Time to Panic: China Limits Gold Imports

China's officials favored gold as an asset for many years and most interpreted it as a long-term strategy. The bolder claim said China was going to back the yuan with gold. There was the argument China wanted to become the global center of the gold trade. More practically, imports of gold count as imports, but are really a form of savings. Importing gold is a great way to satisfy political pressure surrounding a trade imbalance by shifting some savings activity into the current account. The best evidence was the heavy advertising and investment promotion pushed by the government itself, encouraging Chinese to buy gold.

FT: China tightens gold import quotas to curb dollar outflow

China has curbed gold imports in the wake of government attempts to clamp down on capital leaving the country, according to traders and bankers.

Some banks with licences have recently had difficulty obtaining approval to import gold, they said — a move tied to China’s attempts to stop a weakening renminbi by tightening outflows of dollars, the banks added.

...Quotas for importing gold have been cut during quarterly assessments this year. Banks also have dollar quotas, some of which must be used when buying gold.

Now is the time to panic if you're a Chinese with lots of money tied up in yuan because the Chinese government is signaling two things with this move. One, all exits will be shut. If you don't escape now, you run the risk of paying a high price to get out because gold premiums will start rising if demand outstrips supply. Two, it signals the yuan is in serious trouble. Gold imported by the banks sits in bank vaults and is effectively a national resource because the government controls the banks. If China decides it wants your gold or your dollars, it can force you to sell.

This reminds me of 2013 post from Liu Junluo: Gold going to $500; Chinese yuan will collapse; China will nationalize dollar deposits

If you adjust the timing of his call, just about everything he warns of (except for the massive drop in gold) has taken place by 2016:

From 2010 onwards, when the Dollar Index was 74, China's central bank made the strategic decision that the dollar would devalue over the long-term. Therefore, China's central bank began selling dollars and buying the euro, the yen and commodity currencies to diversify China's foreign exchange reserves.

However, beginning in 2013 , China's central bank suddenly found the U.S. economy has been gradually recovering. The euro zone economy has continued into a disastrous predicament. Meanwhile, the Bank of Japan launched a policy of devaluation of the yen.

Between July and October, the Chinese central bank will manufacture China's disastrous stock market crash. The hidden past strategic errors of judgment will now come to light, exposing China's bad debts.

From 2010 onwards, China's central bank took 3 trillion in foreign reserves and converted 2 trillion into non-US currencies, this is the root of the future Chinese economic disaster. roots. In all of human history, there is no central bank that committed such a stupid, catastrophic mistake.

The real farce is that China's central bank in the coming months will reverse its past dumping of dollars; it will turn into a frenzy of dollar buying. Including a rapid nationalization of domestic U.S. dollar savings.

The stock market crash came 2 years later, after a massive bubble formed, but the long-term strategic error of diversifying away from the dollar, particularly into highly volatile and inversely correlated assets such as commodities, was ongoing for years.

China sold dollars in a rising market and long-term, it may even come out ahead. But China also sold dollars amid a depression, a period of dollar deflation. Now is the final stage: is the depression set to end, or does the U.S. dollar have another 20 percent to go before it tops? If the latter, the move to limit gold imports tells us China is unprepared.

Li Junluo: China Should Dump 2 Trillion Treasuries Now

Liu Junluo sees China trapped. The Fed rate hike was a lie, the country is stuck with Treasuries so the U.S. doesn't fear retaliation, unemployment and food costs will be major problems in 2016. He say Lockheed Martin (LMT) is the winner of the TPP (rearming Japan?).

Before, I had to speak very clearly - if the US and Japan TPP agreement is reached, that the United States Lockheed Martin will officially enter the main upward move. 10 month, the US-Japan TPP agreement, Lockheed Martin is expected to expand as the upward move.

US Lockheed Martin is meant skyrocketing global arms race began. "US Lockheed Martin soared + Fed QE4 + food dollar + dollar index soared, "the United States is the real strategic tool. The US destroyer USS Lassen was the great bull market of the United States Loma sector to pave the way. So, we know ourselves, know our enemy, always victorious.

No Liu piece is complete without a comment about Chinese economists, and his latest is no different: "Chinese economists are all a bunch of crooks and gits."

His LMT call looks good though.

Liu Junluo: Fed Needs EM Currency Crash to Justify QE4; Rate Hike Talk A Giant Scam

The talk of a rate hike was a giant scam designed to push the U.S. dollar much higher in order to prepare for the ensuing drop when QE4 is announced.

Liu discusses how he said the Fed would never hike rates. The Fed said it would hike in March, then pushed in back to June, then September, now maybe year end. The Fed may push it back to N months later going forward.

Liu explains his thinking. It begins with 9 trillion in USD denominated debt that must be rolled or repaid.

First, businesses should master the basic professional knowledge. And this line of business of the global financial world, during the end of the year, are global banking settlement and global bond market liquidity worst time. In this way, you should also know, from 2009, the Federal Reserve launched successive 3 times QE , the global market had a lot of dollars arbitrage traders, most of them concentrated in China and emerging markets. At present, their size up to nearly 9 trillion. Chinese market of about 1.5 trillion US dollars. So, until 2015 years later, a lot of dollars arbitrage traders must return to the United States.

Therefore, the Fed's Yellen 2015, will raise interest rates later this lie is so vulnerable. Because 2015 years later in China and emerging markets will face unprecedented retreat dollar arbitrage traders. So, 2015 years later in RMB and emerging market currencies will fall into a catastrophic collapse. By then, the Fed's Yellen will talk about the cat crying mouse - because, the renminbi and the crisis in emerging market currencies, so the Fed will not raise interest rates, ready to launch QE4 to save the world.

The Fed is creating global debt destruction, in order to ride to the rescue with QE4.

The catastrophic time will be November to December. The PBOC will work hard to put down "the Boxer Rebels" between now and then, aka crush the nationalist Chinese holding RMB.

Liu says Boehner's resignation will push the debt ceiling battle from October to December. America will allow China into the SDR as a way to destroy the value of the yuan. The closing of the Export-Import Bank in America has led to massive layoffs at HP and Caterpillar. Europe and Japan are reading new salvos in the currency war.

Liu closes by saying that China's ignorance of globalization and financial warfare dooms it again, just like the Ming and Qing dynasties.

China has been the fate of the world's superpower. However, the fate of the Ming dynasty, the Qing Dynasty only shows that globalization is the most fatal weakness of ignorance Chinese. Now, with the Fed rate hike expectations deceived us to a more than a year's time. Today, that fool would think, I would go cheated several times. Today, however, the Chinese market is still talking about the Federal Reserve to raise interest rates farce. Today's world is full of shadow banking and arbitrage traders, we do not grasp the modern "financial weapons", we can only be used modern "financial weapons" massacre.

Liu Junluo: The Fed Will Trap the PBOC

Bloomberg: PBOC Vows to Walk Fine Policy Line as Debt Endangers Growth

“We will prevent excessive easing to avoid cementing economic distortion or pushing up debt and leverage levels; on the other hand, we will create a neutral and appropriate monetary environment” for growth, the People’s Bank of China said in its monetary policy report published on Friday.

The Chinese media focused on a different part of the report:

"To improve the market environment and revitalize the stock of assets, establish long-term mechanism for the healthy development of real estate."

iFeng: 中央会议再提楼市建立长效机制 释放一大信号

Liu Junluo thinks the PBOC is going to fail. A couple of months ago, Liu was explaining how The Fed's Rate Hike Lies Will Cause Another Great Depression. Today on his Weibo, he still argues the Fed isn't going to hike rates. Later this year, they will announce rates hikes are off the table and QE4 is on the table. Chinese asset prices will zoom because monetary policy is too easy in that environment. Rising agricultural prices will push up inflation in China and the PBOC will hike rates, sinking the economy.

Google translate version:

The Fed "2015 hike strategic deception" strategy: trick by China's central bank to push up domestic asset prices stable exchange rate. But in fact, the US does not raise interest rates, pushing the "QE4 + food inflation." United States 2 combination cards to play, China's central bank to raise interest rates only desperate fight. Why the United States will win? US-Japan TPP advance, the country even the "Fed to raise interest rates in 2015 was downright lie," do not know. Expected in the fourth quarter this year, China's central bank to raise interest rates madness.

Liu Junluo: The Fed's Rate Hike Lies Will Cause Another Great Depression

An antidote to the smart China, dumb Federal Reserve narrative commonly found in the West, here Liu Junluo again attacks the Chinese elites, specifically the economists who this time are dubbed swindlers. China's adoption of modern Western finance has helped the country develop, but according to Liu, China is playing on Western turf and the outcome will be another victory for Western powers.

Liu Junluo, February 2: "The Federal Reserve will hike interest rates in 2015" is a globe enchanting lie. Only a few economists agree with me, such as Krugman and Summers.

Now, why do the Chinese continue to discuss a rate hike in April, June or September?

In 2007, I argued the Fed rate cuts would trigger deflation because the U.S. money supply was being boosted by the yen carry trade. Very quickly, the world went into a depression. Chinese economists mocked me, but the result was indeed a depression in 2008.

