Olduvaiblog: Musings on the coming collapse

Home » 2014 » March » 14

Daily Archives: March 14, 2014

This Is The Reality Of It: "We Are Factually In A Recession. Period."

This Is The Reality Of It: “We Are Factually In A Recession. Period.”.

Mac Slavo
March 13th, 2014
SHTFplan.com

Comments (197)
Read by 10,473 people

We can cite scores of statistics and financials that prove without a shadow of a doubt that the U.S. economy is in a tail spin and won’t be recovering any time soon. Abysmal home sales, continued degradation in the national employment numbers, sky rocketing national debt, and ever rising consumer prices all point to serious problems.

But one number in particular pretty much sums it all up. It depicts not just the worsening state of our economy, but puts the lies and machinations of the U.S. government on full display for the world to see.

You’ll often hear the media cite the U.S. Growth Domestic Product (GDP) as a measure of economic growth. It measures the rate at which our economy grows.

In 2013, for example, our GDP was $17.08 trillion, up from the previous year’s $16.42 trillion. So, all of the goods and services sold throughout the United States (essentially, all of the money spent by Americans) rose about $661 billion dollars year-over-year.

Most people might look at the number, see 4% growth, and say it’s a no-brainer. How can the economy not be growing if the GDP rose?

The answer is simple. And when you look at it from the perspective Karl Denninger of the Market Ticker outlines below, you can’t help but realize that you’ve been purposely duped into believing that things are getting better. Just the opposite is true.

When looking at GDP you absolutely must account for the manufactured credit infused into the system during this same time period. When you do you’ll see just why the economy is not growing in any way, shape or form.

It is, in fact, contracting.

However, The Federal Reserve added $1.112 trillion in credit (unbacked by anything) during the same period of time; that’s a debasement of the units in which GDP is reported of 6.51%.

So the real change in the economy is in fact negative 2.51%.

We are factually in a recession.

Period.

There can be no progress economically or politically until the lies are stopped.  These are not mistakes; both the hosts and guest are fully-aware of The Fed’s balance sheet.

That extra trillion dollars slammed into the system by The Fed pretty much wipes out any growth noted by the Federal government’s statistics, because we never actually earned that money. It’s debt. Not growth!

Incidentally, the other oft cited measure of economic health is the Dow Jones Industrial Average, which currently sits around record all-time highs of 16,000 points, is likewise benefiting from this illusion. Guess where that stock market “growth” came from? Yes, the very same credit being used to prop up the economy (that $85 billion or so in Fed Treasury purchases every month) is also keeping stocks at record highs.

Back on Main Street, where most Americans live, we’re feeling the effects. Do we need to mention that the Patient Affordable Care Act has just forced working Americans to spend up to quadruple on their monthly premiums? Or that millions of Americans who are unemployed and no longer counted in the official statistics have absolutely no income whatsoever because their unemployment insurance has run out? Or that the price of everything from food and energy to rent and clothing is rising?

That kind of thing tends to happen when you debase your currency.

Last week famed contrarian economist John Williams noted that the economy gave apowerful recessionary signal in January that had not been seen since right before the market crash in 2007. Furthermore, one of the leading economic indicators of a recessionary environment is the price of copper because it is so closely associated with global growth. It has dropped significantly in recent months and it could well besignaling a coming crash in stocks just as it did in 2008.

When, not if, this thing buckles again we’re going to be in for an unprecedented period in U.S. history.

The system was on the brink of total collapse in 2008, as evidenced by Representative Brad Sherman on the House floor:

Many of us were told in private conversations that if we voted against this bill on Monday, that the sky would fall, the market would drop two or three thousands points the first day, another couple thousand the second day, and a few members were even told that there would be martial law in America if we voted no.

House Representative Brad Sherman (D-California)
Debate on the House Floor, October 2, 2008

They’ve used up all of the tricks in their magic hat. One misstep here and we’re going down. Any number of domestic or geo-political events could trigger a meltdown in U.S. stock markets and send the broader economy crashing.

