Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Blood & Treasure

For many years, critics of China who identify with this mythical phoenix like creature called `the markets' have been telling China that it needs to do something about its debt problem. Eventually Beijing, says `Oh, OK' and deliberately stages - not allows to happen, but deliberately stages - a Lehman event across its banking system. This was not a response to a crisis: the PBOC could have pumped more money into the system this time just as it had done before. It's an act of will.

And `the markets' promptly crap themselves, though I don't know if this is actually serious or that `granny just saw a flasher' response that you seem to get a lot of. Actually, what the folk on the trading desks have been exposed to is something that people in China have known for a long time: this is how China solves its problems, with brutal and ruthless fixes. Ok, we have a problem. We also have absolute power. HULK SMASH. Think of this as being in the tradition of the One Child Policy.

This approach is sometimes characterised as Maoism, but it's really Dengism; the adaptation of all the tools in the Leninist box away from ideological mobilization and towards real world problems. Who cares whether the cat is black or white so long as it's a fucking huge apex predator?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sun Jun 23rd, 2013 at 03:43:44 AM EST
However, the PBOC seems to have provided liquidity on Friday to ease frozen interbank lending, bringing the SHIBOR down 5% in one go.

HULK SMASH with a soft touch?

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Jun 23rd, 2013 at 04:38:06 AM EST
[ Parent ]
However (2):

Here's The Message From The People's Bank Of China That Sent Stocks Cratering - Business Insider

Shanghai shares got crushed last night, and financials were really hard hit.

One culprit: The People's Bank of China is showing that it's very disinclined to step in and smoothe over tight liquidity conditions.

Instead it's telling the banks to deal with their own mess.

Nomura's Zhiwei Zhang passes allong the message from the PBOC in a brief note

The guidance note stated that "overall bank liquidity conditions are at a reasonable level" and asked banks to "prudently manage liquidity risks that have resulted from rapid credit expansion", "appropriately contain the pace of loans and bill financing" and "utilize the stock of money and credit to support the economy". We believe these statements suggest that the central bank's policy stance remains tight. The decision to put this note on its website suggests the PBoC wants to reiterate its policy stance.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jun 24th, 2013 at 07:22:56 AM EST
[ Parent ]
A commenter on Blood & Treasure suggested that the purpose of the "event" was to:

a) "pull the water out of the pool and see who had no trunks on"

and then

b) set the government inspector division on them...

Which seems plausible if unsubtle...

by Metatone (metatone [a|t] gmail (dot) com) on Mon Jun 24th, 2013 at 09:11:57 AM EST
[ Parent ]
Still and all, SHIBOR continues to drop back rapidly from its spike, -200bp on the overnight rate today.

Perhaps they're pouring some water back in now they've identified the bare bums.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jun 24th, 2013 at 09:45:32 AM EST
[ Parent ]


Occasional Series