The Fed's current strategy is like the Normandy invasion, when the best minds of the U.S. and Britain concocted a false strategy to fool the Germans. They went so far as to lie to their own spies and allow them to be captured, in order to sell the lie. Now Chinese economists are intimate partners in the Fed's deception.

The Fed is covering up the coming depression. U.S. dollar index at 100 + global depression = China's FX reserves invested in Europe, Japan, Australia and oil assets all suffer huge losses + global debt settlement crisis = China's economy and society will descend into hell overnight.

Today, few understand that austerity + loose monetary policy = U.S. dollar index at 100 + global debt crisis.

By the end of February, the USD Index will be 98, then in March to April it will rapidly increase, and by June, it will peak at 120. In April or May, Chinese economists will again give advice after the horse has left the barn, telling us a global depression has begun, the Fed will not raise rates, but instead launch QE4.

USD Index 100 + Global Debt Crisis = USD Index 120. A modern financial nuclear weapon.

Today, China is being extremely cheated by Chinese economists. The Chinese people's national disaster, or the fixed feature of Chinese history is that we learn foreign advanced technology, but found that those who control these advanced technologies and manage the nation are swindlers. These crooks seize these advanced technologies and play tricks on the people. But whites are playing tricks on those controlling the advanced technology.

The late Ming Dynasty, the late Qing Dynasty is this scene. China again goes back.

刘军洛: 美联储加息谎言和大萧条

Chinese Debate Yuan Risk in the Wake of Ruble Collapse, Liu Junluo Sees Path to 1997 Repeat, Niu Dao Sees Path to Latin American Crisis of 1980s

Since the ruble's collapse, there have been several articles comparing the Russian situation to the Chinese one. Most of the opinion argues the yuan is not going to depreciate like the ruble due to China's large reserves and more diversified economy, but popular financial bloggers Liu Junluo and Niu Dao disagree (no surprise) and see paths to yuan collapse.

人民币有贬值压力 不会重蹈“卢布式”危机 (Yuan Has Depreciation Pressure, Won't Follow "Ruble Style" Crisis)

With a stronger dollar, currencies of emerging market countries will go where? "Ruble" type of crisis will be transmitted to the renminbi and the currencies of other emerging market countries?

Yu Xuejun of the PBOC Shenzhen branch:

He told the 21st Century Business Herald interview, said the crisis affected the ruble devaluation will increase pressure on the yuan, but now China and Russia's economy and is quite different, coupled with China is sitting on nearly 1/3 of the world's foreign exchange reserves, is perfectly capable of maintaining the RMB exchange rate at a reasonable level. Therefore, the RMB is unlikely to occur, "ruble" type of crisis.

He goes on:

Of course, in addition to the supply side, there are reasons for the demand side. That is, since the 2008 global financial crisis, after adjustment for years, the global economic downturn has not yet out of the quagmire. Meanwhile, the 2014 world economic growth is weak there is an important factor, that is downward pressure on the Chinese economy, the demand for energy, raw materials decreased significantly. A few years ago, although the financial crisis hit the global economy, but oil, iron ore, copper and other bulk commodity prices have remained high, which is an important reason for the huge investment in China provides a huge demand. Now, as China's economy was continuing downward pressure on demand for bulk commodities significantly reduced, which makes almost all of the world's bulk commodities are declining. Therefore, the sharp decline in oil prices is not independent and accidental, but there is a macro-trend of problems. In this trend, the United States and Europe to Russia before they can make the best use of sanctions, the flow, and thus to exert enormous pressure on Russia.

This article (好淡因素相当 人民币汇率以稳为主基调) argues the yuan is stable, but don't forecast otherwise! It could lead to a self-fulfilling prophecy:

From a broader perspective, the market should not be made for the expected depreciation of the RMB, but also to avoid the authorities concerned to make such a policy orientation. At present, the global fluctuations in currency exchange rates increased, the potential risk of the outbreak of the currency crisis in emerging economies in the increase. The recent outbreak of the ruble crisis, the financial system and the economy caused serious injury. Southeast Asian financial crisis in history, starting from the currency crisis and also transmitted to the financial system and the real economy. If the yuan devaluation is expected to form a broad, eventually self-reinforcing, and finally transmitted to the real economy and deeply hurt China's real economy.

Popular blogger Liu Junluo disagrees with the optimists. 中国央行将加息了和楼市

Dollar index broke the 100 later, China's central bank about $ 2.3 trillion in the hands of "non-US currencies," oil and mineral assets will face a loss of up to 70% of losses.

Now, in China in 1994 is similar to the famous Mexican Tesobonos bond size at about $1.5 trillion, which is "dollar interbank bond." And, most did not do currency hedging. 1994, Tesobonos problem outbreak in Mexico, Mexican currency and overnight sent the Mexican economy, "hell."

He's talking about Chinese investments in natural resources and minerals around the globe, as well as short-term debt and dollar denominated loans at SOEs and real estate developers.

Now the problem is that Chinese real estate developers, Chinese state-owned enterprises and the Chinese central bank's position is a "single position", "single position" in the financial markets is a suicide pact. For example, if the dollar rises, Chinese developers and state-owned companies will start panic buying dollars, and that will cause a loss to China's central bank due to reserve diversification. Thus, China's central bank will raise interest rates sharply to attract dollars, however, a substantial hike will lead to China and the Chinese state-owned real estate to further losses, so that China and the Chinese state-owned real estate would be more mad rush to buy dollars, while China's central bank diversification of official reserves will be further loss, therefore, China's central bank will raise interest rates further. In 1997, the ASEAN region was annihilated by this real estate and central bank suicide pact.

Liu goes on to argue that the stock market bubble isn't there to prop up the economy or repay debt, but to keep hot money from pouring out of the country and triggering a currency devaluation. It will also trap Chinese citizens when the central bank closes the dollar window (although Chinese stocks will be better than cash in the long-run if the yuan devalues sharply).

So, we see the Chinese central bank quickly creating super hot Chinese stock market in the past few months, has attracted hundreds of trillions of money into the stock market. Soon, we will see all these hundreds of trillions of money is buried in "the stock market dead pit" scene. Will China's stock market is now crazy aunt who rushed to the time to become China's aunt who ruin, and that also what the Chinese central bank stepped into the doorway to exchange American dollars?

After the Spring Festival, China's central bank will allow the rapid devaluation of the RMB exchange rate. And in this year, May 4 to domestic residents dollar closed the window. At the same time, tightening the money supply began to promote the domestic real estate fell to lock estate liquidity.

This year in March, the launch of the "real estate registration" to "anti-corruption", or for overseas Chinese central bank's huge losses to lock in domestic liquidity. Let's central bank has not yet entered the door, ready to exchange dollars people first "dead" mean?

This isn't new ground for Liu, who argued in 2013: Gold going to $500; Chinese yuan will collapse; China will nationalize dollar deposits

Another Chinese financial blogger "Bull Knife" (Niu Dao) argues that the collapse of oil shows the Chinese economy is collapsing: 原油崩盘昭示中国经济全面崩溃. He argues that the global rebalancing will take place via exchange rates. Chinese real estate is not "its own thing," rather in the age of globalization, it too is subject to global conditions. He says the A-share bubble is fueled by commercial bank loans funneled into stocks because Chinese shares have no investment value, only speculative value. Make some money and run. He criticizes the Chinese government printing money to pull up land prices and even copper. (From November 2014: Chinese State Agency Buys Up Copper, Keeping Floor on Prices. China needs to prop up copper for the same reason that it needs to prop up land and real estate prices: a mountain of speculative debt will collapse if the underlying collateral craters. And copper is at a critical juncture....) Ultimately, he compares China's fixed exchange rate system to the fixed currency regimes in Latin America during the early 1980s. They began collapsing when the U.S. Dollar Index climbed between 100 and 126. By 1984, the USD Index was at a new high of 165. Niu Dao sees the USD Index hitting 171 this time.

Liu and Niu don't give a lot of background to why they thing as they do. While I can make a case for their conclusions, they don't connect many dots in their posts. These bloggers have a flair for rhetoric, but do not give a good foundation for their forecasts. Their predictions are also extreme and Liu has at least poor timing (see some of Liu's other projections here, including a 40% drop in the yuan in 2013). They are entertaining though, and show that China allows a wide range of debate in areas such as economics.

For all their flaws, their conclusions may still be pointing in the right direction. The yuan is at a greater risk of breakdown than is recognized by the market, and the path to serious devaluation (or the threat of it) would likely involve the Chinese central bank ending dollar convertibility. Liu earlier had a post noting how the U.S. dollar collapsed as China gobbled up treasuries in the aughts (2000s) and goes to argues it will surge as China diversifies away from the dollar in the 2010s. Foreign exchange and billions upon billions of dollars invested in natural resource projects, plus the Chinese real estate bubble, are all at risk from deflation, the flip side of a dollar rally. Michael Pettis has noted how China today is very similar to the USA in 1929 and Japan in 1989; both nations had huge foreign reserves and were creditor nations. Most yuan bulls cannot conceive of a path to yuan devaluation because of the large reserves and seemingly invulnerable Chinese economy, but the yuan is literally a paper tiger, as are all fiat currencies. Even many yuan bears base a yuan devaluation on internal economic conditions, not an external dollar rally. Chinese bloggers, however, see a US dollar rally as the genius Federal Reserve and Wall Street about to skin their biggest prize yet.

