Monday, December 23, 2013

China Repo Rates Are Spiking Again, Reliving June 2013; Hard Landing Watch

If the Chinese government can't prevent a hard landing in its economy, the deflationary effect would ripple through the global economy and financial markets. Everything is interconnected. A hard landing in China would probably look like the U.S. asset price bust and deleveraging spiral that occurred in 2008, which realized all of the mal-investment in the too-big-to-fail banking system. But China is different because its government is behind Bubble Capital Management, which is why the Chinese government and PBOC are trying to deleverage its credit bubble slowly to prevent a hard economic landing and to reprice/rebalance its system (1, 2, 3, 4). See Michael Pettis' blog posts in my blogroll.

But even failed bets by large financial institutions can destabilize markets, financial institutions and the economy. Positions linked to distressed European sovereign debt in 2011 destroyed the U.S. financial institution MF Global (1, 2), its clients' money (via fraud), and thousands of jobs. Bear Stearns, Lehman Brothers and AIG are better examples of TBTF financial institutions that destroyed the system.

Here's more info via AFP: China Interbank Rates Surge Again Despite Cash Injection (chart after the jump).


Source: China Foreign Exchange Trade System (ChinaMoney.com.cn)

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