From Axiom Capital.

Interbank Rates in China Source: Overnight Reverse Repo Rate Source: Subscribe to Post Comments. Leave a Reply Cancel reply Your email address will not be published. Tip Jar Please Donate or Subscribe! JEHR on Gaius Publius: Years ago I read a