Advertisements

This Is The Reality Of It: “We Are Factually In A Recession. Period.”

This Is The Reality Of It: “We Are Factually In A Recession. Period.”.

Mac Slavo
March 13th, 2014
SHTFplan.com

Comments (197)
Read by 10,473 people

We can cite scores of statistics and financials that prove without a shadow of a doubt that the U.S. economy is in a tail spin and won’t be recovering any time soon. Abysmal home sales, continued degradation in the national employment numbers, sky rocketing national debt, and ever rising consumer prices all point to serious problems.

But one number in particular pretty much sums it all up. It depicts not just the worsening state of our economy, but puts the lies and machinations of the U.S. government on full display for the world to see.

You’ll often hear the media cite the U.S. Growth Domestic Product (GDP) as a measure of economic growth. It measures the rate at which our economy grows.

In 2013, for example, our GDP was $17.08 trillion, up from the previous year’s $16.42 trillion. So, all of the goods and services sold throughout the United States (essentially, all of the money spent by Americans) rose about $661 billion dollars year-over-year.

Most people might look at the number, see 4% growth, and say it’s a no-brainer. How can the economy not be growing if the GDP rose?

The answer is simple. And when you look at it from the perspective Karl Denninger of the Market Ticker outlines below, you can’t help but realize that you’ve been purposely duped into believing that things are getting better. Just the opposite is true.

When looking at GDP you absolutely must account for the manufactured credit infused into the system during this same time period. When you do you’ll see just why the economy is not growing in any way, shape or form.

It is, in fact, contracting.

However, The Federal Reserve added $1.112 trillion in credit (unbacked by anything) during the same period of time; that’s a debasement of the units in which GDP is reported of 6.51%.

So the real change in the economy is in fact negative 2.51%.

We are factually in a recession.

Period.

There can be no progress economically or politically until the lies are stopped.  These are not mistakes; both the hosts and guest are fully-aware of The Fed’s balance sheet.

That extra trillion dollars slammed into the system by The Fed pretty much wipes out any growth noted by the Federal government’s statistics, because we never actually earned that money. It’s debt. Not growth!

Incidentally, the other oft cited measure of economic health is the Dow Jones Industrial Average, which currently sits around record all-time highs of 16,000 points, is likewise benefiting from this illusion. Guess where that stock market “growth” came from? Yes, the very same credit being used to prop up the economy (that $85 billion or so in Fed Treasury purchases every month) is also keeping stocks at record highs.

Back on Main Street, where most Americans live, we’re feeling the effects. Do we need to mention that the Patient Affordable Care Act has just forced working Americans to spend up to quadruple on their monthly premiums? Or that millions of Americans who are unemployed and no longer counted in the official statistics have absolutely no income whatsoever because their unemployment insurance has run out? Or that the price of everything from food and energy to rent and clothing is rising?

That kind of thing tends to happen when you debase your currency.

Last week famed contrarian economist John Williams noted that the economy gave apowerful recessionary signal in January that had not been seen since right before the market crash in 2007. Furthermore, one of the leading economic indicators of a recessionary environment is the price of copper because it is so closely associated with global growth. It has dropped significantly in recent months and it could well besignaling a coming crash in stocks just as it did in 2008.

When, not if, this thing buckles again we’re going to be in for an unprecedented period in U.S. history.

The system was on the brink of total collapse in 2008, as evidenced by Representative Brad Sherman on the House floor:

Many of us were told in private conversations that if we voted against this bill on Monday, that the sky would fall, the market would drop two or three thousands points the first day, another couple thousand the second day, and a few members were even told that there would be martial law in America if we voted no.

House Representative Brad Sherman (D-California)
Debate on the House Floor, October 2, 2008

They’ve used up all of the tricks in their magic hat. One misstep here and we’re going down. Any number of domestic or geo-political events could trigger a meltdown in U.S. stock markets and send the broader economy crashing.