Liu Junluo Calls For Massive Stimulus; Slams China's Idiot Economists for Falling into Fed & Shinzo Abe's Trap

Liu Junluo was a trader by profession. He has written several books such as "Who Kidnapped China's Economy." He is a popular blogger and author. He takes the opposite opinion to what you normally see in the Western blogosphere, where China is smart and the West is dumb. In his view, the Americans are smart and the Chinese are stupid, constantly being played for fools. He also leans towards nationlism, a popular opinion among Chinese netizens.

2014 China urgently needs a massive fiscal stimulus

People still remember the end of 2008, China launched an unprecedented 4 trillion fiscal expansion. By the end of 2008, Chinese economists are loudly shouted 4 trillion fiscal stimulus is how important and wise. Indeed, so far as many Chinese are still Economics 2008 4 trillion fiscal expansion excuse.

Today, the reality is our U.S. stock market hit a record high and the Chinese stock market into a catastrophic crisis.

In 2007, when the Chinese stock market 4,5 thousand points I pointed out - the future of the U.S. government strategy is made in China to the 2000 stock market crash the following 2008 after China's real estate boom into the most crazy and by the end of 2008. At the time, this view is a fantasy for the Chinese people things. However, in September 2008 to allow the U.S. central bank Lehman Brothers went bankrupt. As a result, by the end of 2008 China's stock market plummeted to 2000 points or less on schedule. So, we immediately launched a 4 trillion foolish fiscal expansion. Meanwhile, China is also scheduled today in unprecedented real estate bubble.

September 2008, the U.S. Treasury Department could have easily rescued Lehman Brothers with $20 billion. So, when the U.S. Treasury natural crocodile tears that he has no money. The $ 20 billion for an economy the size of $ 15 trillion in national currency and the country has the world right, is simply a fraction of thing. In this way, we should know the 2008 4 trillion fiscal expansion is the Chinese being fooled by America.

Today, Chinese economists desperately oppose China launched a massive fiscal expansion. Talking about reform, talk about how there can be no creation without destruction, after the crisis China can have hope, and so on. The problem is that China's central bank and Chinese economists are idiots, fooled by a handful of Americans at the end of 2008. Now, the United States and Japan are waiting for emergency fire Chinese real estate crash and debt crisis. Idiot Chinese economists again want to sacrifice themselves for the U.S. central bank and Japan's Shinzo Abe.

At present, China's central bank already missed the opportunity to release money. China can only rely on an immediate 4 trillion yuan strategic fiscal expansion to counter the United States and Japan.

2014 edition confront the mind with the mind

(1) all of the state-owned shares is injected into the Social Security Fund;
(2) the establishment of grain and oil reserves with more than 1 year's supply;
(3) a substantial increase in personal income, slash the personal income tax;
(4) to stop the stock market IPO, allowing only military, agriculture, new energy enterprises in the equity financing;
(5) stop mixed-ownership policy;
(6) to provide rental subsidies and free food to low-income families;
(7) start to pay for universal health care;
(8) start the 2014 Chinese version 4 trillion fiscal expansion into the military, agriculture and new energy;
(9) start 2014 Chinese version of QE, which is China's central bank begins large-scale buying of Chinese long-term bonds.
(10) re-revised steady GDP growth of 7.5 percent catastrophic error strategy should be based to a substantial increase in GDP growth rate of 10% correct strategy.

And in February 2008, I published an article in Sina blog , "Mr. crash - the Great Depression, Bernanke and short," the article pointed out - the U.S. central bank will soon manufacture the stock market crash and the global economy, therefore, China should immediately confront the mind with the mind. At that time, I suggested, "February 2008 edition confront the mind with the mind," the policy is as follows:

February 2008 edition confront the mind with the mind

(A) establish a $ 300 billion fund stock tray, allowing banks to buy shares of listed companies, to suspend futures;
(B) the purchase by the public investment vigorously turning public benefits;
(C) to provide rental subsidies to low-income families, a "total social housing";
(D) to stop the appreciation of Renminbi;
(E) public ownership of national resources;
(Vi) the privatization of monopoly industries;
(Vii) the elimination of export tax rebates, export of resource products to increase high export tariffs;
(H) a substantial increase in personal income significantly longer significantly longer significantly reduce individual income tax;
(Ix) the establishment of $ 300 billion global resource reserves;
(J) the establishment of a special fund $ 300 billion in transition;
(Xi) the establishment of small government, big market framework;
(Xii) the establishment of the RMB currency of target.

February 2008, China's stock market is still popular in the 4500's. No Chinese feel China has been under the control of the United States began systematically. If, in February 2008 China to launch immediately above the 12 policy. So, by the end of 2008 China's stock market will not fall below 2000 points to the end of 2008, a disastrous 4 trillion fiscal expansion will not be available. Thus, today's Chinese economy will not fall into the absurd unprecedented real estate bubble. How can it be that, step by step, the nation was led by the nose by Americans?

So, as I have been saying the last ten plus years - Americans are not clever, clever is the old adage "mediocrities lead the nation to disaster."

"2014 edition" the 10 policy must be synchronized immediately launched, one cannot be too little, one cannot be too much.

Of course, China's future is bound to fail. Because my 2014 Edition 4 trillion fiscal expansion and China QE policy is opposed and mocked by all Chinese economists.

So, can only say that the U.S. central bank and Japan Shinzo Abe are laughing to their heart's content. Therefore, China's central bank and the idiot Chinese economists are just the U.S. central bank and Shinzo Abe's faithful unsung heroes.

This is China's great tragedy. Originally there should be a strong China, or inevitably would be a strong China, but today no one understands the U.S. central bank and Shinzo Abe's strategy, can only be caught in the United States and Japan's set up, entering the trap and suffering a crushing defeat.


Liu Jun Luo
2014 Thursday, April 17, 2009

Repost From March 2010: Liu Junluo: RMB will fall to 20 per dollar within 3 years

刘军洛: 2010年美元时代的开启——三年内英镑跌至1 欧元跌至0.8 人民币跌至20 日元跌至150
Lui Junluo: 2010 Dollar Era Begins— Within 3 Years, the Dollar Index will be at 130, the pound will be at $1, the euro will be at $0.80, the renminbi will be at 20, and the yen will be at 150.

Liu Jinluo explains his experience in the 327 bond scandal, or 327 incident. Here is some background from an Asia Times article:

The bond-futures market that operated in China from 1993-95 is a good case in point. It was originally introduced to improve liquidity in the spot market and make bonds more attractive to financial institutions by allowing them to hedge their exposure. But there were two serious problems. First, because most of the bond issuance up until that time had been directed toward individuals, institutional investors did not have large positions to hedge. And second, most interest rates were set by the government and adjusted only infrequently so there was also not much risk against which to hedge.

There was thus relatively little demand for bond futures as a hedging tool and the market quickly became dominated by speculators trading on insider information, with positions often far in excess of the limits set by the exchanges. (Bond futures traded on the Shanghai and Shenzhen stock exchanges and also on a number of "securities trading centers" set up by local governments throughout the country.)

The regulators finally stepped in after massive losses at Shanghai International Securities Co (SISCO), at that time China's biggest broker, which had unsuccessfully attempted to push down prices by taking a short position with a notional value more than eight times the total issuance of the underlying bond. After this scandal, known as the "327 incident" after the series number of the futures contract SISCO was shorting, all bond-futures trading was indefinitely suspended in May 1995.

Liu Junluo is able to make profits due to his "trader's instinct" and he gives some examples of how people were reacting, which I interpreted as due to there being asymmetrical information in the market.

He believes China and Japan will face economic collapse. He goes on to explain how a multinational could use a large loss in China to its advantage, by shorting large amounts of Japanese bonds or Japanese yen, since this event would be very bullish for the U.S. dollar. I think in this regard, he sounds very much like Martin Armstrong, where finance and derivatives can earn very large profits and can affect economic events, but most economists, politicians, etc. have no clue as to how this world works.

In the end, he believes the U.S. will make great profit from the $600 trillion in derivatives, and goes so far as to say God gave Americans the "derivatives gene", but Chinese got the "Coolie gene"—certainly the opposite of almost every financial critic's opinion.

While I agree that the U.S. could do relatively well in a (non-USD) crisis, I suspect the deflation would be powerful enough to cause losses that exceed those of 2008. Counter-parties would be unable to pay off their derivatives bets, but the futures markets may fail as well, with governments unable to offer any bailouts. One of the only ways to profit would be to hold the safest and most liquid cash and cash equivalents. That is, to lose zero while everyone else loses big.

Translation of the piece follows.

Update 2010-03-23: This needs more work, but I haven't got time. The part where he discusses the day of trading 327 bonds is the area with the most mistakes, take it for what its worth.

The U.S. dollar Era Starts in 2010- Within three years, the dollar index will be 130

The U.S. dollar Era Starts in 2010 - within three years, the pound will fall to $1, the € will fall to $0.80, the yuan will fall to 20, and the yen will fall to 150

Before a country goes bankrupt, there will always be a strange scene-the upper class usually has ostrich-like blind optimism; the middle-class has serious mental and physical exhaustion; the lower class is resigned to its fate and give up on themselves.

