Suddenly everyone is cutting back.
China plunged to the 2.5% rules (yay for our FXP and EDZ plays!) as Chinese banks have begun restricting new loans, responding to a push by regulators (and PSW) to contain credit after a surge in lending in the first half of this month. Chinese banks advanced 1.45 trillion yuan ($212 billion) of loans in the first 19 days of this month, the 21st Century Business Herald reported today, without citing anyone. That’s equivalent to 19 percent of the CBRC’s full-year target. “This round of quantitative tightening seems to be more serious than we thought after Beijing was shocked by the lending figures in the first two weeks of this year,” Credit Suisse economist Dong Tao wrote in the report. “We would not be surprised if banks imposed a monthly lending quota, as against a quarterly quota in 2008.”
The central bank has also moved to curb credit, ordering banks on Jan. 12 to raise the ratio of deposits they hold in reserve, limiting the amount of cash available for lending. The People’s Bank of China has also instructed lenders including China Citic Bank Corp. to boost their reserve ratios by an additional 0.5 percentage points. “Five major banks we have contacted today all suggested they received instruction from banking regulators last week to slow down new lending, but not stop new lending,” HSBC Holdings Plc economist Hongbin Qu said in a note today.
Gee, who’d have though China wouldn’t continue to lend at a pace of $5.5Tn a year? Oh yeah, it was us… Math is a very useful tool for fundamental traders and, it seems, even Presidents as the rumors are that even Obama now realizes we are running out of money and will be proposing a 3-year freeze on spending. Of course a freeze on spending which ran a $1.4Tn deficit last year isn’t really all that exciting but it’s been so long since ANY government acted even a little bit responsibly that it’s worth noting.
“We are going to have to be serious about the deficit in ways that we haven’t been before,” Obama said yesterday in an interview with ABC News. “We need a smarter government, not a bigger government, not a smaller government, we need a smarter government. And we don’t have one right now.”