US Issues Travel Alert For Russia, Warns Of "Potential Military Clashes (Either Accidental Or Intentional)" | Zero Hedge

US Issues Travel Alert For Russia, Warns Of “Potential Military Clashes (Either Accidental Or Intentional)” | Zero Hedge.

Just out from the State Department, which in the aftermath of the most recent failure by John Kerry to resolve the Ukraine situation, appears to be escalating to populism and engaging the general public. The best part in the warning is the following clarification: “all U.S. citizens located in or considering travel to the border region, specifically the regions bordering Ukraine in Bryansk, Kursk, Belgorod, Voronezh, and Rostov Oblasts and Krasnodar Krai, should be aware of the potential for escalation of tensions, military clashes (either accidental or intentional).” Somehow we have a feeling we may be seeing a spike in “accidental military clashes” over the next week.

From the State Department:

Russian Federation Travel Alert – Events in Ukraine

The Department of State alerts U.S. citizens in Russia to the ongoing tensions in Ukraine and the potential for increased public demonstrations and anti-American actions in Russia in connection with Russian actions in the Crimea.  The Department of State also alerts U.S. citizens in Russia to the heightened military presence and on-going military exercises of the Armed Forces of the Russian Federation along the border region with Ukraine.  This Travel Alert expires on June 13, 2014.  The Department of State strongly recommends that all U.S. citizens residing or traveling abroad enroll in the Smart Traveler Enrollment Program (STEP) in order to receive pertinent safety and security information.

The U.S. government currently has no information concerning active military conflict inside Russia as a result of regional tensions or of any threat specific to U.S. citizens.  However, all U.S. citizens located in or considering travel to the border region, specifically the regions bordering Ukraine in Bryansk, Kursk, Belgorod, Voronezh, and Rostov Oblasts and Krasnodar Krai, should be aware of the potential for escalation of tensions, military clashes (either accidental or intentional), or other violence, and the potential for threats to safety and security.  Media accounts note there has been a sizable Russian military build-up in those regions and there are reports of an increased presence of Russian neo-Nazi and radical nationalist and extremist groups in those regions.

U.S. citizens considering travel to Russia should evaluate their personal security situation in light of current political tensions and the possibility of violence or anti-U.S. actions directed against U.S. citizens or U.S. interests.

The Department of State advises that U.S. citizens should avoid all public demonstrations, whether properly authorized by local officials or not, and avoid any large crowds and public gatherings that lack enhanced security measures.  Demonstrations related to the conflict may appear anywhere throughout Russia, at any time.  These demonstrations may increase the possibility of confrontation and violence.  Review your personal security plans, remain aware of your surroundings, including local events, and monitor local news stations for updates.  Maintain a high level of vigilance and take appropriate steps to enhance your personal security.  

We strongly recommend that U.S. citizens traveling to or residing in Russia enroll in the Department of State’s Smart Traveler Enrollment Program (STEP).  STEP enrollment allows you to receive the Department’s safety and security updates, and makes it easier for the nearest U.S. embassy or U.S. consulate to contact you in an emergency.  If you do not have Internet access, enroll directly with the nearest U.S. embassy or consulate.

US Issues Travel Alert For Russia, Warns Of “Potential Military Clashes (Either Accidental Or Intentional)” | Zero Hedge

US Issues Travel Alert For Russia, Warns Of “Potential Military Clashes (Either Accidental Or Intentional)” | Zero Hedge.

Just out from the State Department, which in the aftermath of the most recent failure by John Kerry to resolve the Ukraine situation, appears to be escalating to populism and engaging the general public. The best part in the warning is the following clarification: “all U.S. citizens located in or considering travel to the border region, specifically the regions bordering Ukraine in Bryansk, Kursk, Belgorod, Voronezh, and Rostov Oblasts and Krasnodar Krai, should be aware of the potential for escalation of tensions, military clashes (either accidental or intentional).” Somehow we have a feeling we may be seeing a spike in “accidental military clashes” over the next week.