In 1995, I had the honor of participating in the sensational "327 treasury bond" transactions. China's financial hegemon at that time, Shanghai International Securities, collapsed due to large short positions in 327 treasury bonds. That era was a seriously chaotic decade for the exchange systems. At that time, the SSE opened about 3 minutes later than the Beijing Exchange. I entered the war in the Shanghai Stock Exchange. At that time, my short bonds were "317 T-bonds." On that day, after the Beijing Exchange opened, my Beijing friend informed of the situation on a big brick mobile phone. I did not rush to the Stock Exchange, after hearing the first reaction was that my position was completed at the open. My instinctive reaction was to appropriate the phone and call the trade declaration young lady immediately and demand an overdraft of more than ten times the money "call market" to buy many "327 bonds". I put down this phone, crazily dialed several futures traders who were short t-bonds while running and ask them to make more "327 bonds." After calling these futures traders by telephone, I was very uncomfortable, because of the numbeness of the general reaction of these traders. And this was the opposite of the excited reaction I heard after calling Beijing "friends". At the moment of the open, I just burst into the trading room, the computer displayed the opening price and I immediately let me into a kind of "gallows" feeling.

At that time, "327 bonds" opening price was over 148 yuan. And my "call market" panic buying price was 150 yuan. Moreover, the first price position short-selling reached several hundred million yuan.And this is only 2 or 3 seconds, wiping out the first madly entered "327 bonds" thrown into the influx of orders, "327 bonds" rose rapidly to 151 yuan, 152 yuan, 153 yuan. [I did not translate this next part.-Ed]Then I commanded the young lady, display on the computer how much the price must rise higher deficit to unwind serious "317 bond" short contracts. She immediately warned that this will bring "317 bond" contracts more serious losses.[End untranslated portion] I smiled at a higher price to close a position of small plates of "317 bond", the platter of "327 bonds" was also driven up about 10 points, I immediately liquidated "327 bonds" with a large profit.

At lunch break, I already closed all my positions. At noon, I left the exchange. Afterwards, in afternoon trading the "327 bonds" staged a farce. When I left the exchange my heart was very heavy. At that time everything I did was a "trading animal's" instinctual reaction. In reality many people do not have these traders' instincts. However, these people will instinctively oppose the thinking of traders' instincts. Like the French army in World War II, its tanks, artillery, aircraft, the number of troops several other areas were better than the German army, but the French military commanders were originally infantry officers. In early 1937, the father of German tanks, Guderian, in his book "Achtung! Panzer" critcized the systematic ignorance of the infantry officers.

Within two years, China's home prices will have fallen 70%, that is until the end of 2011. A few days ago in Beijing gave a mini-lecture. A Beijing lady told me that at the end of November 2009 she read my book, "Chinese Home Prices in a Multi-Polar World" and immediately sold her house, and now rents. I said to her: "Two years later you're bound to thank me."

I'm very happy that this book saved this lady in Beijing.Because the Japanese economy will soon collapse, and the Chinese economy and the Japanese economy will collapse simultaneously. Now, there are many multinational companies' assets allocated to China. If China and Japan simultaneously collapse, these multinational companies will get rich.

Assume that a multinational in China has $5 billion worth of real estate.In theory, it is difficult for this multinational company to realize these assets while the Chinese and Japanese economies simultaneously collapse. In fact it will take the initiative at a very low price, such as $1 billion or $500 million U.S. dollars to close out China assets. By then, Chinese economists will say that the multinational would be crazy to sell at bankruptcy prices. Therefore, Chinese mainstream economists are only a group of "globalization's fools." The reason is that this multinational company will have scaled up a large short position in the Japanese foreign exchange or Japanese debt market. Presently, the global foreign exchange market leverage is up to 200 or 400 times, just a $1 billion deposit could conservatively short $100 billion worth of Japanese currency or debt. This multinational company by way of underselling its China assets will trigger a market panic, but the short-yen or short positions in Japanese government bonds will make huge profits, this is a type of crisis arbitrage.

This is a "trading animal's" world. Today's global derivatives market is $600 trillion and China's economy is only $5 trillion, by underselling real estate in China, while profiting in global capital markets, the American Age can begin.

Today, any mainstream Chinese economist's criticism says the U.S. empire will fall into a serious debt crisis, the same as the Netherlands and the former British Empire, but have no way to explain that the previous Dutch Empire and the British Empire were only trading in general merchandise. All it takes is imitation and hard work to make the Netherlands and the British Empire decline.

And today is a world of innovation and derivatives, it's a knowledge society. It's through the elimination of a nearly $5 trillion country, that there's $600 trillion profit in the derivatives market. Unfortunately I'm a Chinese, so in May-June 2007 I proposed the U.S. strategic goal is to have China's stock market crash to 2000 points in 2008; then let the Chinese property market skyrocket at the end of 2008. With a $600 trillion fortune in the derivatives market, China's property market will fall 70%, this is common sense. With a $600 trillion fortune in the derivatives market facing the victors, in the next three years, U.S. dollars will undergo, since the beginning of world history, the most spectacular and the greatest—and perhaps the creative human vocabulary cannot describe— rise, a soaring rise.

Now, the biggest problem is that this is simple common sense. Chinese people are keen to debate simple common sense. It can only be that God gave derivatives genes to the Americans; and gave Coolie genes to the Chinese. In the face of God's arrangement, the future will be beautiful, that's only the beauty of American dollars. [The Chinese word for America is Beautiful country, so this is a play on words. It could also be read as the future will be very American. -Ed]


Liu Jun Luo
2010-3-18

2010年美元时代的开启——三年内美元指数130
2010年美元时代的开启——三年内英镑跌至1 欧元跌至0.8 人民币跌至20 日元跌至150
一个国家倒闭前，总会是这么一个奇怪的场面——上层社会通常会鸵鸟政策式的盲目乐观；中层社会精神与体力方面严重疲惫；下层社会则听天由命、自暴自弃。

1995年，本人有幸参与了轰动一时的“327国债”交易。中国当时的证券霸主“万国证券”因大量沽空“327国债”而倒闭。在那个时代，是一个交易体制严重混乱的年代。那时，上交所比北交所晚开3分钟左右。我的参战地在上交所。当时，我沽空的国债品种是“317国债”。那天，北交所开盘后，我北京的朋友给我那台砖头大的大哥大通报了情况。我当时还未赶到交易所，听后第一反应是，一开盘我的仓位就全部完蛋。我本能的反应，迅速拨电话给交易所报单小姐，要求报单小姐立刻透支十倍以上的资金 “集合竞价”高位购买“327国债”多单。放下这个电话，奔跑中我疯狂拨打几个大户室做空当时国债“期友”的电话，让他们巨额透支做多“327国债”。与这些“期友”通过电话后，我的心情很不舒服，因为这些“期友”的普遍反应是麻木。而非本人听到北京“期友”通报后的一种亢奋。开盘刹那，我正好冲进交易室，电脑上显示的开盘价，立刻让我陷入了一种上“绞架”的感觉。当时，“327国债”开盘价是148元多一点。而我“集合竞价”抢购的价格是150元。并且第一价位抛空单高达几亿人民币。也就是2秒或3秒，“327国债”上的抛单被疯狂涌进的做多者消灭，“327国债”迅猛向151元、152元、153元价格上冲。这时我向下单小姐指挥，要求比电脑上显示价格高出许多平掉手上亏空严重的“317国债”空头合约。报单小姐立刻提醒这会带来“317国债”合约上更严重损失。我笑笑在更高价位平仓小盘子的“317国债”时，大盘子的“327国债”也被带动了十几点，我即刻平仓“327国债”上大量获利多单。上午快收盘时，已全部结清所有头寸。中午时分，我离开了交易所。后来“327国债”在下午交易时上演了一场闹剧。我离开交易所时心情很沉重。当时我所做的一切就是一种“交易动物”本能的反应。现实中许多人是没有“交易动物” 本能的。但这些人会本能反对“交易动物” 本能的人的想法。如同二战中法国军团在坦克、火炮、飞机、军队人数等几个方面都优于德国军团，但法国军队统帅是步兵军官出身。而在早1937年德国坦克之父——古德里安，就在其《注意！坦克》一书中批评步兵军官的思想体系愚昧。

两年内中国房价要跌去70%，也就是到2011年底。前几天，在北京举行了一场小型讲课。一位北京女士对我说，她于2009年11月底，看到本人写的《多角世界下的中国房价》一书立刻把自己居住的房子卖了，现在租房住。我对她说：“你两年后必定会谢谢我。”我很高兴这本书救了北京这位女士。因为日本经济很快会崩盘，而中国经济和日本经济一样会陷入同步崩盘。现在，有许多跨国公司资产在中国配置。如果中国和日本陷入同步崩盘时，这些跨国公司会发大财。假设，一个跨国公司在中国现有50亿美元价值房产。理论上，这家跨国公司很难在中国市场与日本市场同步不景气时变现资产。而实际上他却会主动以极低的价格，如10亿美元或5亿美元的价格抛售中国资产。届时，中国经济学家会说这家跨国公司疯了竟然破产抛售。所以，中国主流经济学家们只能是一群“全球化的笨蛋”。因为，这家跨国公司已在日元外汇或日本国债市场大规模布置了巨额空单。现在，全球外汇市场杠杆高达200倍或 400倍，只需10亿美元保证金，保守沽空日元或日本国债，仓位可高达1000亿美元。这家跨国公司只要通过低价抛售中国资产引发市场恐慌，而达到沽空日元或沽空日本国债上巨额仓位的盈利，这是一种危急中的套利交易的模式。这是一个“交易动物”的世界。今天全球衍生品市场是600万亿美元，而中国的经济规模只近5万亿美元，通过低价抛售中国房产，而盈利全球资本市场，美国时代这就可以开启了。

