With the likes of Nani an in form Ronaldo, agreed Portugal presents dangers-- just ask Germany who were exposed multiple times in their match Vs Portugal.
Spain has conceeded a grand total of 1 goal this tournament. So confident in their possession ability they often have either the r/l defender way up ...
Spain has conceeded a grand total of 1 goal this tournament. So confident in their possession ability they often have either the r/l defender way up ...
Home
Turns Out China IS Lying About Everything
Submitted by Tyler Durden on 06/23/2012 09:46 -0400
China Copper Goldman Sachs goldman sachs Lehman Reality The Economist
In what may come as a shocking surprise to exactly nobody, the next great discovery as more and more layers of the global ponzi onion are exposed, is that China was, in fact, lying about everything. Yes, we know, stunning.
From the NYT:
As the Chinese economy continues to sputter, prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles.
*
Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said.
Even that lonely indicator that some, even us, had considered somewhat realistic: electric output, is a mirage.
Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country’s economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.
...
But an economist with ties to the agency said that officials had begun making inquiries after detecting signs that electricity numbers may have been overstated.
...
Another top corporate executive in China with access to electricity grid data from two provinces in east-central China that are centers of heavy industry, Shandong and Jiangsu, said that electricity consumption in both provinces had dropped more than 10 percent in May from a year earlier. Electricity consumption has also fallen in parts of western China. Yet, the economist with ties to the statistical agency said that cities and provinces across the country had reported flat or only slightly rising electricity consumption.
In other words, the chart we showed a month ago showing already collapsing Chinese power production is far, far worse in reality.
So why is everything piece of data out of China a lie (and by implication, why are all talking heads and pundits who preach the China "bull case" full of it)? One simple reason: politics.
Questions about the quality and accuracy of Chinese economic data are longstanding, but the concerns now being raised are unusual. This year is the first time since 1989 that a sharp economic slowdown has coincided with the once-a-decade changeover in the country’s top leadership.
*
Officials at all levels of government are under pressure to report good economic results to Beijing as they wait for promotions, demotions and transfers to cascade down from Beijing. So narrower and seemingly more obscure measures of economic activity are being falsified, according to the executives and economists.
*
“The government officials don’t want to see the negative,” so they tell power managers to report usage declines as zero change, said a chief executive in the power sector.
When all is said and done, the reality is that China, which according to idiotic press rumors that resurface every 2 weeks is supposed to bailout, is in a condition that is worse than even where it was after the Lehman collapse:
The question is whether the actual slowdown is even worse. Skewed government data would help explain why prices for commodities like oil, coal and copper fell heavily this spring even though official Chinese statistics show a more modest deceleration in economic activity.
*
Manipulation of official statistics would also provide a clue why some wholesalers of consumer goods and construction materials say sales are now as dismal as in early 2009.
*
Studies by Goldman Sachs and other institutions over the years have strongly suggested that Chinese statisticians smooth out the quarterly growth figures, underreporting growth during boom years and overstating growth during economic downturns.
*
And Chinese officials have raised questions in the past about the reliability of Chinese economic statistics. An American diplomatic cable released by WikiLeaks shows that Li Keqiang, widely expected to become premier of China this autumn, said in 2007 that he regarded China’s broad measures of economic growth as “ ‘man-made’ and therefore unreliable.”
So... let's see here: huge disparity between what is represented and what the reality is... a crucial political election... and a regime that many have accused of misreporting critical data for years (even if others captured media outlets accuse the former of being conspiracy theorists)...
Why... could this possibly mean that every piece of data out of the US is just as made up and just as meaningless? Now that would be truly unpossible.
Turns Out China IS Lying About Everything
Submitted by Tyler Durden on 06/23/2012 09:46 -0400
China Copper Goldman Sachs goldman sachs Lehman Reality The Economist
In what may come as a shocking surprise to exactly nobody, the next great discovery as more and more layers of the global ponzi onion are exposed, is that China was, in fact, lying about everything. Yes, we know, stunning.
From the NYT:
As the Chinese economy continues to sputter, prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles.
*
Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said.
Even that lonely indicator that some, even us, had considered somewhat realistic: electric output, is a mirage.
Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country’s economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.
...
But an economist with ties to the agency said that officials had begun making inquiries after detecting signs that electricity numbers may have been overstated.
...
Another top corporate executive in China with access to electricity grid data from two provinces in east-central China that are centers of heavy industry, Shandong and Jiangsu, said that electricity consumption in both provinces had dropped more than 10 percent in May from a year earlier. Electricity consumption has also fallen in parts of western China. Yet, the economist with ties to the statistical agency said that cities and provinces across the country had reported flat or only slightly rising electricity consumption.
In other words, the chart we showed a month ago showing already collapsing Chinese power production is far, far worse in reality.
So why is everything piece of data out of China a lie (and by implication, why are all talking heads and pundits who preach the China "bull case" full of it)? One simple reason: politics.
Questions about the quality and accuracy of Chinese economic data are longstanding, but the concerns now being raised are unusual. This year is the first time since 1989 that a sharp economic slowdown has coincided with the once-a-decade changeover in the country’s top leadership.
