*****China Loan Growth Hits Record High, M2 Up 25.5 Percent*****

Forbes reports that China loan growth hits record high, with M2 up 25.5 percent.

(emphasis mine) [my comment]

China loan growth hits record high, M2 up 25.5 pct
04.10.09, 10:12 PM EDT
CHINA-ECONOMY/MONEY (URGENT):China loan growth hits record high, M2 up 25.5 pct

BEIJING, April 11 (Reuters) - New yuan loans in March hit a record high of 1.89 trillion yuan ($276.6 billion), leaving total local currency-denominated loans 29.8 percent higher than a year earlier, the People's Bank of China said on Saturday.

Annual growth in China's broad M2 measure of money supply rose to 25.5 percent in March from 20.5 percent in February.

Growth in M1 money supply surged to 17.0 percent. Some economists are watching the narrower gauge closely for signs that businesses and consumers are switching more money to demand deposits -- not included in M2 -- as they prepare to ramp up spending.

The median forecast of economists polled by Reuters was for a 25.1 percent increase in the stock of loans and a 21.3 percent rise in M2.

Money supply (percent change on a year earlier):

Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun
M2 25.5 20.5 18.8 17.8 14.8 15.0 15.3 16.0 16.4 17.4
M1 17.0 10.9 6.7 9.1 6.8 8.9 9.4 11.5 14.0 14.2
M0 10.9 8.3 12.0 12.7 9.0 10.6 9.3 10.9 12.3 12.3

Yuan lending in the first quarter totalled 4.58 trillion yuan.

The government has said it wants banks to lend at least 5 trillion yuan over all of 2009 to support economic growth, and some economists are worried that the boom in lending is getting out of hand
[economists are masters of stating the blatantly obvious]. They expect the central bank to act to slow the surge. [It won't happen (at least not yet). Right now, growth is the most pressing concern of Chinese authorities. Only once inflation gets into the double digits will China serious start to worry/panic about its money supply growth.]

Short-term bill financing accounted for 1.48 trillion yuan of the first quarter's new lending, or 32.3 percent of the total.

New yuan lending in 2008 was 4.91 trillion yuan, up 35.3 percent from 3.63 trillion yuan in 2007.

Yuan loans (trillions, percent change from a year earlier):

Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun
Lvl 35.0 33.1 32.0 30.4 29.6 29.8 29.7 29.3 29.0 28.6
Chg 29.8 24.2 21.3 18.8 16.0 14.6 14.5 14.3 14.6 14.1

My reaction: Chinese loan growth and money supply is exploding.

1) New yuan loans in March hit a record high of 1.89 trillion yuan ($276.6 billion), 29.8 percent higher than a year earlier. (Higher than 25.1 percent forecast)

2) Annual growth in China's broad measure of money supply (M2) rose to 25.5 percent in March from 20.5 percent in February. (Higher than 21.3 percent forecast)

3) Growth in M1 money supply surged to 17.0 percent from 10.9 percent in February.

4) Chinese authorities want banks to lend at least 5 trillion yuan over all of 2009 to support economic growth, and Yuan lending in the first quarter already totals 4.58 trillion yuan.

Conclusion: Ever since I wrote my article about predicting hyperinflation will begin in China, China's money supply growth has been accelerating. The graph below shows this monetary expansion nicely.



China is barreling towards hyperinflation. Right now, the only concern of Chinese authorities is growth, and to that end they have:

1) Stopped the appreciation of the yuan. This means the yuan is becoming more and more undervalued has the Chinese currency props up the devaluing dollar. At the same time, as the yuan becomes more undervalued, China's trade surplus will grow, forcing the creation of ever greater quantities of yuan to maintain the dollar peg.

2) Lowered interest rates to support economy. The desire to keep rates low limits China's ability to control its money supply. If the central bank of china tries to sell sterilization bills to mop up extra liquidity, it will drive up interest rates.

3) Encouraged loan growth to boost domestic consumption. China is lowering reserve requirements and lending restriction to encourage consumer lending. While these efforts have been successful (China's service sector is experiencing double digit growth), it also leads to out of control money supply growth.


