Something is Really Wrong: Unprecedented Economic Numbers

As more and more economic numbers and indicators suggest that something huge and unprecedented might be in the work to be revealed to the world sooner than later, media pundits and politicians continuously refer to such alerts as nothing short of pure conjectures.

Yet, a shocking report from Zero Hedge suggests otherwise. According to the world leading financial web sites, major banking institutions like JP Morgan Chase and Goldman Sachs have been left speechless after the release of new data coming out of China. The news isn’t necessarily that China just reported a massive increase in its gold holdings of some 600 tons, but rather, that they have actively dumped hundreds of billions of dollars worth of U.S. Treasuries over the last 15 months, with some $224 billion having been offloaded in just the last 90 days.

This has led many to speculate that the end for the world’s reserve currency is nigh.

On Friday, alongside China’s announcement that it had bought over 600 tons of gold in “one month”, the PBOC released another very important data point: its total foreign exchange reserves, which declined by $17.3 billion to $3,694 billion.

Activities indicate China has been aggressively selling out its US Treasury holdings to the tune of $107 billion so far in 2015.

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JP Morgan Chase stunned the world with its conclusion:

This brings the cumulative capital outflow over the past five quarters to $520bn. Again, we approximate capital flow from the change in FX reserves minus the current account balance for each previous quarter to arrive at this estimate.

Incidentally, $520 billion is roughly triple what implied Treasury sales would suggest as China’s capital outflow, meaning that China is also liquidating some other USD-denominated asset(s) at a feverish pace. So far we do not know which, but the magnitude of the Chinese capital outflow is certainly the biggest story surrounding the world’s most populous nation: what is happening in its stock market is just a diversion.

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Net capital outflows might conceivably have run around -$200bn, an acceleration from Q1 and beyond anything seen historically.

Granted, this is smaller than JPM’s $520 billion number but this also captures a far shorter time period. Annualizing a $224 billion outflow in one quarter would lead to an unprecedented $1 trillion capital outflow out of China for the year. Needless to say, a capital exodus of that pace and magnitude would suggest that something is very, very wrong with not only China’s economy, but its capital markets, and last but not least, its capital controls, which prohibit any substantial outbound capital flight (at least for ordinary people, the Politburo is clearly exempt from the regulations for the “common folk”).

Forget about what stock markets are doing because, as noted, that is just a diversion. Focus instead on the bond markets, which are massive in comparison to stocks.

As we can see, China is actively and rapidly dumping U.S. dollars, with the last three months accounting for nearly half of that sell-off.

This is not a sign of a stabilized global marketplace and we may well be witnessing the beginning of a massive worldwide collapse of the current economic, financial and monetary paradigm. We certainly don’t expect this to happen overnight, but we are on the cusp of an unprecedented event in world history.