今天，任何批评美国帝国会陷入沉重债务危机，而会向以前的荷兰帝国和大英帝国一样衰落的中国经济学家们，都无法去解释，过去的荷兰帝国和大英帝国只是普通商品的贸易时代。任何一个工业人群，只要模仿和勤劳，都会让荷兰帝国和大英帝国衰落。而今天是创新与衍生品的世界，是一个脑力社会。是通过消灭近5万亿美元国家，而盈利600万亿美元的衍生品市场。所以，不幸的是，作为一个中国人，本人在2007年5、6月份提出的美国战略目标是——让中国股市2008年底崩盘到2000点；让中国楼市在2008年底疯狂上涨。站在全球600万亿美元衍生品市场的财富面前，现在中国楼市未来两年跌去70%，这是个常识。站在全球600万亿美元衍生品财富胜利者的面前，未来3年美元将创造全球有史以来，最壮观与最宏大，或许是无法用人类创作的词汇来形容的——上涨，再腾飞的上涨。

现在最大的问题是——这些是简单的常识。中国人却热衷辩论这些简单的常识。那只能是，上帝把衍生品基因移植给美国人；把苦力基因移植给中国人。在上帝的安排面前，未来还会很美，那只是美元的美。



刘军洛
2010-3-18

Liu Jun Luo: Gold going to $500; Chinese yuan will collapse; China will nationalize dollar deposits

One thing I always warned about was a China gold puke. Gold bulls did not realize the bubble mentality in China. House flippers and stock chasers gave up on these markets after the stock market burst and the government cracked down on lending. They turned to gold and subsequently helped push it to a record high in September 2011. That peak in gold happened only months after the Chinese real estate market was hampered by the Chinese government.

Back in late 2010, Liu Jun Luo was looking for a gold crash, stock market crash in China and major U.S. dollar rally. Now he is getting it.

China stock market will collapse, gold will implode to $500 中国股市的崩盘和黄金暴跌到500美元

He compares China's historical collapses, when great wealth was concentrated and squandered by the Emperors. He notes that at $1900, the market value of gold was $11 trillion, but the paper gold market, mining shares, derivatives, GDP of gold producing nations and related CDS were worth $15 trillion. Thus from a leveraged position, taking down the price of gold can have a huge impact. The U.S. will earn trillions against China's trillions in losses. The real crash has yet to even begin, he expects gold will collapse to $500 in what I can only assume is a major deflationary collapse in China.

China's "money panic" is the central bank's fear of a dollar rally 中国“钱慌”是中国央行对美元将暴涨的恐惧

Those believing the market explanation for China's money panic are self-deluding fools. At present, China's deposit reserve ratio has reached 20% , China's banking sector loan to deposit ratio is 75%. Our deposit reserve ratio can be reduced to the 8% to 10% level. The European and American banking deposit ratio is 120% .

Therefore, a reduction of 5% in the deposit reserve ratio is equal to the release of four trillion yuan money supply. And by raising the upper limit of the banking sector's loan-deposit ratio, the central bank can release a few trillion yuan in money supply.

In theory, China's central bank has more than ten trillion it can immediately put into the market. But why has China's central bank has deliberately created this "money panic?" Does China's central bank not understand the seriousness of the rate of decline in China's economy and the out of control rise in currency transaction costs?

In the last month I have been reminding everyone on Sina Weibo— "the rate of decline of China's economy will far exceed everyone's worst expectations and people will flee China's stock market like rats escaping a sinking ship."

2012 end of the year I published a book , "Surviving the Great Depression - 2013 error for the central bank pays the bill " speaks very clearly - the Chinese Economy in 2013 is faced with the disastrous causes of a Great Depression:
(A) the Bank of Japan to launch devaluation of the yen exchange rate;
(Two) the U.S. government began a neutral fiscal austerity;
(Three) In the face of rapid economic decline and the rapid rise in interest rates, China's central bank takes the policy of indifference.

From 2010 onwards, when the Dollar Index was 74, China's central bank made the strategic decision that the dollar would devalue over the long-term. Therefore, China's central bank began selling dollars and buying the euro, the yen and commodity currencies to diversify China's foreign exchange reserves.

However, beginning in 2013 , China's central bank suddenly found the U.S. economy has been gradually recovering. The euro zone economy has continued into a disastrous predicament. Meanwhile, the Bank of Japan launched a policy of devaluation of the yen.

Between July and October, the Chinese central bank will manufacture China's disastrous stock market crash. The hidden past strategic errors of judgment will now come to light, exposing China's bad debts.

From 2010 onwards, China's central bank took 3 trillion in foreign reserves and converted 2 trillion into non-US currencies, this is the root of the future Chinese economic disaster. roots. In all of human history, there is no central bank that committed such a stupid, catastrophic mistake.

The real farce is that China's central bank in the coming months will reverse its past dumping of dollars; it will turn into a frenzy of dollar buying. Including a rapid nationalization of domestic U.S. dollar savings.

The Gold Smash is the New Opium War

Liu Jun Luo is in form:

The gold smash is designed to wipe out the people with high cost basis in gold. But if gold plunges 10% in a night, why was the Dollar Index so weak, and the renminbi hit a new high?

This is WWII strategy. First, use tanks and artillery to blast a hole in the lines, and then send in the army to rapidly and violently penetrate the lines. Well, in the financial war, gold is the tanks and artillery, the dollar index is the army. The Americans and Chinese "Yeltsins" are working together to raise the renminbi exchange rate and pull in more people to buy the dips. Today is the "gold gap" campaign, but by the end of April or in early May, this will shift to the "dollar index army" and it will be rapid and violent.

Military war and financial war use different results to reach the same outcome.

黄金大抄底与“新鸦片战争”

Liu Jun Luo predicts 40% devaluation of renminbi in 2013

Liu Junluo's prediction of a crash in the gold market didn't come to pass, but he's sticking to that call. In general, he sees Romney winning and strengthening the U.S. economy, leading to an increase in real estate and assets prices, pulling in foreign capital and raising the value of the U.S. dollar—a net deflationary force on the global economy that will attract capital specifically from China.
罗姆尼大有希望啊！

我预计最迟2013年第三季度人民币贬值，如果，中国央行确实是拼命推移到那个时间段，人民币贬值那就应该是一次性贬值不低于40%。人民币如果发生一次性贬值，国内所有期货都可能在一次性贬值后的2~3月时间全部关闭。

He notes earlier in the piece that a lot of Chinese gold was purchased at high prices and he's specifically looking at the futures market. He obviously recommends investors hold U.S. dollars, but if they are in gold they will not see the renminbi price collapse in the end.

I don't agree with his economic reasoning, but his posts are widely read in the blogosphere and from this post answering reader questions and also the comments on posts, it's clear that the theme of buying U.S. dollars for investment is spreading. The seeds of a large renminbi devaluation have been sown in China, with the U.S. dollar seen as the most profitable way to protect against it.

Your last chance to sell Chinese real estate; China's three strategic errors

Liu Jun Luo writes that the April 2011 bounce to 3607 level for the Shanghai Composite was your last chance to escape Chinese stocks (the Shanghai Composite peaked in August 2009 and is currently at 2051). The current bounce in real estate is your last chance to escape from housing.
3067点是最后的逃命机会和房地产的最后逃命

目前，他们被美国骗了，干了3个战略性错误的事情，（一）4万亿财政扩张；（二）大量购买了欧洲债券；（三）2010年6月，让人民币继续升值。为了，弥补这些战略性错误，中国央行未来会选择牺牲股市和房地产。

Presently, they've (Chinese central bankers) been deceived by America, adopting three strategic errors, (1) the 4 trillion yuan stimulus, (2) massive buying of European debt, (3) allowing the renminbi to continue appreciating in June 2010. In order to make up for these strategic blunders, the central bank with choose to sacrifice the stock and real estate markets.

The response to China's debt problem will be large scale debt purchases and renminbi devaluation.

To wit: Is the PBoC starting to liberalise its rate regime?

Since July 2012, this has clearly changed, likely in recognition of the shift in liquidity impact of the PBC’s fx operations. The PBC is now comfortable conducting frequent reverse repo operations (grey bars on Chart 1) to quickly offset any imminent liquidity squeeze.

To which FT Alphaville replies:

In short, it’s acting increasingly like western central banks.

Although there's another idea:

Another theory for why the reverse repos have been used so far, rather than an RRR cut, is that the Party is waiting until after its congress, which is happening either in October or November, before making a major easing move.

