Banks hold reserves to pay out withdrawals or take losses on bad loans, not because law dictates they must. If you’re a bank and you don’t have sufficient money to pay out, in a classical banking sense, well then you’re pretty fucked.
In this day of money printing, I get that banks love having lower limits, because then they can play tight and fast with the houses money. But from their economy’s standpoint, what does lowering loan reserve requirements for their banks mean for China?
Is it a good thing, really?
Or does it indicate that Chinese banks are having some serious issues juggling their obligations without government intervention?
Not all central bank printing needs to lead to higher prices. Come on people. I mean, if an economy has 20X the currency in credit running around and the central bank doubles the currency, then sure the same credit level would result in higher prices. But if the central bank is printing because that 20X number is getting crushed down to 10X as bad loans and poor investments dampen the system, well then that printing really just gets you to about break even.
Especially looking at China’s inflation and housing problems, why on Earth do you think the China reserve cut is a good thing? If anything, it’s an action they shouldn’t have wanted to take.
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cuz market said so.
Spot on, Thaler.
It’s only a “good thing” because it demonstrates that yet another gov’t is willing to appease its banks. As far as the market is concerned, at least.
The underlying reasons for the decision, as you point out, have gotta be bearish.
they have over done things so badly, that now it has caught up to them, they are rethinking their own bullshit. easing up on the banks means they went too far.
Exactly. If China is lowering loan provisions, it probably first and foremost means that their banks have taken enough losses/withdrawals to need to raise money otherwise.
If their reserves aren’t sufficient to cover these costs then what does that say about their projections? How big is the Chinese portfolio of loans?
mr.thaler, a hypothetical,iran stops selling oil to britain and france.the u.s. is exporting oil for the first time in years,even though we perceive that there is a glut,so price goes up just because. now,when these countries,britain and france settle with useless u.s notes and send them back to the u.s,thus flooding us with more dollars,doesnt this not spell big time inflation?
I don’t think so; I mean, nothing huge. We could potentially run a trade surplus (or narrower deficit). It’s not like the world is about to stop using the dollar as the reserve currency (yet).
If everyone went the way of Iran, then yeah you could see a pretty big influx of dollars and foreign entities started unloading them. But for now they’ll still need dollars because oil is still be priced in dollars.
Drummer, I’m not sure I know the answer to your question, but I wouldn’t think such an arrangement would lead to “big time” inflation. Inflation, probably.
Settlement with US notes doesn’t increase the monetary supply. The cash just changes hands. If they had to print to accomodate these types of transactions, then maybe.
Am I close at all here, Cain?
Late to the party here… disregard
Lol beat you by a minute.
One last question though. Any comments on oil lately, Mr. Thaler?
Seasonally, we’re looking at a primetime for crude. Last year, almost to the day, WTI exploded… is it time for deja vu?
(sigh)…probably. I’m not sure if we’ve already risen far enough to keep the seasonality players cautiously on the sideline, or if GS has already created a self fulfilling prophesy.
I’m holding short oil through most of this year. I have cash from selling BG to give me room. If things don’t blow up now when all the maturities are stacked then we’ll probably make it through without another demand crushing collapse.
I’ll echo that (sigh)…
I had thought the same thing RE: prices rising so much already, but leave it to GS to goose the hell out of oil before it tanks again. I still see the current move in oil as the last speculative hurrah unless things really get out of hand in MENA – and that won’t happen unless things get weird in Syria or Sudan. Iran’s “sabre rattling” is a short term tactic to reap the rewards of supply disruption fears, and once we get a real bearish shock (i.e. this Greece deal falling through, or bad China data), we might get a taste of what oil really costs.
Add the Keystone pipeline bursting with <$70 oil, today's Gulf of Mexico agreement, and a historic spread between commercial (short) and speculative (long) open interest, and… what do you have?? Probably $120+, as we agreed! Bahaha…
Sorry, *more* bad China data…