The Global Financial Crisis Is Set To Escalate
The Global Financial Crisis Is Set To Escalate from King World News
September has certainly kicked off with a bang, but world markets will only become more violent as the global financial crisis is set to escalate.
With this holiday shortened week and the end of summer, there will not be an audio interview this weekend, but audio interviews will resume next week.
Expect more articles this Saturday and Sunday.
Global Financial Crisis Set To Escalate
September 7 (King World News) – Jeff Snider at Alhambra Partners: “Chinese monetary authorities announced today what will be for some of its banks a seventh round of “stimulus.” For the largest institutions, it will “only” be their sixth and the first one since January 2019. The PBOC has decided it is time for more RRR cuts. Effective September 16, the ratio all banks are required to hold of reserves will be reduced by 50 bps; applying to certain city banks, the decrease will be 100 bps.
It sounds like a flood of stimulus, enabling China’s beleaguered financial system to utilize more of its own stored up monetary resources. A lower RRR means they can put more of these reserves, more of their money to work in the Chinese economy. That’s how these measures are universally characterized. As you’ll see in every news report, the claim 50 bps RRR is equal to unlocking about RMB 900 billion “liquidity.”
While that may be technically true, it is still a lie of omission. What’s left out of the story is vastly more important. You are left with the misimpression that this is an effective surplus of funds which will be thrown on top of an otherwise static and stable condition. A net increase.
What’s really happening, and why RRR’s are a warning rather than stimulus, is that the 900 billion is meant to hopefully partially fill in a much bigger and more dynamic funding/liquidity gap that already exists.
This is both how and why come September 16 there will have been six rounds of such “stimulus” (7 for small and medium banks) and still there is a clear need for it. If it is stimulus it isn’t very effective. And the reason isn’t China’s trade spat with the US, it is the massive dollar hole which the Chinese just announced to the world they expect to get even bigger over the coming months.
We knew this was coming. How? Nothing more than overnight SHIBOR. As I wrote just a few weeks ago, China’s central bank was losing its grip on the all-important overdraft market. The RRR announcement is effective confirmation of the clear but unconfirmed SHIBOR peg (which may ultimately function more like a ceiling).