PBOC can't buy a buck; talk of depleted reserves is not alarmist

China's central bank sees dwindling U.S. dollar purchases as foreign investors stay home, domestic investors go abroad, and exporters hoard their greenbacks. This is slowing the rate of money supply growth, since the PBOC pegs the currency to a basket of foreign currencies.

Mainland slows down forex buying

Foreign exchange accumulation on the mainland decelerated drastically this year, limiting the central bank's alternatives in boosting money supply.

The People's Bank of China's purchases of foreign exchange totalled 298.8 billion yuan (HK$365.79 billion) in the first seven months of the year, a year-on-year slump of 87 per cent, it said.

The currency is a long-way from a crisis, but if the central bank fights deflation now, it will certainly weaken the renminbi in real terms. But while there's continued talk of easing and stimulus in the press, there's still no sign of it.

Here is a Chinese commentary on it, echoing Western opinion, and essentially saying "nothing to see here, move along." 如何看待外币存款较快增长

Were the currency flows reversing during a growth phase for the global economy, this attitude would be correct, but these flows are reversing as the global economy enters a sharp slowdown. The global economy is headed into another recession, and that raises the risk that China's currency inflows, already down 87%, fall more than 100%, i.e. China starts exporting foreign currency. China will experience a major bout of deflation and their policy response at that point could trigger depreciation in the renminbi and exchange rate driven inflation.

Also Sprach Analyst has a post The policy tool PBOC has when China’s economy gets really bad

A large-scale asset purchase programme (a.k.a. quantitative easing) is not without problem for China, and there are many reasons not to expect that to happen any time soon. Despite deleveraging and overcapacity, potential inflation and the resilience of the real estate market remains a concern for many Chinese, including the leaders. Indeed, as the experience in the US shows, despite lack of threat of (hyper)inflation, many people continue to believe that such risk exists. Not to mention that the Chinese central bank has been a champion of “printing money”, and everyone knows and loathes it. As the expectation of Chinese Yuan depreciation is building up, QE-ish operation will only increase that further. In today’s environment, the PBOC can’t possibly do this.

However, given the on-going trend of very weak economic activities and the liquidity tightening arises from outflow and possibly rising bad loans, we suspect there will come a point when even cutting RRR aggressively will not be enough to maintain liquidity condition, and that will necessitate some asset purchases programme in one form or another. The timing of the possible asset purchases in unclear, but we think the probability of such occurrence is increasing, and the market, particularly the bulls, have not been paying enough attention to the existence of such a tool.

It will come in the depths of deflation, as predicted previously by Liu Junluo, see Liu Jun Luo: Six to ten months until Chinese hyperinflation. He wanted the government to create wage inflation (whether it was possible is another question), but things are proceeding as he expected: deflation, to be followed by a currency crisis.

Here's an opinion that one doesn't see much in any press: Chinese are actively discussing the possibility of their forex reserves being depleted. 外汇会耗尽不是危言耸听 (Depleted reserves is not alarmist talk)

This piece is by Tan Yaling, head of the China Research Institute of Foreign Exchange.

She says there was a recent article stating that if the only way China can stimulate the economy is through investment, then China's $3 trillion in foreign exchange reserves will be exhausted within 5 years.

She says speculation is the greatest threat to China's development and this speculation could exhaust China's reserves. Although China has $3.2 trillion in reserves, it isn't enough to protect it from hot money, not when the global forex market trades $5-6 trillion each day. If there is no long-term strategy to defend the reserves, they could be rapidly exhausted.

There's a definite shift in the trend in China and this is a big one that will affect global investors, not only those focused solely on China.

Liu Junluo: PBOC will hike rates later this year, in the middle of the Great Depression, regional war coming to Asia

Liu Junluo's latest blog post argues that the central bank is helping the stock market decline and supporting the trade surplus, in order to reduce consumption and attract deposits into the banking system, with the ultimate goal of covering up bad debts.

He argues that the central bank should have allowed inflation to accelerate in 2011, but instead has created a man-made deflationary crisis. He says that in 2012Q4 or 2013Q1, the PBOC will hike interest rates. He doesn't explain why, but he expects the Great Depression will again rear its head during this time. Why would a country hike rates during a depression? Either to attract capital into the banking system or to defend the currency, or both.

中国央行在2012年四季度~2013年一季度将进入加息周期

Google Translate version (with very slight edits, mostly still terrible Google Translation): China's central bank will enter a rising rate cycle in the fourth quarter of 2012 to 2013 first quarter

Mr. Guo Shuqing task is completed, not a large number of Chinese stock market participants in the 2400 points along the zoom, the Chinese stock market fell to 2000 points and 1800 points, a relatively large rebound. Chinese stock market traders zoom lever, in the future, it will easily in the Chinese stock market .


The two previous blog, has written very clearly. December 16, 2011 blog "2012 China's macro-policy will continue to hope that the large-scale stock market fell and the new book announcement " is written to the - now, more and more intense as the European debt crisis of self-direction" China's macroeconomic policy is nothing more than the need to rely on the Chinese stock market in the 2012 to continue the large-scale fell to solve the Chinese central bank's bad debt exposure. In 2012, China's economy faces an "election year", is to continue to manufacture hard big crash of the Chinese stock market to reduce the Chinese residents' consumption of local products and foreign products, the acceleration pushed up China's household savings rate, to reach out to expand the trade surplus, good this astronomical figure of bad debts hidden good to the next term, or let the bad debt exposure are far behind even the Empress, and then handed over to the new term? So, you do not see Jinglian, Li Yining, and the Chinese central bank talk and action, you are still a living economy "idiot".


A result, the 2012 , China's trade surplus is 31.7 billion U.S. dollars, far more than expected. 2012 1 to 2 months, the trade deficit to 2012 years, until March rebound. Chinese investors are China's trade surplus only, it is important contributors. In this way, you should like the film in the cinema to see an intrigue to see our Mr. Guo Shuqing do our best to show.


So, 2012 , I made ​​Sina microblogging a microblogging - China's central bank cut interest rates, is it good? Chinese people today, is certainly to be every day of the positive destroyed, has always been to eat people do not spit out the bones "feel good" a person to grasp the logic of economics and the social division of labor is very important. Chinese stocks will make many people unknowingly ruin, or broken up the fate. The ignorance is so sad, perhaps, so far the evolution of society is the need for most people, to destroy the financial markets. Otherwise, there is no way to explain! Why would anyone buy a stock, buy a house. Liu Jun Luo, July 5, 2012, Thursday.


The question now is, in mid-2011, I expected China's central bank by the end of 2011 or start of 2012 to urgently loosen monetary policy. Today, China's central bank is not only done, but haphazardly to do.


So, there should be a problem - the Americans will not let the Chinese central bank raise rates in the 2012 fourth quarter ~ 2013 in the first quarter?


Now, the Chinese central bank's monetary easing will continue, however, is coming to an end.


The world economy has entered the Great Depression; we are living in the middle of the Great Depression; the Great Depression of the tail of - a large number of ​​people go bankrupt; a large number of ​​people jumping off buildings; a large number of ​​people are unemployed and the danger of regional wars in Asia.


2010 to 2011 , I criticized the Chinese central bank's monetary policy is a serious strategic error, because the real problem of the Chinese economy is a long-term catastrophic deflation. However, the 2010 to 2011 the Chinese central bank's monetary policy is strong anti-inflationary, China's central bank monetary policy is actually artificially serious strengthen China's economic deflation. Therefore, China's central bank will soon have to choose the strength to raise interest rates to solve the problem they have committed a serious strategic error. We have entered the economic world incurable. 2013 years, the most the threat of human fear - Asia regional outbreak of war.


The blog is written, because the economic situation all step by step into the run. I do economic research, economic trends are very difficult to change, So do not waste time writing repetitive words. How to operate their own money, as I have already made it clear. Able to escape this hell on earth "economic catastrophe, that is, you good luck thing.

Liu Jun Luo
2012

China cuts reserve requirements: is it too late?

This graph comes from a BIS working paper: China’s evolving reserve requirements. I highlighted an important portion from the abstract as it relates to the cut in the reserve requirement:

This paper examines the evolving role of reserve requirements as a policy tool in China. Since 2007, the Chinese central bank (PBC) has relied more on this tool to withdraw domestic liquidity surpluses, as a cheaper substitute for open-market operation instruments in this period of rapid FX accumulation. China’s reserve requirement system has also become more complex and been used to address a range of other policy objectives, not least being macroeconomic management, financial stability and credit policy. The preference for using reserve requirements reflects the size of China’s FX sterilisation task and the associated cost considerations, a quantity-oriented monetary policy framework challenged to reconcile policy dilemmas and tactical considerations. The PBC often finds it easier to reach consensus over reserve requirement decisions than interest rate decisions and enjoys greater discretion in applying this tool. The monetary effects of reserve requirements need to be explored in conjunction with other policy actions and not in isolation. Depending on the policy mix, higher reserve requirements tend to signal a tightening bias, to squeeze excess reserves of banks, to push market interest rates higher, and to help widen net interest spreads, thus tightening domestic monetary conditions. There are, however, costs to using this policy tool, as it imposes a tax burden on Chinese banks that in turn appear to have passed a significant portion of this cost onto their customers, mostly depositors and SMEs. However, the pass-through onto bank customers appears to be partial

Consider the highlighted sentence in light of the following articles, all from the previous week:

FDI drops over EU debt crisis

Foreign direct investment dropped for the third straight month in January as European investment plunged by 42 percent from a year earlier. The slump in European investment was instrumental in causing a slight fall of 0.3 percent in FDI.