*
Officials at all levels of government are under pressure to report good economic results to Beijing as they wait for promotions, demotions and transfers to cascade down from Beijing. So narrower and seemingly more obscure measures of economic activity are being falsified, according to the executives and economists.
*
“The government officials don’t want to see the negative,” so they tell power managers to report usage declines as zero change, said a chief executive in the power sector.
When all is said and done, the reality is that China, which according to idiotic press rumors that resurface every 2 weeks is supposed to bailout, is in a condition that is worse than even where it was after the Lehman collapse:
The question is whether the actual slowdown is even worse. Skewed government data would help explain why prices for commodities like oil, coal and copper fell heavily this spring even though official Chinese statistics show a more modest deceleration in economic activity.
*
Manipulation of official statistics would also provide a clue why some wholesalers of consumer goods and construction materials say sales are now as dismal as in early 2009.
*
Studies by Goldman Sachs and other institutions over the years have strongly suggested that Chinese statisticians smooth out the quarterly growth figures, underreporting growth during boom years and overstating growth during economic downturns.
*
And Chinese officials have raised questions in the past about the reliability of Chinese economic statistics. An American diplomatic cable released by WikiLeaks shows that Li Keqiang, widely expected to become premier of China this autumn, said in 2007 that he regarded China’s broad measures of economic growth as “ ‘man-made’ and therefore unreliable.”
So... let's see here: huge disparity between what is represented and what the reality is... a crucial political election... and a regime that many have accused of misreporting critical data for years (even if others captured media outlets accuse the former of being conspiracy theorists)...
Why... could this possibly mean that every piece of data out of the US is just as made up and just as meaningless? Now that would be truly unpossible.
Free pass?
I agree. The only person is capable to defeat that tiki-taka endless possession is ZZ. Watching Xavi, Xabi, Iniesta & Fab toying the French around yesterday, it's further confirm how good Zidane was. At the age of 33, he was still able to school Spain midfielders with ease (WC06 GF France vs. Spain). Swheinteiger & Ozil has technical ability to compete with Spain midfield, but that's not enough because they don't have Zidane's mental strength. Since he retired, there is no player come close to his elegant touches & exceptional vision, the dude knows what to do with the ball before it reaches him, it's simply unbelievable. It's such a joy to watch him playing. He is one of the best players in my lifetime.
Yeah thurs was beginning of next leg down ... Friday just choppy noise
First time in memory I've seen the depression word show up in the more mainstream press as far as describing our current situation as this is highlighted story at yahoo finance
Rosenberg tends to "get it" but from my perspective his outlook is a bit too optimistic
------
We Are Living in a ‘Modern Day Depression’: David Rosenberg
By Aaron Task | Daily Ticker*–*2 hours 2 minutes ago
10
Email
Print
Follow The Daily Ticker on Facebook!
The Federal Reserve cut its growth forecast for the second half of 2012 and 2013 last week, raising concerns yet again about the potential for a "double-dip" recession. While some, notably the cycle watchers at ECRI, believe the U.S. economy is definitely heading for another recession (or already there), Gluskin Sheff's chief economist and strategist David Rosenberg goes a big step further.
"We are living in a modern day depression," he declares.
This dramatic statement is based on several factors, including the record number of Americans living on Food Stamps — 46 million or 1-in-7 in 2011. Because these benefits are now given in the form of electronic debit cards, we don't have bread lines like in the 1930s, but they are there in virtual form. And that's just the most obvious form of government support for its struggling citizenry. (See: Marion Nestle on The (Big) Business of Food Stamps: "Here's Where the Profits Come In")
"Government transfers to the personal sector now makes up nearly one-fifth of total household income," Rosenberg writes. "Even Lyndon Johnson, architect of the 'Great Society', would blush at that."
In the accompanying video Rosenberg also cites:
Wealth Destruction: The Fed's recent report on the massive 40% drop in median household wealth from 2007-2010. (See: The American Dream Shrinks: Avg. Net Worth Falls 40% From 2007-2010)
The Housing Bust: Despite recent signs of stabilization, the national housing market remains depressed, with nearly 30% of mortgage holders under water. This is particularly troubling for Baby Boomers, who had viewed their homes as a major source of potential income for retirement but now wear them as a "ball and chain," Rosenberg quips.
Unemployment: As with housing, Rosenberg dismisses the job market's improvement in recent years. He cites the "real" unemployment rate — currently 14.8% -- and the fact the country is still down 5 million jobs from its 2007 peak.
While the economy has been growing for three years, the recovery is the worst in the post-war ear, he says. Growth is "pathetic" given the "gargantuan" support the federal government and Federal Reserve have provided, he declares, noting this is not a U.S.-only phenomenon.
"Three years into the aftermath of the worst recession since the 1930s, the global economy still cannot manage to expand organically — that is, without the need for ongoing life support from central banks and governments."
While many shudder to think what the economy would look like without that support, Rosenberg says policymakers' attempting to "put a floor" under the economy only serve to "prolong the agony."
Judging by historical research on past debt deleveraging cycles, this 'modern day depression' is only halfway done, Rosenberg says, and that's his glass half-FULL outlook.
