Chinese Super Printer!
China's already unprecedented money supply is taking off again, likely lifting all liquidity-driven investment boats.
In recent weeks, the newly announced Chinese stimulus measures have sparked widespread debate about whether this is what it takes to get China out of its mess. I believe the magnitude of this stimulus wave is being vastly underestimated. If not for the Chinese economy, then surely for global financial markets
Too Much Money
To grasp the full impact of the Chinese government's intervention, we need only look at one chart: showing the astronomical amount of money supply.
The chart above compares the money supply of China and the United States—a comparison you rarely see, but one that clearly illustrates China's global financial influence. Converted to U.S. dollars, China's money supply stands at $43 trillion. That's more than double the U.S. money supply, which amounts to $21 trillion. 'Yes,' you read that correctly: China, the world's second-largest economy, with a GDP around 40% smaller than the U.S., has a money supply twice as large.
In recent weeks, China has slashed short-term interest rates, cut mortgage rates, and reduced bank reserve requirements. Now, guess what's happening to China's already massive money supply?
Global Impact
While China may prefer to keep that enormous amount of fresh money within its borders, part of this increase will undoubtedly spill over into global financial markets. Take gold, for example. With Chinese housing prices falling for three years straight and stock prices lagging, many Chinese investors have turned to gold, leading to a surge in gold transactions.
The Chinese government undoubtedly hopes these measures will revive the real estate market. If successful, homes and stocks of construction and homebuilding companies could become more attractive. However, whether Chinese investors will structurally reinvest their capital into local assets remains uncertain.
Size Matters
The central theme here is size. The chart shows that China's money supply is so immense that it can influence virtually anything in global financial markets. The real question is not whether this will have a positive impact, but which markets will benefit the most. For example, Chinese stocks have surged 20% to 30% despite recent setbacks.
In this context, I'm particularly interested in the potential effect on Bitcoin. Despite Bitcoin's underperformance compared to stocks and gold in recent months, it theoretically stands to benefit from the same liquidity trends boosting those assets. An intriguing chart popping up now and then highlights how Bitcoin's price tends to follow global money supply trends. While Bitcoin trading is technically banned in China, it wouldn't be surprising to see Bitcoin eventually get a liquidity boost, directly or indirectly.
I may not have a crystal ball, but I do have a chart of China's money supply. And that chart tells me that this stimulus could have far-reaching effects across multiple asset classes, including Bitcoin.