From the State Department:

Russian Federation Travel Alert – Events in Ukraine

The Department of State alerts U.S. citizens in Russia to the ongoing tensions in Ukraine and the potential for increased public demonstrations and anti-American actions in Russia in connection with Russian actions in the Crimea.  The Department of State also alerts U.S. citizens in Russia to the heightened military presence and on-going military exercises of the Armed Forces of the Russian Federation along the border region with Ukraine.  This Travel Alert expires on June 13, 2014.  The Department of State strongly recommends that all U.S. citizens residing or traveling abroad enroll in the Smart Traveler Enrollment Program (STEP) in order to receive pertinent safety and security information.

The U.S. government currently has no information concerning active military conflict inside Russia as a result of regional tensions or of any threat specific to U.S. citizens.  However, all U.S. citizens located in or considering travel to the border region, specifically the regions bordering Ukraine in Bryansk, Kursk, Belgorod, Voronezh, and Rostov Oblasts and Krasnodar Krai, should be aware of the potential for escalation of tensions, military clashes (either accidental or intentional), or other violence, and the potential for threats to safety and security.  Media accounts note there has been a sizable Russian military build-up in those regions and there are reports of an increased presence of Russian neo-Nazi and radical nationalist and extremist groups in those regions.

U.S. citizens considering travel to Russia should evaluate their personal security situation in light of current political tensions and the possibility of violence or anti-U.S. actions directed against U.S. citizens or U.S. interests.

The Department of State advises that U.S. citizens should avoid all public demonstrations, whether properly authorized by local officials or not, and avoid any large crowds and public gatherings that lack enhanced security measures.  Demonstrations related to the conflict may appear anywhere throughout Russia, at any time.  These demonstrations may increase the possibility of confrontation and violence.  Review your personal security plans, remain aware of your surroundings, including local events, and monitor local news stations for updates.  Maintain a high level of vigilance and take appropriate steps to enhance your personal security.  

We strongly recommend that U.S. citizens traveling to or residing in Russia enroll in the Department of State’s Smart Traveler Enrollment Program (STEP).  STEP enrollment allows you to receive the Department’s safety and security updates, and makes it easier for the nearest U.S. embassy or U.S. consulate to contact you in an emergency.  If you do not have Internet access, enroll directly with the nearest U.S. embassy or consulate.

US Drone "Intercepted" Over Crimea By Russian 'Self-Defense' Forces | Zero Hedge

US Drone “Intercepted” Over Crimea By Russian ‘Self-Defense’ Forces | Zero Hedge.

An American scout-attack drone, “almost invisible at a height of 4000 meters” has, according to AFP, been intercepted in the Crimean sky. Reports from the Russian state arms and technology group Rostec stated, judging by side-markings it was an MQ-5B drone – which is likely part of the 66th US Recon Brigade based in Bavaria. It was possible to break the drone’s link with its American operators with the help of the EW (electronic warfare) complex Avtobaza. As a result, the device made an emergency landing and passed into the possession of the self-defense forces almost unbroken.”

Via AFP,

An American scout-attack drone was intercepted in the Crimean sky, the Rostec state corporation reports. “Judging by side marking, the MQ-5B drone was part of the 66th US brigade of military intelligence with the main location in Bavaria,” the report on the website of the corporation reads.

According to the report, at the beginning of March, the American brigade was relocated to the Ukrainian Kirovohrad, from where drones commit reconnaissance raids in the direction of Crimea and Russian border areas.

Earlier, they reportedly appeared in the Kherson region, in the area of the Crimean roadblock Chongar. “According to some data, the American reconnaissance brigade had 18 MQ-5B drones in its arsenal. This is the second time the American UAV is intercepted over Crimea,” the report says.

The drone was at the height of about 4 thousand meters and was practically invisible from the earth. It was possible to break the drone’s link with its American operators with the help of the EW (electronic warfare) complex Avtobaza. As a result, the device made an emergency landing and passed into the possession of the self-defense forces almost unbroken,” the report says.

“Self-defense” it would appear does not cross a red-line (until Sunday).

It is perhaps ironic that the US is complaining abouit Russia’s military presence in Ukraine even as its own equipment is reportedly operating in the country.