First time in memory I've seen the depression word show up in the more mainstream press as far as describing our current situation as this is highlighted story at yahoo finance
Rosenberg tends to "get it" but from my perspective his outlook is a bit too optimistic
------
We Are Living in a ‘Modern Day Depression’: David Rosenberg
By Aaron Task | Daily Ticker*–*2 hours 2 minutes ago
10
Follow The Daily Ticker on Facebook!
The Federal Reserve cut its growth forecast for the second half of 2012 and 2013 last week, raising concerns yet again about the potential for a "double-dip" recession. While some, notably the cycle watchers at ECRI, believe the U.S. economy is definitely heading for another recession (or already there), Gluskin Sheff's chief economist and strategist David Rosenberg goes a big step further.
"We are living in a modern day depression," he declares.
This dramatic statement is based on several factors, including the record number of Americans living on Food Stamps — 46 million or 1-in-7 in 2011. Because these benefits are now given in the form of electronic debit cards, we don't have bread lines like in the 1930s, but they are there in virtual form. And that's just the most obvious form of government support for its struggling citizenry. (See: Marion Nestle on The (Big) Business of Food Stamps: "Here's Where the Profits Come In")
"Government transfers to the personal sector now makes up nearly one-fifth of total household income," Rosenberg writes. "Even Lyndon Johnson, architect of the 'Great Society', would blush at that."
In the accompanying video Rosenberg also cites:
Wealth Destruction: The Fed's recent report on the massive 40% drop in median household wealth from 2007-2010. (See: The American Dream Shrinks: Avg. Net Worth Falls 40% From 2007-2010)
The Housing Bust: Despite recent signs of stabilization, the national housing market remains depressed, with nearly 30% of mortgage holders under water. This is particularly troubling for Baby Boomers, who had viewed their homes as a major source of potential income for retirement but now wear them as a "ball and chain," Rosenberg quips.
Unemployment: As with housing, Rosenberg dismisses the job market's improvement in recent years. He cites the "real" unemployment rate — currently 14.8% -- and the fact the country is still down 5 million jobs from its 2007 peak.
While the economy has been growing for three years, the recovery is the worst in the post-war ear, he says. Growth is "pathetic" given the "gargantuan" support the federal government and Federal Reserve have provided, he declares, noting this is not a U.S.-only phenomenon.
"Three years into the aftermath of the worst recession since the 1930s, the global economy still cannot manage to expand organically — that is, without the need for ongoing life support from central banks and governments."
While many shudder to think what the economy would look like without that support, Rosenberg says policymakers' attempting to "put a floor" under the economy only serve to "prolong the agony."
Judging by historical research on past debt deleveraging cycles, this 'modern day depression' is only halfway done, Rosenberg says, and that's his glass half-FULL outlook.
Supreme court pushing off decision to later jdog ... Figured a bulk of the "constitutional" side of the Intrade market wasnt that they'd rule it constitutional but rather they'd push off a decision past this year which looks like what may be happening... Just see breaking news of supreme court not ruling today
67% unconstitutional by end of 12 now at intrade not sure when it being pushed back till ...
67% unconstitutional by end of 12 now at intrade not sure when it being pushed back till ...
Think apple gonna get some good competition from the Asus tf700 ... Pretty much same specs and performance as ipad3 ... Same pricing ... 32 gig same price ... 64 gig 100 cheaper than ipad3 ...... Releasing earlier supposedly coming out week of July 16 .... Main thing apple has the edge still is app wise and apps that utilize the high resolution screen .... But other then that they basicially match up evenly ... And you don't have to deal with apple's closed system ... No flash bs ... Asus which is a big plus
Great read u can get charts and such at ZH
---------------
On The Verge Of A Historic Inversion In Shadow Banking
Submitted by Tyler Durden on 06/25/2012 16:02 -0400
While everyone's attention was focused on details surrounding the household sector in the recently released Q1 Flow of Funds report (ours included), something much more important happened in the US economy from a flow perspective, something which, in fact, has not happened since December of 1995, when liabilities in the deposit-free US Shadow Banking system for the first time ever became larger than liabilities held by traditional financial institutions, or those whose funding comes primarily from deposits. As a reminder, Zero Hedge has been covering the topic of Shadow Banking for over two years, as it is our contention that this massive, and virtually undiscussed component of the US real economy (that which is never covered by hobby economists' three letter economic theories used to validate socialism, or even any version of (neo-)Keynesianism as shadow banking in its proper, virulent form did not exist until the late 1990s and yet is the same size as total US GDP!), is, on the margin, the most important one: in fact one that defines, or at least should, monetary policy more than most imagine, and also explains why despite trillions in new money having been created out of thin air, the flow through into the general economy has been negligible.
Before we get into the nuances, here, courtesy of Zoltan Pozsar is a reminder of the nebulous entity under discussion which is the definition of "baffle them with bullshit." We recommend only Intel chip technicians try to make any sense of this schematic.
As another reminder, US Shadow Banking liabilities - a combination of Money Market funds, GSE and Agency paper, Asset-Backed paper, Funding Corporations, Open market paper and of course, Repos - hit a gargantuan $21 trillion in March 2008. They have tumbled ever since, printing at just under $15 trillion at the end of March 2012, the lowest number since March 2005 when shadow banking liabilities were soaring. This is an epic $6 trillion in flow being taken out of credit-money circulation, with a $143 billion drop in Q1 alone! (blue line on the chart below).