The drop prompted a warning from the Ministry of Commerce over the "grim" outlook for FDI.

China's Forex reserves likely to decline this year: Report

Chinese forex reserves will continue to decrease in 2012, Lian Ping, chief economist at Chinese Bank of Communications, said.

China's economy is no longer as heating as in the past, and that is the main reason among others why Chinese exchange reserves are dwindling, he said.

Chinese Banks’ Bad Loans Rise in Fourth Quarter as Economy Slows

Non-performing loans rose 20.1 billion yuan ($3.2 billion) to 427.9 billion yuan as of Dec. 31, the China Banking Regulatory Commission said in a report on its website today. Bad loans accounted for 0.96 percent of total lending, up from 0.95 percent in September and 0.17 percentage point lower than a year earlier.

In China aims for 14% M2 growth; M2 growth hit 17% in December, I showed money supply growth is still in a multi-year downtrend, but remains in the high double digits. I discussed China's dilemma in a December 2010 post, Larry Meyer echoes Liu Junluo:

For many countries, it may be too late, particularly in the case of China. They should have started moving away from exports years ago and let their currency appreciate more rapidly, and now they are caught in a bind. If they do not allow the currency to appreciate, inflation may quickly surge into the double digits. Once that happens, they must take drastic action, but even if they act to stop the inflation, it may be too late to prevent a deflationary bust in the real estate market (especially in China) or other asset markets.

Federal Reserve policy is likely to create a crack-up inflationary boom that leads to another Asian Crisis and the actions taken by Asian governments and central banks will also lead to deflation.

China's policy mistake, if a major crisis erupts, was to delay restructuring. Without a positive shock to the economy, the government and central bank are caught between the Scylla and Charybdis of major inflation or deflation. In order to stop inflation generated by the Fed's QE policies and slow the internally fueled real estate bubble, the PBOC tightened and the central government clamped down on real estate. Deflation is now settling in. The big question is how bad is the real estate slowdown? If the optimists are right, the sector will stabilize in the second half and central bank easing will help spur growth to offset negative shocks. If it's bad, the PBOC is behind the curve and more serious deflation will follow. Then the money spigots will open and we'll really see some inflation accompanied by currency depreciation (unlike the brief dip in late 2011). Then we may see a China gold frenzy that puts the past two years to shame.

On the subject of hyperinflation, in September 2011, I posted Liu Jun Luo: Six to ten months until Chinese hyperinflation. Liu argued for a policy of wage inflation, using the war analogy of taking losses to slow the enemy. By raising wages and accelerating domestic inflation, the government would kill the export sector but support the rest of the economy—and crucially protect the exchange rate. Otherwise, Liu argued negative economic shocks from Europe and the U.S. would lead to serious deflation and then money printing, which would cause hyperinflation fueled by exchange rate collapse.

Liu has been talking about hyperinflation for awhile. He targeted 2012-2013 as the years for hyperinflation in China. This post of his is from March 2010:2012年——2013年中国恶性通货膨胀. He also expected (still expects) a gold market crash: Liu Junluo: Gold crash coming. He saw a gold bubble in China, but it has only grown much larger in 2012. If he's right about hyperinflation, gold may do well priced in yuan, but the decline in global growth would be deflationary. Commodity exporting nations and commodities would be hit hard, taking gold with them at least temporarily (similar to 2008). During this period, Chinese may prefer dollars to gold, an action that would lead to the type of currency collapse he predicts.

Liu Junluo: if Italy or Spain default, Chinese stock market will drop 40%

So says Liu Junluo in his latest blog, titled: In the theater watching Spain default (电影院里看西班牙违约). He first quotes from his 2010 book (he mainly puts his thoughts into books now, instead of on the blog), in which he says Europe only delayed the Greek bankruptcy and that China stupidly bought euros as the U.S. dollar index tumbled in June and July 2010. He also discusses bank stress tests and related topics. To this he adds new comments:

1年以后的2011年10月底，欧洲正式决定希腊国家债务违约，债务减计50%。如果，我们能够把欧洲问题向一年以前看，那么，中国和欧洲之间是上演了一场银行和借款人之间的电影。现在，连笨蛋都知道欧洲正式决定希腊国家债务违约，只会鼓励西班牙和意大利最终进入选择性违约。所以，我们不需要用1年的时间就可以看到西班牙或意大利违约了。

在2010年初，我提出——美国这个世界警察准备退场了，全球各地将会陷入大规模地区动荡。现在，随着“阿拉伯之春”的临近尾声，中国在阿拉伯地区投资也陷入了灾难，而很快我们也会看到中国在非洲的投资同样是陷入灾难。这个损失是5000亿美元还是8000亿美元，只有“天知道”。

事情是需要巧合，所以，在《欧元巴别塔——黄金套利中国》一书中，说的很清楚——中国股市已经没有任何意义可以来理解。我们应该知道，中国人现在应该努力祈祷西班牙和意大利未来千万不要违约。如果，西班牙或意大利出现违约，那么中国股市就是1000点以下。同时，西班牙或意大利出现违约，也只是欧洲和美国核心层联合导演的“大片”吧。

Translation is mine (not 100%, but better than Google):

One year later at the end of October, Europe formally decided to let Greece default, with 50% write downs. If we look at this a year earlier, China and Europe are the bank and borrower in the movie. Now, even the fools know that the formal decision to let Gerece default will encourage Spain and Italy to default. So, we don't need one year to see Spain and Italy in default.

In early 2010, I suggested that the policeman of the world, USA, was preparing to exit, and all over the world, in every region, would be large scale unrest. Along with the "Arab Spring" approaching epilogue, Chinese investment in the Arab region sinks into disaster, and we'll soon see China's African investments similarly fall into catastrophe. The losses will be $500 billion or $800 billion, only God knows.

Things need coincidence, therefore in , (I) said very clearly—China's stock market already has no meaning that can be understood. We ought to know, Chinese should pray with great effort that Spain and Italy do not default. If Spain or Italy default, then China's stock market will be 1000 points lower. At the same time, as Spain or Italy default, this is also Europe and America's alliance directed "blockbuster movie."

Liu Jun Luo on Operation Twist & U.S. strategy

I have translated this shorter post from Mr. Liu. Note that for number 5, he is referring to QE1. The Fed extended the program with QE2, but it concluded at the end of June.

America's Operation Twist and Happy National Day

On September 9, 2011, America's central banker Bernanke started replacing U.S. short-term Treasuries with long-term ones, the market nicknamed it "Operation Twist." Today, no matter which market, the U.S. has already completed a perfect opening. In June 2010, I published "China's Kidnapped Economy", in which I pointed out after America completed its macro-strategy layout, the start of the dollar rally offensive would be signaled by:

1. Strengthen financial oversight

2. Start large scale debt issuance procedures

3. America's central bank replaces short-term Treasuries with long-term Treasuries

4. America's central bank stops mutual action with other central banks

5. America's central bank ends it's 1.3 trillion in purchases

6. American hedge funds short Japanese long-term government debt

Today just as I said, the third offensive signal is "America's central bank replaces short-term Treasuries with long-term Treasuries." Indeed, America is already too powerful, and in the rear of this formidable America , merely China's central bank sparing no effort to strike at inflation and China's media doing it's utmost to brainwash the Chinese people into madly buying gold.

This has already developed into a national disaster, our national catastrophe comes from ignorance, arrogance and discrimination.

Wish you a happy National holiday

Liu Jun Luo

October 1, 2010

美国的“扭曲操作”和国庆快乐

2011年9月21日，美国央行伯南克开始了用美国短期国债置换美国长期国债，市场也称之“扭曲操作”。今天，不论从任何市场来说美国已经完成了完美的布局。2010年6月本人出版的《被绑架的中国经济》一书中，指出美国完成宏观战略布局后，发动美元上涨的总攻信号是：

1.加强金融监管；

2.开动大规模发债程序；

3.美国财政部用短期国债大规模置换长期国债；

4.美国央行停止与其他央行货币互换行动；

5.美国央行1.3万亿美元购买结束；

6.美国对冲基金做空日本的长期政府债券。

今天正如本人第三条的总攻信号是“美国财政部用短期国债大规模置换长期国债”。的确美国已经太强大了，而美国这个强大的背后，只是中国央行奋力地反击中国通货膨胀和中国媒体拼命地洗脑中国民众疯狂购买黄金。