As long as china keeps the yuan undervalued, interest rates low, and lending unrestricted, Chinese money supply growth will continue exploding until inflation becomes rampant. Once inflation hits the high double digits, Chinese authorities will panic and dump the dollar to save the yuan.


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12 Responses to *****China Loan Growth Hits Record High, M2 Up 25.5 Percent*****

  1. Anonymous says:

    When do they pass the point of no return? Or have they already passed it?

  2. dashxdr says:

    "When do they pass the point of no return?"

    A man plants a field of corn. The crop is doing well, then magpies (a bird) descend on the field and start eating the corn.

    To solve the problem, the man anounces he's going to burn the field. So he prepares to buy gasoline and spread it around the field.

    Someone asks, "When is he going to burn the field?"

    Why the question? Because they know this field's corn will be destroyed? They want to buy corn futures because the price of corn will skyrocket? Does the guy want to sell gasoline?

    The point isn't WHEN the insanity occurs, the point is where the plan will eventually lead us.

    Eric writes these articles that talk about the insane things governments are doing in the world.

    And invariably anonymous posters ask, "When is this going to happen? When will the dollar collapse?"

    I don't know, I just get tired of these questions. Eric's point is the "solutions" lead to disaster. He can't predict when it will happen. Stop expecting him to.

  3. Anonymous says:

    @ dashxdr

    First, I am a big fan of this website and believe in Eric's work. No one can predict when these things will happen.

    I was not asking for someone to predict when these things will happen. I am asking if the "solutions" that will lead to the disaster have reached the point where it doesn't matter if, by some miracle, our leaders wake up and realize what they are doing is going to cause the collapse of the dollar and lead to unimaginable suffering.

    Have they passed the point of no return? Or, if they come to their senses soon, is there something they could do to at least derail the hyperinflation freight train? Can something be done to mitigate the damage or does the train have so much momentum that it doesn't matter at this point.

  4. El Bobo says:

    The money that central bank's directly control is M0 (the monetary base). These figures show that China's central bank directly increased the money supply by 10.9% as of February. If China keeps the base money growing at this rate, they won't have to worry about hyperinflation.

    The country that has to worry about hyperinflation is the United States, obviously. As of April, M0 in the U.S. has increased 104.5% over the past year. If the Federal Reserve is crazy enough to double the monetary base from where it is now, as they seemed to indicate on March 18, the United States will have some problems. Assuming they haven't already passed the point of no return.

  5. stibot says:

    El Bobo: i think it is worth to read Numonic's posts.

    Your assumption -- FED has already reached point of no return -- is so fast.

    Imagine there is a village, where lives Mr. China, Mr. US, FED and bank.

    On the beginning there are some money. Mr. US buys beers from Mr. China each day and watch TV in his mortgaged house.

    20 years later Mr. China still works and realizes he has nothing but pile of debts/money but there is virtually nothing to buy.

    Meantime, bank has strong worries, because all money lended were spent on food/beer. Bank has debt and fears of default and Mr. US has debt too and fears he will lost his house.

    Now FED can print money and give them to Mr. US, but those money are not spent, but given to bank. Bank is happy it has a little smaller debt now.

    I'm not economist but i suppose there is no reason money will lost value: they are printed but immediately filled to debt holes only, no new money circulating.

  6. stibot says:

    El Bobo: well, now I see I haven't read your assumption carefully. My apologises.

  7. Numonic says:

    China's problem is too much base money(savings) and not enough debt.

    US' problem is too much debt and not enough base money(savings).

    While China is working on putting itself in debt(increasing lending), US is working on getting itself out of debt(increasing printing).

    China is struggling to create a bubble, US is struggling to avoid a bursting bubble(default).

    China isn't looking to increase it's base money, it's looking to increase it's debt.

    US isn't looking to increase it's debt, it's looking to increase it's base money.

    Even though China's loan growth is hitting record highs, it's still far from where it needs to be to have a robust economy much less hyperinflation(not saying it won't get there though).

    Even though US money base growth is hitting record highs, it's still far from where it needs to be to stop massive defaults much less to have Fed Notes flooding the streets(not saying it won't get there though).