In fact over the past 16 quarters there has not been a single increase in the total notional contained within shadow liabilities.The chart below shows perfectly just where the credit bubble popped: a bubble which has affected shadow banking far more than normal credit transformational conduits.
It is precisely this ongoing contraction that the Fed does all it can, via traditional financial means, to plug as continued declines in Shadow Banking notionals lead to precisely where we are now - a sideways "Austrian" market, in which no new credit-money money comes in or leaves.
In fact, as the chart below shows, while the collapse in shadow banking has been somewhat offset by increasing liabilities at traditional banks solely courtesy of the Fed, the reality is that for two years in a row, consolidated US financial liabilities amount to just shy of $30 trillion and have barely budged. As long as this number is not increasing (or decreasing) substantially, the US stock market has virtually no chance of moving higher (or lower) materially.
What is worse is that even when accounting for offsetting traditional bank liabilities, on a consolidated basis, the US total financial sector is still an epic $3.8 trillion below its all time highs, just above $33 trillion. Unless and until this $3.8 trillion hole is plugged, one thing is certain: risk is not going anywhere (also notable is that consolidated liabilities in Q1 declined by $86.2 billion at a time when the Fed was engaged in Twist but that is for Ben Bernanke to worry about, not us).
So what is this "historic inversion" referenced in the title?
As some may have noticed looking at Chart 1, as shadow banking continues to collapse, it has to be offset by increasing conventional bank liabilities: for the most part real cash (technically electronic) deposits. And as of March 31, the spread between Shadow Banking and traditional financial liabilities has collapsed to just $206 billion, after hitting a record $8.7 trillion in March 2008. It is also important because the last time shadow banking as notional overtook the conventional banking system was back in December of 1995. Next time we update this chart, the blue line will be below the red one for the first time in 17 years.
Here it is again in chart format:
(At this point it may be worth noting that the only reason why we are so close to this critical inflection point is because this past quarter the Fed shifted $2 trillion in liabilities away from the household sector and dumped them in the US depository sector; for the time being this reclassification is not relevant but may require some clarification down the line).
Why is any of this relevant?
Simple.
What shadow banking has been for America is nothing short of an inflation buffer. Recall what the primary characteristic of shadow banking is: it performs all the traditional credit intermediation transformations that conventional banking entities do: Maturity, Credit and Liquidity.
However, unlike traditional banks, shadow banking has one huge deficiency: it has no deposits! In other words, the entire rickety shadow banking system is based simply on the good faith and credit that rehypothecated assets, converted into liabilities, and so on (think repos and reverse repos) courtesy of fractional reserve credit formation (recall rehypothecation), are valid and credible sources of liquidity. While that may be the case in a leveraging environment, i.e., in the expansionary phase of the ponzi, it no longer works when systematically deleveraging, i.e., where we are now.
It also explains why with collapsing shadow banking system it is purely up to traditional banks to grow if not to create additional credit-money instruments, then simply to plug the hole that is created every quarter with the expiration of more shadow liabilities. Because, once again, these are not of the Federal Reserve note variety, but credit instruments themselves, which in time maturity, and effectively take money out of the system all else equal.
Most importantly, it also explains why Goldman IS right, and the Fed has no choice but to shift to a "flow" reserve creation format, at least until such time as the balance of shadow liabilities is offset by generic liabilities: i.e., deposits.
However, there is a rub. As we noted previously, shadow banking is simply an inflation buffer: since there are no deposits, there is little risk of the "money" contained in the banking system from furiously vacating and be used to spur purchases of everything from 1,000x P/E/ stocks, to overvalued housing, to just being packed away safely in a mattress. In other words, the Shadow Banking system is circular as the money contained therein is self-contained.
Not so for deposits. Just ask any banker, central or otherwise, especially in Europe, who has had to deal with the threat of bank runs.
The biggest paradox is that as the US financial system takes more and more steps back, and reverts to a more conventional system (look at Europe as a paradigm of what is coming), the risk that incremental money creation by the Fed will eventually spur inflation rises exponentially, as more and more "money" ends up residing within conventional bank deposit accounts.
That currently there are just shy of $10 trillion give or take in consolidated deposits across the US financial system, on total liabilities of $30 trillion, is the only reason why the Fed has still be unable to spawn the kind of "virtuous" inflation that Bernanke dreams about every night but is unable to create.
Said inflation buffer, however, is getting smaller and smaller every quarter, and at this rate, shadow banking as a transformational conduit will completely disappear in a few short years, at which point everything will be in the hands of fickle depositors.
It is then, that America will finally figure out why Germany and the Bundesbank, are so leery of runaway printing. Because while the US still has the benefit of shadow liabilities, Europe does not. And Schauble, Merkel, and Weidmann, not to mention the German population (at least subconsciously) all know this.
