Making Unique Observations in a Very Cluttered World

Tuesday, 26 November 2013

Chart Of The Day: How In Five Short Years, China Humiliated The World's Central Banks -

Chart Of The Day: How In Five Short Years, China Humiliated The World's Central Banks - 

The concept of the "liquidity trap" is well-known to most: it is that freak outlier in an otherwise spotless Keynesian plane, when due to the need for negative interest rates to boost the economy (usually resulting from that other inevitable Keynesian state: the bursting of an asset bubble) - a structural impossibility according to most economists although an increasingly more probable in Europe - central banks have no choice but to offset a deleveraging private banking sector and directly inject liquidity into the banking sector with the outcome being soaring asset prices, and even more bubbles which will eventually burst only to be replaced with even more failed attempts at reflation. Sadly, very little of this liquidity makes its way to the broad economy as the ongoing recession in the developed world has shown for the 5th year in a row, which in turn makes the liqudity trap even worse, and so on in a closed loop.

Since there is little else in the central bankers' arsenal that is as effective in boosting the "wealth effect" - which is how they validate their actions to themselves and other economists and politicians - they continue to do ever more QE. And since banks are assured at generating far greater returns on allocated capital in the markets, where they can use the excess deposits they obtain courtesy of the Fed's generous reserve-a-palooza as initial margin for risk-on trades, the liquidity pipelines remain stuck throughout the world, and loan creation - that traditional money creation pathway - is permanently blocked (as is the case empirically in both the US and Europe, where private-sector loan creation is declining at a record pace).

Everywhere except the one place that has yet to actually engage in conventional quantitative easing: China. At least explicitly, because loan creation by China's state-controlled entities and otherwise government backstopped banks, is anything but conventional money creation. One can, therefore, claim that China's loan creation is a form of Quasi-QE whereby banks, constrained from investing in a relatively shallow stock market, and unable to freely transfer the CNY-denominated liquidity abroad, are forced to lend it out knowing that if things turn soure at the end of the day, the PBOC will bail them out. Paradoxically, this "non-QE" is exactly how QE should work in the US and other developed markets.

That's the long story.

The short story is far simpler.

In order to offset the lack of loan creation by commercial banks, the "Big 4" central banks - Fed, ECB, BOJ and BOE - have had no choice but the open the liquidity spigots to the max. This has resulted in a total developed world "Big 4" central bank balance of just under $10 trillion, of which the bulk of asset additions has taken place since the Lehman collapse.

How does this compare to what China has done? As can be seen on the chart below, in just the past 5 years alone, Chinese bank assets (and by implication liabilities) have grown by an astounding $15 trillion, bringing the total to over $24 trillion, as we showed yesterday. In other words, China has expanded its financial balance sheet by 50% more than the assets of all global central banks combined!

And that is how - in a global centrally-planned regime which is where everyone now is, DM or EM - your flood your economy with liquidity. Perhaps the Fed, ECB or BOJ should hire some PBOC consultants to show them how it's really done.

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Weight loss chip implanted in arm tells you when to stop eating -

Weight loss chip implanted in arm tells you when to stop eating - 

A weight loss chip that could be implanted in a woman’s arm by her GP is being developed by scientists.
The genetic chip would constantly check for fat in the blood and, when someone has eaten too much, release a hormone that sates hunger.
In tests on mice, an early version of the device led to obese creatures eating less fatty food and shedding weight.
Importantly, the gizmo stopped releasing the diet drug when they reached a normal weight.
The Swiss researchers hope that within five to ten years they will have a version the size of a coin that can be slipped under the skin of a slimmer’s arm.
If effective, it would provide an alternative to diet pills, which have to be taken several times a day, as well as to expensive and invasive obesity survey such as gastric banding.
It is also hoped it will be free of major side-effects.
The journal Nature Communications reports that the chip contains two genes that work together keep appetite in check.
The first constantly monitors fat levels in blood. When they get too high, it tells the second to make the appetite suppressant.
The chip’s inventor, Professor Martin Fussenegger said he hopes it could be used to prevent obesity, as well as to treat it.
Chips containing other combinations of genes could be developed to tackle other illnesses.
In Britain, just 34 per cent of men and 39 per cent of women are of a healthy weight.

Being obese can knock up to nine years off a person’s life and raise the risk of a host of health problems, including diabetes, heart disease, stroke, infertility, depression and some cancers.
A spokesman for the researchers said: ‘Humankind has a weight problem.
‘According to the World Health Organisation, over half the population in many industrialised countries is overweight, one in three people extremely so.

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