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A Present from China

December 24, 2013

Today is Christmas Eve, and the idea of gift-giving, and gift-receiving, has been on the mind of tens of millions of people over the last several weeks. Retail sales, discounting, coupons, and other deals have been dominating the headlines as the holiday shopping season has progressed forward. There have been, however, major market stories that might not have received the coverage that they would have during other times of the year.

In the spirit of gift giving, presents, and helping others….let’s look at a story that broke overnight, on the other side of the world, but that can have real impacts on both the U.S. economy and your personal financial situation. China’s central bank, the PBOC, has pumped RMB29 billion, or $4.8 billion USD, into the financial system in an attempt to help relieve the cash crunch that has been gripping the Chinese financial system. These periodic cash crunches and liquidity events are a symptom of the restructuring that is beginning to take place in the Chinese banking system. Debt-laden, large, state-operated banks dominate the marketplace, and in an attempt to liberalize the banking sector and diversify the economy, there is a concerted effort to reform these financial institutions.

Why does this gift from the PBOC to the Chinese banks matter to you?

Because China is the U.S.’s largest trading partner, and any restructuring and changes to its economy will undoubtedly have an impact on the U.S. economy. As always, it is important to see through the headlines and attempt to understand how these stories connect.

Merry Christmas!


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