In a few years, when traditional bank liabilities have soared by another $10 trillion (think doubling of the current depositor base), and when shadow banking is essentially non-existent, and when the stock market is still where it is, then, and only then, will all those three-letter economic theories, which on purpose ignore the impact of shadow banking, be finally put to the test. We can only hope that by then the market still has some discounting capacity left in it, and can prevent the kind of final outcome that tens of trillions in deposits shifting from Point A to Point B on a whim will certainly create. Alas, with encroaching central planning having made discounting virtually meaningless and impossible, we wouldn't be surprised if once again the "capital markets" don't understand what has just happened before it is too late.
*
Appendix A:
Historical components of shadow liabilities.
Sequential change in the historical components of shadow liabilities.
Source of all the data used in this article: Fed's Flow of Funds, which for some reason no other financial analyst, let alone journalist, wants to touch with a ten foot pole.
Finally, anyone who wishes to learn some more, here is some additional info from Deloitte (generically correct perspective, but incomplete).
---------------
On The Verge Of A Historic Inversion In Shadow Banking
Submitted by Tyler Durden on 06/25/2012 16:02 -0400
While everyone's attention was focused on details surrounding the household sector in the recently released Q1 Flow of Funds report (ours included), something much more important happened in the US economy from a flow perspective, something which, in fact, has not happened since December of 1995, when liabilities in the deposit-free US Shadow Banking system for the first time ever became larger than liabilities held by traditional financial institutions, or those whose funding comes primarily from deposits. As a reminder, Zero Hedge has been covering the topic of Shadow Banking for over two years, as it is our contention that this massive, and virtually undiscussed component of the US real economy (that which is never covered by hobby economists' three letter economic theories used to validate socialism, or even any version of (neo-)Keynesianism as shadow banking in its proper, virulent form did not exist until the late 1990s and yet is the same size as total US GDP!), is, on the margin, the most important one: in fact one that defines, or at least should, monetary policy more than most imagine, and also explains why despite trillions in new money having been created out of thin air, the flow through into the general economy has been negligible.
Before we get into the nuances, here, courtesy of Zoltan Pozsar is a reminder of the nebulous entity under discussion which is the definition of "baffle them with bullshit." We recommend only Intel chip technicians try to make any sense of this schematic.
As another reminder, US Shadow Banking liabilities - a combination of Money Market funds, GSE and Agency paper, Asset-Backed paper, Funding Corporations, Open market paper and of course, Repos - hit a gargantuan $21 trillion in March 2008. They have tumbled ever since, printing at just under $15 trillion at the end of March 2012, the lowest number since March 2005 when shadow banking liabilities were soaring. This is an epic $6 trillion in flow being taken out of credit-money circulation, with a $143 billion drop in Q1 alone! (blue line on the chart below).
In fact over the past 16 quarters there has not been a single increase in the total notional contained within shadow liabilities.The chart below shows perfectly just where the credit bubble popped: a bubble which has affected shadow banking far more than normal credit transformational conduits.
It is precisely this ongoing contraction that the Fed does all it can, via traditional financial means, to plug as continued declines in Shadow Banking notionals lead to precisely where we are now - a sideways "Austrian" market, in which no new credit-money money comes in or leaves.
In fact, as the chart below shows, while the collapse in shadow banking has been somewhat offset by increasing liabilities at traditional banks solely courtesy of the Fed, the reality is that for two years in a row, consolidated US financial liabilities amount to just shy of $30 trillion and have barely budged. As long as this number is not increasing (or decreasing) substantially, the US stock market has virtually no chance of moving higher (or lower) materially.
What is worse is that even when accounting for offsetting traditional bank liabilities, on a consolidated basis, the US total financial sector is still an epic $3.8 trillion below its all time highs, just above $33 trillion. Unless and until this $3.8 trillion hole is plugged, one thing is certain: risk is not going anywhere (also notable is that consolidated liabilities in Q1 declined by $86.2 billion at a time when the Fed was engaged in Twist but that is for Ben Bernanke to worry about, not us).
So what is this "historic inversion" referenced in the title?
As some may have noticed looking at Chart 1, as shadow banking continues to collapse, it has to be offset by increasing conventional bank liabilities: for the most part real cash (technically electronic) deposits. And as of March 31, the spread between Shadow Banking and traditional financial liabilities has collapsed to just $206 billion, after hitting a record $8.7 trillion in March 2008. It is also important because the last time shadow banking as notional overtook the conventional banking system was back in December of 1995. Next time we update this chart, the blue line will be below the red one for the first time in 17 years.
Here it is again in chart format:
(At this point it may be worth noting that the only reason why we are so close to this critical inflection point is because this past quarter the Fed shifted $2 trillion in liabilities away from the household sector and dumped them in the US depository sector; for the time being this reclassification is not relevant but may require some clarification down the line).
Why is any of this relevant?
Simple.
What shadow banking has been for America is nothing short of an inflation buffer. Recall what the primary characteristic of shadow banking is: it performs all the traditional credit intermediation transformations that conventional banking entities do: Maturity, Credit and Liquidity.
However, unlike traditional banks, shadow banking has one huge deficiency: it has no deposits! In other words, the entire rickety shadow banking system is based simply on the good faith and credit that rehypothecated assets, converted into liabilities, and so on (think repos and reverse repos) courtesy of fractional reserve credit formation (recall rehypothecation), are valid and credible sources of liquidity. While that may be the case in a leveraging environment, i.e., in the expansionary phase of the ponzi, it no longer works when systematically deleveraging, i.e., where we are now.