这已经演变成了我们的一场民族灾难，我们的这场民族灾难是来自于愚昧、自大和歧视。

祝国庆长假快乐

刘军洛

2011年10月1日

Liu Jun Luo: Six to ten months until Chinese hyperinflation

Liu Jun Luo has a new blog post up. He's notorious for not laying out all the details, so I will set this up a bit. The following is my interpretation of what he's writing, filling in some spaces. You can read his writing below in Chinese or English. The Chinese economy is unbalanced with far, far too much investment directed by government owned companies or government bureaucrats. Government investment is often negative in and of itself (relative to a similar private investment) since it tends to be less efficient, and while there were good infrastructure projects before, a lot of the recent spending only fueled real estate. China desperately needs to rebalance as fast as possible, and one way to do that is to create wage inflation. In this article Liu Jun Luo talks about how on a battlefield, you destroy some areas to slow the enemy. There's a depression in the West that's about to become more severe, exports are going to drop and Chinese will become unemployed. Defending this sector of the economy makes no sense. The bigger threat is that deflation takes hold in China because of the credit bubble. When investment bubbles in Asia burst, it's the currency that gets annihilated. Mr. Liu's advice is that China create the inflation itself, rather than suffer the "super" inflation that will result from a currency collapse that will wipe out stocks, real estate and the savings of ordinary Chinese. 回复刘军洛新浪微博粉丝提问

正确的预期是非常重要的，目前全球债务膨胀，美国、德国、英国的长期债券收益率全部下降的创记录低点，这已经说明全球大量私人资本正在大规模退出劳动力市场和资本市场。

中国目前的通货膨胀现象是一个严重的假现象，这就好像2008年3月份中国通货膨胀达到当时的高峰，结果，在2008年9月份的世界外部冲击打进了大萧条。

所以，目前正确的方式是中国中央银行要制造通货膨胀，就是大幅度提高工资。因为，如果我们再被外部像2008年9月份打进了大萧条，那么，中国将用6~10个月时间演变成真正的超级通货膨胀。这是，人民币汇率崩盘的通货膨胀，那么，这就是不可救药失控的通货膨胀。

目前，如果我们大幅度提高工资后的通货膨胀是不会危害的汇率的，但是，我们错误的选择了大萧条，那么，人民币汇率就必定崩盘。
这就好像战场，你必须选择局部地区的大量牺牲，因为，这也意味着大量敌人被你也严重拖延在局部地区。中国现在最失败的地方就是没有居民免费食品券机制。

你需要明白我们实际是在谈论人民币汇率问题。中国大萧条后演变的超级通货膨胀是迅速消灭所有人的股市资产、房地产资产和储蓄资产。

现在，中国的宏观层面无法理解我们真正问题是人民币汇率上面，所以，中国普通人只能自保，因为，这是一场中国普通人的人生灾难。

同时，世界的套利者也把这个事件看的清清楚楚，他们会顺应市场的趋势，把这场大规模的灾难变成更大数量级的灾难。

Below is the Google translation, which I touched up a bit.

Correct expectations is very important, the current expansion of global debt, the United States, Germany, the UK's long-term bond yields fell to a record low point, which has indicated that a large amount of private global capital is a large-scale withdrawal from the labor market and capital market.

China's current appearance of inflation is a serious false appearance, similar to China in March 2008 when inflation reached a peak as a result, in September 2008 global external shocks turned into the Great Depression.

So, now the proper way to create inflation is for China's central bank to substantially increase in wages. Because, outside shocks similar to September 2008 again bring the Great Depression, then, in 6 to 10 months China will evolve into a real super-inflation. This is the collapse of the RMB exchange rate inflation, then, this is hopelessly out of control inflation.

Currently, if we significantly increase wage inflation it is not harmful to the exchange rate, but we wrongly choose the Great Depression, then, the RMB exchange rate will collapse. It's like the battlefield, you must choose to sacrifice a large number of local areas, because this also means that a large number of enemies are seriously delayed in some areas. China most failed area now is that there are no food stamps.

You need to understand that we are actually talking about the RMB exchange rate issue. After China's Great Depression, the evolution of super-inflation will mean the rapid annihilation of all stock market assets, real estate assets and savings assets.

Now, China's macro level cannot understand our real problem is that of the RMB exchange rate, so all the Chinese ordinary people can do is protect themselves, because this is a catastrophe for the lives of ordinary Chinese.

Meanwhile, the world arbitrageurs also clearly see this event, they will follow the market trend, the large-scale disaster of this magnitude will become an even greater disaster.

Economics in parable

种桑误国的感想

版本一
齐国本是一个海边的小国，姜太公初封时地不过方圆百里，而且很多是不适合粮食生长的盐碱地，粮食生产和人口都不多。
春秋战国时期，齐国一跃成为东方超强。究其原因，与管仲的粮食战略有很大关系。
鲁国和梁国是齐国的邻国，其百姓善织绨。绨就是一种丝线做“经”，棉线做“纬”织成的纺织品。管仲劝齐桓公穿绨料做的衣服，并且让大臣都穿。一时间，齐国上下以穿绨为时尚，国内绨价大涨。管仲趁机诱使鲁梁与其贸易并且出价远远高于市场价格。鲁国和梁国在与齐国通商的过程中大发横财，遂举国种桑，放弃农业生产。
与此同时，管仲大力发展齐国的农业生产，增加粮食储备。待时机成熟，管仲又劝齐桓公改穿帛料衣服，再不让老百姓再穿绨。管仲义闭关不与鲁梁通商。几个月后，鲁梁之民饿馁相及，此时国君幡然醒悟，然而为时已晚，粮贪不可能在短时间内产出，不得已归顺齐国。管仲用同样的方法制服了楚国和代国，分别是高价购买楚国的鹿和代国的狐皮。

另一个版本
很久以前，一个大国的皇帝命令大臣们都必须穿丝制衣服，而自己的国家只准种粮食不准种桑树。这个国家的的丝价就猛涨,大臣们都穿丝制衣服又带动了本国的有钱人都穿丝制衣服,这个国家的的丝价就涨得更高。于是，其它小国就纷纷种桑养蚕不种粮食，卖丝赚银子，不亦乐乎。过了几年，这位皇帝又突然命令全国人只准穿布衣，违者严办.并不准卖粮食给其他小国。这样这些小国的人就纷纷饿死或发生暴乱。而这位皇帝就轻易“赚取”了这些小国。

The Google translate is messy, but it's a simple story. One ancient kingdom started importing a lot of silk, while simultaneously banning domestic production and ordering food production, causing the price to rise. The silk exporting kingdoms cut back on food production and planted mulberry trees to grow more silk. Eventually, the importing kingdom stopped importing, causing the silk price to plummet, and stopped exporting food, causing the silk exporting nations to starve. The county producing food was able to conquer these countries without firing a shot.

Liu Jun Luo used this story to illustrate the strength of U.S. agricultural production.

The video is in Chinese, if you want to watch and the embedding doesn't work, here's a link to watch it. It's a children's cartoon, so one can get the gist from the images.

Third Great Depression, Japan is sunk

我们离“全球第三次大萧条”还有多么近
The first was in the 1930s, the second just past, and the third is not far off. For Americans, this may actually sound more like a repeat of the first Great Depression. The first part of the Great Depression ended in 1932-33 with a massive dose of inflation following the nationalization of gold and the devaluation of the dollar. However, this inflation was nipped in the bud in 1937, and along with an insane amount of government intervention that put Hoover's tinkering to shame, causes the depression withing the Depression.

A similar scenario is unfolding today. The U.S. central bank floods the world with liquidity, setting off inflation and booms in developing markets. Central banks are already starting to counter the loose policy of 2008-2010, but this time they are pushing against their own policies plus the Federal Reserve and to some extent, the ECB, which is bailing out several countries. As Liu Junluo says in this latest blog, central banks are a flawed system. I would take it a step further and say that if central banks are making policy, they are making policy mistakes. Based on current conditions, the mistakes will be very large this time, at least as large as in 2006-2008.

Monetary policy takes time. Andy Xie is looking for 2012 crisis, maybe he is also early. In the near term, watch Japan. That is the most dangerous country right now due to a deterioration in the savings rate. Goldman Sachs predicts that the savings rate of Japan will turn negative this year. That's important because it means that foreigners will become the marginal buyers of Japanese government bonds. Now, if you are a foreigner, you're first going to look to the U.S. and Europe, where rates are higher and debt levels are lower. Adding to the mix, the emerging markets are hiking rates and tightening monetary policy, reducing the pool of funds available for Japanese government bonds (JGBs). All of which signals higher interest rates.
Higher interest rates are bad news for Japan.

Up until now, Japan’s government has been able to “cover the minimum payment” by borrowing from reserves in its Government Pension Investment Fund and selling its debt to Japan’s life insurance companies. But as seniors, which now number nearly one in four, start drawing down those assets, those avenues will be closed to further purchases of bonds issued by the state. In fact, they will soon become net sellers of their existing holdings in order to support the new pensioners, and then, “who will buy?”

Japan’s government revenues of $1.6 trillion annually fall short of its expenses of $2 trillion, creating an annual deficit of $400 billion. Kyle Bass, who runs Hayman Advisors, estimates that debt service eats up $244 billion every year. He calculates that if investors demand just an additional two percentage points in interest, that would double that debt service. Bass concludes that “the Japanese have created the circumstances for the greatest financial failure in world history.”

Japanese interest rates could easily rise 2%, it would bring their yields to roughly the level of U.S. bonds right now.

Credit markets in the U.S. actually seem to be picking up steam at the moment, which means this all may be a year or two, or more, away. I'm watching Japan for the possible spoiler though.

我们离“全球第三次大萧条”还有多么近