Tue October 8, 2024 ▪
6
min reading ▪ acc
More and more voices are being heard in China in favor of quantitative easing. Goldman Sachs analyst.
QE the Chinese way
China’s central bank boosted stock indexes by cutting its key rates more aggressively than expected in late September. However, the euphoria seems to be wearing off.
The Hang Seng fell nearly 10% on Tuesday. In question, the absence of a sign from the National Commission for Development and Reform. Investors didn’t get what they wanted: statements that leave the door open for QE.
As a reminder, China’s Ministry of Finance said in April that it was in favor of the central bank buying Chinese debt securities like Western central banks.
President Xi himself would be in favor of it. It was reported by People’s Daily. The Chinese newspaper drew on a recent book compiling statements by President Xi Jinping.
China has no choice but to implement quantitative easing (QE) to restart the machine. Goldman Sachs analyst Borislav Vladimirov said this on Tuesday.
“To avoid deflation and sustain a stock market recovery, China’s M1 money supply growth must exceed M2 money supply growth. China needs a historic credit stimulus through record new debt creation and the launch of quantitative easing. This will result in a global inflationary shock wave”had he declared a few days earlier.
What is “EQ”?
“QE” for quantitative easing. Quantitative Easing in Simple French. This esoteric banking jargon means nothing more than printing money ex nihilo.
Basically, QE is used to further stimulate the economy when interest rates are already at rock bottom. The central bank then buys debt securities from multinationals and/or governments with a printing press.
For example, the FED still holds 12% of the US public debt, or $4.3 trillion (excluding MBS securities). The ECB holds the equivalent of 2,800 billion euros of European debt.
At its peak, the Fed held $5.8 trillion and the ECB held €3.3 trillion. The numbers are lower today due to debt securities maturing regularly. It therefore disappears from the balance sheets of central banks. The Fed even went so far as to resell some of the securities.
The Fed’s T-bill bag is currently falling at a rate of 25 billion per month. Just a few months ago it was 60 billion per month. The US Federal Reserve is likely to stop reducing its balance sheet at the end of the year or early next year.
What is QE for? To cause asset price inflation to create a wealth effect to encourage consumption and investment. In short, ponzi on…
Central banks primarily pay interest back to their government. However, the ECB holds almost 25% of the debt, meaning that European governments are not paying interest on a quarter of their debt.
In short, QE primarily allows countries not to pay interest on debt.
Bitcoin and money printing
Chinese interest rates are still well above zero (~2%). Therefore, some water should pass under the bridge before the PBoC considers QE.
According to Citi, the Chinese government will do more in due course. The bank said in a recent report: “We remain bullish. “Chinese stocks are still undervalued relative to emerging market stocks, even after the past three weeks of gains.
Goldman Sachs and HSBC also revised their forecasts upwards after a sharp rise in recent days. This optimism appears to be partly motivated by the prospect of QE.
China’s QE at the same time as the end of ECB and Fed balance sheet reduction bodes well for risk asset pricing. Regardless, the US stock market and Bitcoin remain near their all-time highs.
Goldman Sachs expects the S&P 500 to reach 6,300 within 12 months, up from 5,730 today. In turn, Standard Chartered Bank is asking for $100,000 worth of Bitcoin by the end of the year. “Bitcoin’s Fall Below $60,000 Is a Buying Opportunity” she said this monday.
As Michael Saylor would say, “it will rise forever laura”. A currency existing in absolutely limited quantities can only appreciate in the face of a fiat ponzi. INTENDED!
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DISCLAIMER OF LIABILITY
The comments and opinions expressed in this article are solely those of the author and should not be considered investment advice. Before making any investment decision, do your own research.