It also explains why with collapsing shadow banking system it is purely up to traditional banks to grow if not to create additional credit-money instruments, then simply to plug the hole that is created every quarter with the expiration of more shadow liabilities. Because, once again, these are not of the Federal Reserve note variety, but credit instruments themselves, which in time maturity, and effectively take money out of the system all else equal.
Most importantly, it also explains why Goldman IS right, and the Fed has no choice but to shift to a "flow" reserve creation format, at least until such time as the balance of shadow liabilities is offset by generic liabilities: i.e., deposits.
However, there is a rub. As we noted previously, shadow banking is simply an inflation buffer: since there are no deposits, there is little risk of the "money" contained in the banking system from furiously vacating and be used to spur purchases of everything from 1,000x P/E/ stocks, to overvalued housing, to just being packed away safely in a mattress. In other words, the Shadow Banking system is circular as the money contained therein is self-contained.
Not so for deposits. Just ask any banker, central or otherwise, especially in Europe, who has had to deal with the threat of bank runs.
The biggest paradox is that as the US financial system takes more and more steps back, and reverts to a more conventional system (look at Europe as a paradigm of what is coming), the risk that incremental money creation by the Fed will eventually spur inflation rises exponentially, as more and more "money" ends up residing within conventional bank deposit accounts.
That currently there are just shy of $10 trillion give or take in consolidated deposits across the US financial system, on total liabilities of $30 trillion, is the only reason why the Fed has still be unable to spawn the kind of "virtuous" inflation that Bernanke dreams about every night but is unable to create.
Said inflation buffer, however, is getting smaller and smaller every quarter, and at this rate, shadow banking as a transformational conduit will completely disappear in a few short years, at which point everything will be in the hands of fickle depositors.
It is then, that America will finally figure out why Germany and the Bundesbank, are so leery of runaway printing. Because while the US still has the benefit of shadow liabilities, Europe does not. And Schauble, Merkel, and Weidmann, not to mention the German population (at least subconsciously) all know this.
In a few years, when traditional bank liabilities have soared by another $10 trillion (think doubling of the current depositor base), and when shadow banking is essentially non-existent, and when the stock market is still where it is, then, and only then, will all those three-letter economic theories, which on purpose ignore the impact of shadow banking, be finally put to the test. We can only hope that by then the market still has some discounting capacity left in it, and can prevent the kind of final outcome that tens of trillions in deposits shifting from Point A to Point B on a whim will certainly create. Alas, with encroaching central planning having made discounting virtually meaningless and impossible, we wouldn't be surprised if once again the "capital markets" don't understand what has just happened before it is too late.
*
Appendix A:
Historical components of shadow liabilities.
Sequential change in the historical components of shadow liabilities.
Source of all the data used in this article: Fed's Flow of Funds, which for some reason no other financial analyst, let alone journalist, wants to touch with a ten foot pole.
Finally, anyone who wishes to learn some more, here is some additional info from Deloitte (generically correct perspective, but incomplete).
This is hilarious
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In a finding that many have subliminally known about for years, but never been actually proven, yet is still quite shocking, the WSJ is reporting that tourism portal Orbitz "has found that people who use Apple Inc.'s Mac computers spend as much as 30% more a night on hotels, so the online travel agency is starting to show them different, and sometimes costlier, travel options than Windows visitors see." Which is not really surprising: after all Mac users tend to "see" far pricier computers too, not to mention "buy." As a result, Orbitz has decided to automatically redirect Mac users: aka the rich, but gullible ones, to seeing hotel offers that are more expensive than those seen by PC users by on average $20-$30. Call it OS screening, and call it perfectly acceptable: because it appears, empirically, that Mac users are perfectly ok with spending more than they have to for virtually anything.
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In a finding that many have subliminally known about for years, but never been actually proven, yet is still quite shocking, the WSJ is reporting that tourism portal Orbitz "has found that people who use Apple Inc.'s Mac computers spend as much as 30% more a night on hotels, so the online travel agency is starting to show them different, and sometimes costlier, travel options than Windows visitors see." Which is not really surprising: after all Mac users tend to "see" far pricier computers too, not to mention "buy." As a result, Orbitz has decided to automatically redirect Mac users: aka the rich, but gullible ones, to seeing hotel offers that are more expensive than those seen by PC users by on average $20-$30. Call it OS screening, and call it perfectly acceptable: because it appears, empirically, that Mac users are perfectly ok with spending more than they have to for virtually anything.
http://www.testosteronepit.com/home/2012/6/24/fishy-economic-data-and-the-china-crash.html
Fishy Economic Data And The China*Crash
SUNDAY, JUNE 24, 2012 AT 4:22PM
An unrelenting, horrid wave of scandals about toxic ingredients in foods and medicines in China shows that regulators are unwilling and incapable of controlling it. It also shows a penchant—some evil tongues say it’s cultural—for pandemic cheating in order to get ahead in some way. And Chinese economic data falls into that category.
