China Freezes Lending
Last week I got a short message from my good friend Jay Boyle (you have seen his posts here).
Simply put, it said China will stop all loans.
At the time I wasn’t sure what that meant in the grander schemes of things .. and I stil don’t.
But Jay put it to me in terms I could understand.. CPI must be much higher than is being reported.
and HE WAS RIGHT
In an announcement that is sure to make a lot of investors ask themselves how strong the foundation of the Chinese economy is. After all, one of the primary functions of a bank is to LEND MONEY.
However, with “rampant investment” flowing into China, and a number of failed regulatory, tax, and other measures, the CBRC decided to pull the emergency brake.
according to the WSJ article China Curbs Bank Loans To Cool Investment Fever
A China Banking Regulatory Commission official in Shanghai confirmed that local and Chinese subsidiaries of foreign banks have been requested to ensure that loans outstanding at year end don’t exceed the levels on Oct. 31. The official described it as “guidance aimed at supporting the macrocontrol measures being implemented.”
Forgive me for being blunt, but this step is not guidance… it is turning banks into cooperative credit unions where all they are allowed to do is accept deposits and give bad service.
Over the next few days, the shakeout will become more and more obvious, but I would expect the stock market to “decline” and Back Alley Bankers (See CATO report) to move in to supply the market with funding
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