What next: CIA spooks in Kiev inciting a violent coup, oh wait, that would be Libya or Egypt. And everyone knows what a success that way.

And as expected, the Pentagon promptly denied the drone belonged to the US. It denied it not the biblical three times, but four. They must really mean it.

Seeking expert opinion on who else has UAV MQ-5B drones. Pentagon say not playing semantics “No truth” its US. Asked four times, four ways.

— Peter Foster (@pmdfoster) March 14, 2014

US Drone “Intercepted” Over Crimea By Russian ‘Self-Defense’ Forces | Zero Hedge

US Drone “Intercepted” Over Crimea By Russian ‘Self-Defense’ Forces | Zero Hedge.

An American scout-attack drone, “almost invisible at a height of 4000 meters” has, according to AFP, been intercepted in the Crimean sky. Reports from the Russian state arms and technology group Rostec stated, judging by side-markings it was an MQ-5B drone – which is likely part of the 66th US Recon Brigade based in Bavaria. It was possible to break the drone’s link with its American operators with the help of the EW (electronic warfare) complex Avtobaza. As a result, the device made an emergency landing and passed into the possession of the self-defense forces almost unbroken.”

Via AFP,

An American scout-attack drone was intercepted in the Crimean sky, the Rostec state corporation reports. “Judging by side marking, the MQ-5B drone was part of the 66th US brigade of military intelligence with the main location in Bavaria,” the report on the website of the corporation reads.

According to the report, at the beginning of March, the American brigade was relocated to the Ukrainian Kirovohrad, from where drones commit reconnaissance raids in the direction of Crimea and Russian border areas.

Earlier, they reportedly appeared in the Kherson region, in the area of the Crimean roadblock Chongar. “According to some data, the American reconnaissance brigade had 18 MQ-5B drones in its arsenal. This is the second time the American UAV is intercepted over Crimea,” the report says.

The drone was at the height of about 4 thousand meters and was practically invisible from the earth. It was possible to break the drone’s link with its American operators with the help of the EW (electronic warfare) complex Avtobaza. As a result, the device made an emergency landing and passed into the possession of the self-defense forces almost unbroken,” the report says.

“Self-defense” it would appear does not cross a red-line (until Sunday).

It is perhaps ironic that the US is complaining abouit Russia’s military presence in Ukraine even as its own equipment is reportedly operating in the country.

What next: CIA spooks in Kiev inciting a violent coup, oh wait, that would be Libya or Egypt. And everyone knows what a success that way.

And as expected, the Pentagon promptly denied the drone belonged to the US. It denied it not the biblical three times, but four. They must really mean it.

Seeking expert opinion on who else has UAV MQ-5B drones. Pentagon say not playing semantics “No truth” its US. Asked four times, four ways.

— Peter Foster (@pmdfoster) March 14, 2014

Venezuela Also Is Being Overthrown By The Criminal Regime In Washington — Paul Craig Roberts – PaulCraigRoberts.org

Venezuela Also Is Being Overthrown By The Criminal Regime In Washington — Paul Craig Roberts – PaulCraigRoberts.org.

Dear Readers, now that US Secretary of State John Kerry has issued an ultimatum to Russia, telling Putin that he has until Monday to follow Washington’s orders or else,
hopefully everyone can see the repeat of the March of Folly that produced World War 1.
In my last column, “Merkel Whores For Washington,” I mistakenly attributed to Khrushchev all transfers of Russian territory to Ukraine. The first gifts of Russian territories to Ukraine were made by Lenin, and the last was Sevastopol in the early 1990s. I have posted today Alexandr Solzhenitsyn’s account of how Russian territory was given to Ukraine. In the meantime, Washington’s puppet regime in Kiev has sent in thugs to commit violence against protesting Russians who want nothing to do with Washington’s stooges in Kiev, prompting Russia to issue another warning that the Russian military will protect Russians. Clearly, Washington is doing everything it can to provoke Putin into sending the Russian Army into eastern Ukraine. Now that Merkel has sold out Europe, the course of Ukrainian events seems clear, which provides an opportunity for me to address Washington’s coup-in-the-making against Venezuela.