Every country has its own bureaucratic madness in pursuing obfuscation. In the US, one of the hardest things to get is a truthful, or at least a somewhat realistic, or at the very least a not totally fabricated unemployment and jobs number. But at least, the Bureau of Labor Statistics issues a slew of supplemental data. So, in addition to the nearly worthless headline numbers that media and politicians wave in proclaiming victory, we get numbers that point at deeper fissures [for a fun head-butting on this issue, read Yves Smith’s post!].
But in China, the art of data manipulation is such that even the government might not know the true status of the economy. Officials even at the local level are rewarded, promoted, or demoted, based on achieving their economic quotas as measured by tax receipts, business revenues, real estate developments, and so on. Hence, the incentive to fudge the numbers on an individual basis is high. According to the New York Times, “The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.”
As the fudged numbers flow upward and are consolidated, they aggregate into a fudged whole, inflating GDP by 1 to 2 percentage points. But it might be a lot worse, and sometimes it’s just the way it’s counted.
Auto sales, for example. A crucial economic data set. But the way they’re reported, even if they were accurate, make them useless for estimating the health of the auto industry or the consumer. In May, they jumped 23%, higher than analysts had expected. The media drooled. Toyota and Honda nearly doubled their sales. Ford pushed 23% more units out, GM 21%. BMW sales soared 32%. Everything was simply outstanding.
Alas, they’re wholesales to distributors, not to consumers. In the US, auto sales are based on sales by dealers to retail and commercial customers. In Europe, they’re based on new vehicle registrations—when customers get the tags. This is even more accurate than dealer sales; just before cutoff, dealers scramble to push every possible unit into the system to beat the other dealers in town, and in the process, a few half-baked units slip through; later, when the down-payment check bounces or whatever, the sale will have to be backed out, showing up as a negative sale the next month. So the fudged numbers are small and self-correcting.
But in China, auto sales are reported as wholesales—when vehicles leave the plant. And while these numbers were stunning and glorious, at dealerships the scenario was gruesome: sales in May couldn’t digest the flood of production. Inventories on lots across the country ballooned from 45 days’ supply at the end of April to 60 days’ supply by the end of May—a dizzying 33% increase in just 30 days. And the ballyhooed 23% increase remained unsold. Added to inventory. Channel stuffing. Rampant overproduction and weak retail sales [for that whole debacle, read... China: A Mixed Bag Turns Very Ugly].
So, to feel their way through the inaccurate data fog, many foreign observers, and also Chinese officials, have been trying to find alternative measures that are less prone to cheating and manipulation. And electricity generation has been seen as a reliable, no BS indicator of what’s really happening in the economy. Such basic industrial data is hard to manipulate.
Not for the Chinese. Turns out, stockpiles of coal, the main fuel for Chinese power plants, has reached record levels as demand from power plants, which should have been increasing in a growing economy, has plummeted as a function of plummeting demand for electricity. And now, according the New York Times, even the government is investigating the signs that reported electricity output was exaggerated.
When the economy is hot, there is less incentive to cheat, but when it’s slowing down, though the quotas don’t allow for it to slow down, cheating becomes a career imperative. And “Government officials don’t want to see the negative,” said a chief executive. So these officials pressure the industry to wipe away any decline in consumption by reporting it as flat.
In Shandong and Jiangsu, where heavy industry plays a big role, electricity consumption has plunged more than 10% in May compared to prior year. Similar trends have been observed in Western China. While official data has been showing a slowdown of the Chinese economy from its torrid pace to a growth rate that would still be stunning in the US, electricity consumption suggests that the slowdown is much steeper. Anecdotal evidence to that effect has been popping for a while—to be negated by decent official numbers. And one wonders how long this charade, even in China, can be kept up before reality sullies it.
China has been the biggest winner of globalization. But populist and nationalist movements sweeping the world are threatening China and are a visceral rejection of China as the world’s biggest exporter. Read.... Death Of Globalization Will Shatter China.
36,000 Chinese engineers, tradesmen, and technicians fled Libya when NATO began bombing. Though China opposed the NATO intervention, it’s back in good graces with the rebels. But China wants much more than Libya’s crude. It sees the country as the springboard to a bigger prize—control of Africa’s massive oil reserves. Part of its “grand plan” to buy up energy resources, writes Marin Katusa. And now two superpowers with conflicting interests are battling it out on the world stage again. Only this time, it’s not about ideologies. It’s about survival. Read.... The New Cold War.
Fishy Economic Data And The China*Crash
SUNDAY, JUNE 24, 2012 AT 4:22PM
An unrelenting, horrid wave of scandals about toxic ingredients in foods and medicines in China shows that regulators are unwilling and incapable of controlling it. It also shows a penchant—some evil tongues say it’s cultural—for pandemic cheating in order to get ahead in some way. And Chinese economic data falls into that category.
Every country has its own bureaucratic madness in pursuing obfuscation. In the US, one of the hardest things to get is a truthful, or at least a somewhat realistic, or at the very least a not totally fabricated unemployment and jobs number. But at least, the Bureau of Labor Statistics issues a slew of supplemental data. So, in addition to the nearly worthless headline numbers that media and politicians wave in proclaiming victory, we get numbers that point at deeper fissures [for a fun head-butting on this issue, read Yves Smith’s post!].