    China has to massively increase lending to improve it's economy and US has to massively increase printing to stop defaults and save it's debt/banking system and economy.

    Because the world is facing so much debt defaults, China is faced with relying on itself to boost it's economy as China looses trust in the world's debt, rightfully so as we watch governments print like crazy to avoid defaults.

    Eric, the thing is China's loan growth has to dwarf any record of loan growth in the history of any nation ever for China to save it's economy. That means credit has to become massively more easy than it ever did in any other nation in history. This is because China's exports will be totally non-existant as other nations debts default and discourages China's exporters from accepting these nation's risky debt. China will become a major importer and it's exporting sector will disapear.

    China has to break world record rates of loan growth by allot and US and the rest of the world with massive debt has to break world record rates in base money(currency) growth by allot.

    Anonymous, I would say we have reached a point of no return. I would say the US is in the same situation it was in during the Great Depression (failed to deliver gold for the debt) except I believe instead of not delivering gold for the debt for gold(which back then was dollars), The Treasury Bonds and other debt for dollars will default and we will fail to deliver the Fed Notes(unless we print Weimer/Zimbabwe size bills).

    In 1929 we failed to deliver gold for the debt for gold and , in 2009 we will fail to deliver dollars for the debt for dollars(even though Bernanke is trying his best to stop that from happening, his only tool left is Zimbabwe/Wemier size dollar bills). This also goes for many other nations who have massive debt for their currency.

    There's a good chance China's currency could become the next world reserve currency as it would need the world's acceptance of it's debt for Yuan to make up for the disapearance of it's export sector. China is a very rich nation. It's basically going to have to be giving it's money out for free. It's problem is that it's too rich and i wouldn't neccesarily call that a problem. China is about to reap the fruits of it's decades of labor and savings. The rest of the world will be on the job of working, producing and exporting to China as China will sit back and give it's enormous reserves away for the worlds goods and services.

    It will still be wise, safe and profitable to hold gold/silver as many other currencies around the world including the dollar crash.

    China's currency will do fine but it won't do as well as gold and silver.

  8. Anonymous says:

    Nemonic,
    How does not having enough debt make things bad for China? I do not follow. It would seem that having a lot of savings and little debt would be an enviable position.

    How will we fail in 2009 to give the Fed Notes? Why do we need to print these notes?

    We have the same end conclusion, but your path is different. Can you elaborate a little? Thanks

  9. Numonic says:

    "Nemonic,
    How does not having enough debt make things bad for China? I do not follow. It would seem that having a lot of savings and little debt would be an enviable position.
    "

    Well it's not really a bad thing, in the last part of my rant I said:

    " It's problem is that it's too rich and i wouldn't neccesarily call that a problem. China is about to reap the fruits of it's decades of labor and savings. The rest of the world will be on the job of working, producing and exporting to China as China will sit back and give it's enormous reserves away for the worlds goods and services."

    That doesn't look that bad but China's economy was so restricted to expand for decades that it's going to take world record breaking massive lending to bring it's nation to a boom. That coupled with the fact that most of the rest of the world has been running massive trade deficits and if China is going to get to a boom, these trade deficit nations are going to have to massively increase production and exporting. I'm not saying China's situation is a bad one. China is at the very beginning of boosting it's economy but the thing is China and most of the rest of the world are at polar opposites. China has massive savings and the rest of the world has massive debt. The trasition of China from a major exporter to a major importer will be just as difficult as the transition of the rest of the world from major importers to major exporters. When the shit hits the fan, all these indebted nations will be producing for themselves first and then after they've had their neccessities then they will become exporters. First we'll be producing for survival, then we'll be producing for trade. During this transition China will have to rely on itself to produce it's goods and services then after the rest of those indebted nations have produced themselves out of survival mode they will become exporters.

