Why Chinese Inflation Risk Is Over Three Times Greater Than In America Submitted by Tyler Durden on 08/21/2012 12:55 -0400 As everyone awaits (or doubts) the next coordinated central planning bank action - whether Fed QE (Lockhart stymied?), ECB 'bottomless pockets' (Merkel's back), or China RRR (reverse repos?) - the prices of things we need (as opposed to want) continue to rise. Nowhere is this more important than in China with its extremely high levels (and volatility) of deposit flows increasingly levered to re-inflationary actions by the PBoC. The critical aspect of the following analysis is that in the US, the stock market acts as an 'inflation buffer' for the rich's excess disposable income ; in China, this is not the case and given the greater than 3.4x leverage compared to the US, PBoC actions flow much more rapidly through the populace to the things they need - and right now more inflation is not what they need or want - which perhaps explains the reverse-repo 'gradual' tightening. 1) Chinese deposit volatility is massively high and extremely prone to 'inverse' window-dressing (as Bloomberg's chart of the day pointed out yesterday) which makes the PBoC's role as credit-monitor very hard . The chart below shows the outrageously obvious pump up in deposits (lower pane) as banks offer incentives to attract deposits and meet PBoC regulatory needs - only to let them flow back out and tighten their offers after... 2) This exaggerates any mistake or action they make but more critically the fact that in the US Depo-to-GDP is 0.55: 1 (USD8.8tn Deposits against USD15.8tn GDP) but in China it is 1.9:1 (USD13.8tn Deposits against USD7.3tn GDP - USD equivalent) - a 3.45x ratio that greatly exacerbates any easing impact of a RRR as deposits flow more dramatically ; which leads to a critical and most important point; 3) Why do Chinese people not like their stock market? In the US those 'deposits' flow straight into an inflation buffer - the US equity market (or AAPL) . The lack of flows into Chinese stocks given the size of their deposits suggests legacy savings attitudes remain solid or fear of fraud are prevalent. The point being that if the US had the same amount of cash in deposits as China (on a relative basis), the US would have an epic inflation problem right now but since the rich, who have all the disposable income, simply redirect cash into the stock casino market, stocks serve as an inflation offset. Without a wholesale shift in Chinese attitudes towards risk, given their clear 'trust' issues, inflationary impacts of PBoC action will remain far more important than the Fed's (for now).
USA, Inc. - Part 2: If America Were A Corporation, It Would Be Broke-er Submitted by Tyler Durden on 11/01/2012 21:12 -0400 Fail Ira Sohn When Mary Meeker, formerly of pre-IPO bubble analyst fame, released her "USA, Inc." presentation last year, which assayed the US government as if it were a corporation, her conclusion was simple: the country is broke , and can not continue along the path it is on now. Fast forward to today, when the US debt balance is over $1 trillion higher, and the next edition of Mary Meeker's presentation which she released at last week's Ira Sohn conference. Her conclusion: the US is now broke-er than ever. The summary bullets of the must read cover to cover 50 page presentation. America is losing its edge - some of this is inevitable as other countries improve their competitiveness, some of this is self inflicted. Financial strength is vital to competitiveness – it’s core to a healthy economy, job creation, vibrant education / culture and military leadership. Positive cash flow and a strong balance sheet are key to financial strength – bottom line, it’s bad to spend more than one brings in, as America is doing. In effect, as each day passes – with our rising losses and debt load – we rob just a little bit more from the future. America does not need to lose its edge, it needs conviction and leadership to move its ‘business model’ in the right direction – we are all in this together, we need to understand and acknowledge our problems and agree to move forward with collective inspiration and sacrifice. American tax dollars fund our government – we all need to understand where our taxes go and decide if we believe our hard-earned dollars are put to their highest-and-best use. The politicians we elect decide where our money goes. As everyone who has worked in finance knows, the first page of every presentation is the Sources and Uses table. USA, Inc., has one two. We fail to see, however, who in their right mind would consider this a sane investment. To be sure, the full name of the corporation should be Welfare USA, Inc. as can be seen below from the consolidated Healthcare spending for the US in context... And the percent of households paying taxes vs those receiving government benefits. Houston: we have inversion! Full hair-raising presentation below: Average: 3.625 Your rating: None Average: 3.6 ( 8 votes) Tweet Login or register to post comments 7464 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Pick Your Debt Poison Guest Post: Are Corporations People? Chart Of The Day: Americans At Or Below 125% Of The Poverty Level ABRaHaM LiNCoLN... Guest Post: What Democracy?
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