But in China, the art of data manipulation is such that even the government might not know the true status of the economy. Officials even at the local level are rewarded, promoted, or demoted, based on achieving their economic quotas as measured by tax receipts, business revenues, real estate developments, and so on. Hence, the incentive to fudge the numbers on an individual basis is high. According to the New York Times, “The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.”
As the fudged numbers flow upward and are consolidated, they aggregate into a fudged whole, inflating GDP by 1 to 2 percentage points. But it might be a lot worse, and sometimes it’s just the way it’s counted.
Auto sales, for example. A crucial economic data set. But the way they’re reported, even if they were accurate, make them useless for estimating the health of the auto industry or the consumer. In May, they jumped 23%, higher than analysts had expected. The media drooled. Toyota and Honda nearly doubled their sales. Ford pushed 23% more units out, GM 21%. BMW sales soared 32%. Everything was simply outstanding.
Alas, they’re wholesales to distributors, not to consumers. In the US, auto sales are based on sales by dealers to retail and commercial customers. In Europe, they’re based on new vehicle registrations—when customers get the tags. This is even more accurate than dealer sales; just before cutoff, dealers scramble to push every possible unit into the system to beat the other dealers in town, and in the process, a few half-baked units slip through; later, when the down-payment check bounces or whatever, the sale will have to be backed out, showing up as a negative sale the next month. So the fudged numbers are small and self-correcting.
But in China, auto sales are reported as wholesales—when vehicles leave the plant. And while these numbers were stunning and glorious, at dealerships the scenario was gruesome: sales in May couldn’t digest the flood of production. Inventories on lots across the country ballooned from 45 days’ supply at the end of April to 60 days’ supply by the end of May—a dizzying 33% increase in just 30 days. And the ballyhooed 23% increase remained unsold. Added to inventory. Channel stuffing. Rampant overproduction and weak retail sales [for that whole debacle, read... China: A Mixed Bag Turns Very Ugly].
So, to feel their way through the inaccurate data fog, many foreign observers, and also Chinese officials, have been trying to find alternative measures that are less prone to cheating and manipulation. And electricity generation has been seen as a reliable, no BS indicator of what’s really happening in the economy. Such basic industrial data is hard to manipulate.
Not for the Chinese. Turns out, stockpiles of coal, the main fuel for Chinese power plants, has reached record levels as demand from power plants, which should have been increasing in a growing economy, has plummeted as a function of plummeting demand for electricity. And now, according the New York Times, even the government is investigating the signs that reported electricity output was exaggerated.
When the economy is hot, there is less incentive to cheat, but when it’s slowing down, though the quotas don’t allow for it to slow down, cheating becomes a career imperative. And “Government officials don’t want to see the negative,” said a chief executive. So these officials pressure the industry to wipe away any decline in consumption by reporting it as flat.
In Shandong and Jiangsu, where heavy industry plays a big role, electricity consumption has plunged more than 10% in May compared to prior year. Similar trends have been observed in Western China. While official data has been showing a slowdown of the Chinese economy from its torrid pace to a growth rate that would still be stunning in the US, electricity consumption suggests that the slowdown is much steeper. Anecdotal evidence to that effect has been popping for a while—to be negated by decent official numbers. And one wonders how long this charade, even in China, can be kept up before reality sullies it.
China has been the biggest winner of globalization. But populist and nationalist movements sweeping the world are threatening China and are a visceral rejection of China as the world’s biggest exporter. Read.... Death Of Globalization Will Shatter China.
36,000 Chinese engineers, tradesmen, and technicians fled Libya when NATO began bombing. Though China opposed the NATO intervention, it’s back in good graces with the rebels. But China wants much more than Libya’s crude. It sees the country as the springboard to a bigger prize—control of Africa’s massive oil reserves. Part of its “grand plan” to buy up energy resources, writes Marin Katusa. And now two superpowers with conflicting interests are battling it out on the world stage again. Only this time, it’s not about ideologies. It’s about survival. Read.... The New Cold War.
Gold may have a push and then fall again.....I'm holding my core position but will dump my spec if it takes a 5% fall from here.
Total crap shoot.
China citizens buy shiny stuff and central banks are not dumping any......actually buying small amouts.
Dips sh!t maybe for me.
Gold clearly is/was in a corrective phase ... Just a question of how much it corrects is it over etc
2008 correction was roughly 1000 to 700 or 30%
1900 to 1330 would be 30%
Just don't see any catalysts for gold near term as it clearly ebbs and flows with the risk on/risk off phase ... And even if we aren't entering a big risk off phase I don't see how there is much upside to risk assets overall from here priced for perfection and unless things unravel in a significant way Ben won't be doling out more ammo for the QE addicts ... At best we continue a sideways chop fest for a while
2008 correction was roughly 1000 to 700 or 30%
1900 to 1330 would be 30%
Just don't see any catalysts for gold near term as it clearly ebbs and flows with the risk on/risk off phase ... And even if we aren't entering a big risk off phase I don't see how there is much upside to risk assets overall from here priced for perfection and unless things unravel in a significant way Ben won't be doling out more ammo for the QE addicts ... At best we continue a sideways chop fest for a while