Venezuela Also Is Being Overthrown By The Criminal Regime In Washington

Paul Craig Roberts

The Washington orchestrated coup in Ukraine has kept Venezuela out of the headlines.
A confrontation with nuclear armed Russia is more dangerous than with Venezuela. But the violence that Washington has unleashed on Venezuela almost simultaneously with Ukraine is testimony to Washington’s stark criminality.

South America has always consisted of a tiny Spanish elite with all the money and power ruling over large majority populations of indigenous peoples who have not had political representation. In Venezuela, Chavez broke this pattern. An indigenous president was elected who represented the people and worked in their behalf instead of looting the country. Chavez became a role model, and indigenous presidents were elected in Ecuador and Bolivia.

Chavez was hated by Washington and demonized by American presstitutes. When Chavez died of cancer, Washington celebrated.

Evo Morales, President of Bolivia, was inclined in favor of granting asylum to NSA whistleblower Edward Snowden. Consequently, Washington ordered its European puppet states to deny overflight permission to President Morales’ airplane on its return to Bolivia from Russia. Morales’ airplane, in violation of every diplomatic protocol, was forced down and searched. Morales has since suffered other indignities at the hands of the Washington criminals.

Rafael Correa, President of Ecuador, made himself a target of Washington by granting political asylum to Julian Assange. On Washington’s orders, Washington’s British puppet state has refused to grant free passage to Assange, and Assange is spending his life in the London Embassy of Ecuador, just as Cardinal Mindszenty spent his life in the US Embassy in Communist Hungary.

With Chavez’s death, indigenous Venezuelan Nicolas Maduro became president. Maduro does not have Chavez’s charisma, which makes him an easier target for the tiny Spanish elite that owns the media.

Washington began the attack on Maduro by attacking the Venezuelan currency and driving down its value in currency markets. Then university students, many of whom are the children of the rich Spanish elites, were sent out to protest. The falling Venezuelan currency raised prices and spread dissatisfaction among Maduro’s poor indigenous base. To put down the rioting, property damage, and unrest that Washington is using to launch a coup, Maduro had to turn to the police. Secretary of State John Kerry has labeled the government’s effort to reestablish public order and forestall a coup a “terror campaign against its own citizens.”

Having orchestrated the protests and plotted a coup, Kerry blamed Maduro for the violence that Kerry unleashed and called on Maduro “to respect human rights.”

For Washington, it is always the same script. Commit a crime and blame the victim.

If Washington can overthrow Maduro, the next target will be Correa. If Washington can get rid of Correa and re-empower a puppet government of rich Spanish elites, Washington can have the Ecuadoran government revoke the political asylum that Correa granted to Julian Assange. The Ecuadoran Embassy in London will be ordered to kick Assange out into the waiting arms of the British police who will send him to Sweden who will send him to Washington to be tortured until he confesses to whatever Washington demands.

The poor gullible dupes demonstrating in Venezuelan streets have no more idea of the damage they are doing to themselves and others than their counterparts in Ukraine had. Venezuelans have already forgot what life for them was like under the rule of the Spanish elites. It appears that Venezuelans are determined to help Washington to return them to their servitude.

If Washington reconquers Venezuela and Ecuador, Bolivia will be next. Then Brazil. Washington has its sights on Brazil, because the country is a member of the BRICS (Brazil, Russia, India, China, South Africa), and Washington intends to destroy this organization before the countries can establish a trading bloc that does not use the US
dollar.

Not long ago a US official said that as soon as we (Washington) get Russia in a bind, we will deal with the upstarts in South America.

The program is on schedule.

China's Credit Nightmare Explained In One Chart | Zero Hedge

China’s Credit Nightmare Explained In One Chart | Zero Hedge.