    In an article by James Howard Kunstler http://www.kunstler.com/ he talks about how most nations today including the US are far from prepared for a Great Depression. During the last Great Depression there were allot of farmers, today there aren't any. Before these nations can become exporters, they have to be able to produce enough to survive, then they can think of giving what they produce out to other nations. That's why I think before we see this trasition of the Trade surplus nations becoming trade deficit nations and vice versa, it's going to take some time and hard work. The rest of the world relied way too much on China and is not ready to play the role of exporter just yet. We are going to have to be able to feed ourselves before we can feed others. Although China is in a better position, it will have to wait a little longer for it to reap the fruits of it's labor and savings as the rest of the world is not prepared to become exporters just yet. China will not have to work as much as the rest of the world since it has so much savings it can buy from other nations but the problem there is a shortage of exporter nations and as China is looking to boost it's economy through just spending/importing it will have some trouble as it finds there's hardly anything outside of their nation to buy. Allot of nations will be producing for survival for some time and then it will be able to produce for exporting. When these nations get out of survival mode and are able to export their goods instead of consume them, that is when China will be able to reap it's fruits of it's labor.

    *******Revelation*******

    Now that I think about it, because China will find it hard to find things to spend it's enormous reserves on, inflation will come quicker and especially in China. This puts Eric's writings about hyperinflation in China in perspective. China will experience hyperinflation as it tries to boosts it's economy through spending when there are very few things to buy around the world as most nations around the world have trade deficits and relied on China for their goods.

    I'd like to keep what I said before my revelation in here as it supports my revelation of why hyperinflation will hit China.

    This also supports why gold and silver will do better than any currency.

    "How will we fail in 2009 to give the Fed Notes? Why do we need to print these notes?
    "

    We will fail to give Fed Notes because the debt is massively larger(over hundreds of trillions of dollars) than the supply of the currency(only several trillion dollars and growing so far) and is deleveraging faster than we can print the equivalent lost money. The debt deleveraging wipes out $100 allot faster than we can print $100. So in order for us to prevent massive defaults, we will have to print bills larger than $100 bills.

    I believe this is why the larger bills were created in the Weimer hyperinflation: to prevent massive defaults on it's massive debt.

    We need to print these notes to prevent massive defaults. Massive default is death to the banking system, massive default is death to the system of letting someone else hold your money for you which is what we do when we put our money in a bank. Massive default dimishes trust to loan money out and causes risk premiums for the loans to rise. And because businesses rely so much on loans to survive and run, they have to pay these risk premiums on top of the loans and thus have to get the money from somewhere. Companies thus raise prices to be able to pay back the loan with the risk premium and those rising prices are what destroys the currency that is being loaned as it costs more to borrow that currency.

    This is why I believe as we move through this credit contraction we will experience rising prices.

    It's not because we are printing record breaking supplies of dollars, it's because we are not printing enough dollars to stop defaults.

    But in order for us to print enough dollars to stop massive defaults we need Weimer/Zimbabwe size dollar bills which will then after be flooding the streets.

  10. Anonymous says:

    Being the major exporting country that it is, couldn't China just start consuming what it used to export? Granted, that would not cover everything they wanted/needed. If they did, that would push prices higher in China.

    If they wanted/needed something from the USA that they didn't make themselves, wouldn't they be able to compete with American buyers and simply outbid us? That would cause inflation here for sure (and make use of their declining dollar reserves). Assuming that a new "solution" to the problem in the USA didn't involve export restrictions.

  11. Numonic says:

    That's exactly the revelation i had in the middle of my long winded rant. And it's the basis of what Eric has been talking about when he says Hyperinflation will begin in China. China will spend it's reserves like crazy as it is beginning to do but the supply of things it can buy with it's large supply of reserves will be limited as they(China) are the ones who make the products for the world and because over the years they have been the ones supplying the rest of the world, leaving the rest of the worlds manufacturing sector weak. The worlds manufacturing sector is like a bad engine in the winter, it needs allot of reving up before it turns over. Because of this, China will find very little products to buy with all that money and there will be shortages and higher prices. That coupled with the fact that mosts of the worlds debt will be worthless/untrustworthy because of the massive defaults so China will have no choice but to spend it's reserves like crazy.

    Get gold and silver now!

  12. Anonymous says:

    How stupid is your remark that the yuan is undervalued? You don't understand what you are talking about. btw, loan growth is exploding. prices are imploding. so much for your hyperinflation. you don't seem to have that right either.

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