China Liquidity Problem Exploding: 2008-Like

[JohnQPublic]

SHIBOR: We Have A BIG Liquidity Problem
Submitted by Tyler Durden on 01/21/2011 12:50 -0500

When two weeks ago we first pointed out the surging Chinese weekly SHIBOR (following up on comparable observations from last summer) it prompted a variety of bemused responses, the bulk of which were of the now traditional "this is irrelevant" variety. Too bad. Today, the 7 day SHIBOR (and repo rate) has just surged to new multi-year highs and has literally exploded from 2.5% to 7.3% in a few short days. Two weeks ago we said: "In a nutshell: there is no marginal liquidity left in the world's fastest growing economy. Eventually this will dawn on the world. Until then, BTFD." Looking at the SHCOMP's performance over the past two weeks, this has in fact dawned on the world. And when the headline scanning algos running our own stock markets realize that the world's biggest marginal economy has absolutely no short-term liquidity left, the aftermath will be very ugly.



7 Day SHIBOR:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/havenstein/China%20Liquidity%207SHIBOR.jpg

7 Day Repo:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/havenstein/China%20Liquidity%207%20Day%20Repo.jpg

[joe_momma]

The Chinese raised the reserve requirements for the banks (who all have off-balance sheet loans on top of all the "highly leveraged" loans they've admitted to.

The pinch is that none of the banks have the internally traded currency to cover the requirements - with the currency controls in place, they cannot cover the shortfall with hot western money -

PRC may very well have to print yuan on the side (ala Bernanke) to coverup this - which in turn only makes the inflation specter that much more visible (and the original reason for raising the reserve requirements).