Everyone knows that after years of kicking the can and resolutely sticking its head in the sand, China is finally on the verge, if hasn’t already crossed it, of a major credit event, confirmed by the first ever corporate bond default which took place a week ago. Few, however, know just why China is in this untenable position. If we had to select one data point with which to explain it all, it would be the following: just in the fourth quarter of 2013, Chinese bank assets rose from CNY147 trillion to CNY151.4 trillion, or, in dollar terms, an increase of almost exactly $1 trillion!

By comparison, US bank assets in the same period rose by just over $200 billion, a number which consists almost entirely of the reserves injected by the Fed.

And if we had to show it in one chart, it would be the following comparison of total Chinese and US bank assets: the two lines shown below are on the same axis, and at the end of 2009, the US had just a fraction more assets than China. Since then the US has added $2.3 trillion in bank assets, exclusively thanks to the Fed’s reserve creation. As for China… total bank assets more than doubled from $11.5 trillion to a record $25 trillion! This is a number that is nearly double that of the US, and represents a pace of $3.5 trillion per year – or nearly four concurrent QEs – a rate of “financial asset” addition five times greater than in the US!

 

Another way of showing just the past three years:

 

What’s worse: China is now hooked to a “flow” pace of $3.5 trillion each and every year, just to generate an annual GDP of about 8% and declining with every passing year. Any reductions in the pace of monetary flow will have magnified implications on China’s growth, and from there, social, and globa, stability.

But what does this really mean? Simple: in this epic, unprecedented, feverish pace to “grow” the economy and create hot, if worthless, money out of assets, all assets, even “magic” assets (i.e. thin air), the following took place:

CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.

Until now nobody cared because defaults were prohibited in China and nobody really cared what was underneath the hood. Now, defaults are allowed and, in fact, are encouraged. Which is why suddenly everyone is starting to cast curious glances into the dark shadows where the engine is supposed to be.

They won’t like what they find.

Curious for more: read Chart Of The Day: How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water, and Some Stunning Perspective: China Money Creation Blows US And Japan Out Of The Water

China’s Credit Nightmare Explained In One Chart | Zero Hedge

China’s Credit Nightmare Explained In One Chart | Zero Hedge.

Everyone knows that after years of kicking the can and resolutely sticking its head in the sand, China is finally on the verge, if hasn’t already crossed it, of a major credit event, confirmed by the first ever corporate bond default which took place a week ago. Few, however, know just why China is in this untenable position. If we had to select one data point with which to explain it all, it would be the following: just in the fourth quarter of 2013, Chinese bank assets rose from CNY147 trillion to CNY151.4 trillion, or, in dollar terms, an increase of almost exactly $1 trillion!

By comparison, US bank assets in the same period rose by just over $200 billion, a number which consists almost entirely of the reserves injected by the Fed.

And if we had to show it in one chart, it would be the following comparison of total Chinese and US bank assets: the two lines shown below are on the same axis, and at the end of 2009, the US had just a fraction more assets than China. Since then the US has added $2.3 trillion in bank assets, exclusively thanks to the Fed’s reserve creation. As for China… total bank assets more than doubled from $11.5 trillion to a record $25 trillion! This is a number that is nearly double that of the US, and represents a pace of $3.5 trillion per year – or nearly four concurrent QEs – a rate of “financial asset” addition five times greater than in the US!

 

Another way of showing just the past three years:

 

What’s worse: China is now hooked to a “flow” pace of $3.5 trillion each and every year, just to generate an annual GDP of about 8% and declining with every passing year. Any reductions in the pace of monetary flow will have magnified implications on China’s growth, and from there, social, and globa, stability.

But what does this really mean? Simple: in this epic, unprecedented, feverish pace to “grow” the economy and create hot, if worthless, money out of assets, all assets, even “magic” assets (i.e. thin air), the following took place:

CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.

Until now nobody cared because defaults were prohibited in China and nobody really cared what was underneath the hood. Now, defaults are allowed and, in fact, are encouraged. Which is why suddenly everyone is starting to cast curious glances into the dark shadows where the engine is supposed to be.

They won’t like what they find.

