In the Philippines, the classical Pavlovian conditioning to trigger a panic bid has been to shout G-R-O-W-T-H
In the US and elsewhere, the equivalent is for authorities to declare Q-E or S-T-I-M-U-L-U-S
So all it takes for the major US benchmarks to basically erase recent corrections is for the Chinese government to announce another system wide bailout via a QE
From Businessweek/Bloomberg:
China is providing 500 billion yuan ($81.4 billion) of liquidity to the country’s five biggest banks as Premier Li Keqiang steps up stimulus to support economic growth, Sina.com reported yesterday.The People’s Bank of China yesterday started providing the banks with 100 billion yuan each through standing lending-facilities with tenor of three months, the news website said, citing banking analyst Qiu Guanhua at Guotai Junan Securities Co. The PBOC will complete the process today, it said.“This is like ‘printing money’ as base money is created,” Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd., said in an e-mail. “The immediate impact is similar to an RRR cut of 50 basis points to all banks.” RRR is banks’ required reserve ratio; cutting it increases the amount they have available to lend.
The Chinese government earlier wavered on stimulus. Then they changed their minds and declared a ‘targeted easing’ last June with a formal announcement in July of 1 trillion yuan ($171 billion) stimulus (or QE?) via the “Pledged Supplementary Lending”.
The June-July stimulus hardly “boosted” the (really deteriorating) economy.
It has been in stocks where the stimulus has had a positive effect. The government added spice to the stock market boom by intervening in the IPO market which has incited a debt financed retail based IPO frenzy.
This paucity of the initial stimulus to the real economy plus perhaps a –1.82% slump in the Shanghai index yesterday may have prompted for the new government support. The rationale could be if stocks come unglued and confidence falls apart in the face of fragility from an overdose of debt, misallocated resources and a fumbling economy, then a crisis may just emerge, so actions must be taken.
And in perspective if we add June and yesterday’s announcement this will constitute 43% of the 2008-9 stimulus at $586. So if the QE lite installments will be continued this will eventually lead to the size of 2008-9.
The last major stimulus in 2008-9 spawned a debt monster. This has been manifested by the fantastic growth in the banking sector with banking assets now significantly above or higher than US counterparts.
But with the debt monster flailing, the Chinese government thinks that they must continue to feed on it in order to keep up with those targeted statistical 7.5% data for political reasons. This is regardless of whether policy induced diversion of wealth to unproductive activities will mean a further draining of the real economy which has already been burdened by too much debt and malinvestments
So this is basically doing the same thing over again and expecting different results. That’s the way of politics.
And unlike the Philippines where monetary authorities have been panicking to tighten, for the Chinese government, the panic has been to stoke more credit expansion.
Yet here is the intraday price response by the S&P and Australian dollar:Japanese yen pair, according to the Zero Hedge.
Like the Philippines, US stocks has become a one way street.
Profit taking is now considered taboo and thus corrections have become shallower which reinforces the manic phase.
Governments around the world continue to use asset markets as signal channeling tool to impress upon public that everything has been A-okay. This by sustaining the invisible transfer of resources to the government’s favored parties, Wall Streets of the world, elites, cronies, the bureaucracy and the welfare-warfare state.
Unfortunately the real economy is guided by the law of scarcity, which means such illusions won’t last.
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