Curious for more: read Chart Of The Day: How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water, and Some Stunning Perspective: China Money Creation Blows US And Japan Out Of The Water

Foreigners Sell A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week | Zero Hedge

Foreigners Sell A Record Amount, Over $100 Billion, Of Treasurys Held By The Fed In Past Week | Zero Hedge.

A month ago we reported that according to much delayed TIC data, China had just dumped the second-largest amount of US Treasurys in history. The problem, of course, with this data is that it is stale and very backward looking. For a much better, and up to date, indicator of what foreigners are doing with US Treasurys in near real time, the bond watchers keep track of a less known data series, called “Treasury Securities Held in Custody for Foreign Official and International Accounts” which as the name implies shows what foreigners are doing with their Treasury securities held in custody by the Fed on a weekly basis. So here it goes: in the just reported latest data, for the week ended March 12, Treasurys held in custody by the Fed dropped to $2.855 trillion: a drop of $104.5 billion. This was the biggest drop of Treasurys held by the Fed on record, i.e., foreigners were really busy selling.

This brings the total Treasury holdings in custody at the Fed to levels not seen since December 2012, a period during which the Fed alone has monetized well over $1 trillion in US paper.

So is this the proverbial beginning of foreign dumping of US paper? Could Russia simply have designated a different custodian of its holdings? No, because as of most recently it owned $139 billion in US paper, or well above the number “sold” and a custodial reallocation would mean all holdings are moved, not just a portion. For another view, here is what the bond experts at Stone McCarthy had to say:

We don’t have a ready explanation for the plunge in custody account holdings. One thing that is striking about the drop is that the last several days was not a period of heavy market buzz about “central bank selling” of Treasuries, at least to the best of our knowledge. China and Japan are by far the largest holders of Treasuries, with holdings of $1.269 trillion and $1.183 trillion in holdings at the end of December, respectively. China’s holdings are more skewed to central bank holdings. Selling of Treasuries would appear to be at odds with China’s recent effort to depreciate its currency, although on March 5 and 6 there was a brief correction in that trend.

As for the timing:

… the Wednesday-to-Wednesday decline was much larger than the weekly average decline in Treasury holdings of $46.6 billion. That implies that the plunge in Treasuries occurred later in week rather than earlier.

Some further thoughts from SocGen:

Weekly data from the Fed for US Treasury securities held in custody on behalf of foreign institutions and central banks fell sharply over the past week and may offer a plausible explanation as to why the USD has been offered pretty much all week against its major counterparts. EUR/USD in particular has stayed strongly bid since last week’s council meeting (to the bemusement of the ECB) and touched a high of 1.3967 yesterday before easing back after the exchange rate comments from president Draghi. The reduced appetite for USTs and strong demand for EUR debt and equity securities underlines the difficulties the ECB is encountering to stop the strong EUR from reducing inflation expectations in the euro area.

 

Foreign holdings of US government securities held at the Fed dropped by a whopping $104.5bn in the week to Wednesday 12 March according to the data published overnight (see chart below). This marks the biggest single weekly fall on record and compares with just a $13.5bn drop the previous week and a 4-week average fall of $1.5bn. The previous largest fall came in mid-2013 (26 June, a week after the FOMC meeting) when holdings fell by $32.4bn. The selling over the last week coincides with the latest US employment statistics, a run of weak data from China and the escalation of the situation in Crimea and Ukraine.

 

Russia has threatened to respond with sanctions of its own should economic measures be imposed by the EU and the US after the referendum in Crimea this weekend. Russia currently holds $138.6bn of USTs (based on December data) and the country has been a net seller for a combined $11.3bn of USTs over the last two months for when data is available. China sold $47.8bn alone in December. The latest Treasury International Capital (TIC) data for January are only due next week so we won’t find out officially until May how much Russia’s US government debt holdings dropped in March.

So either China selling TSYs and buying EURs to make European import power stronger, if not so much its exports (much to Draghi’s ongoing horror). Or Russia, which may be dumping USTs to support the ruble… Or dumping just because.

%d bloggers like this: