Submitted by Taps Coogan on the 13the of February 2019 to The Sounding Line.
Kyle Bass, founder of Hayman Capital Management, recently spoke with Bloomberg to discuss the ongoing US-China trade negotiations, warning that the US should not take the ‘easy’ route with China and relax demands.
If the video below doesn’t work, click here.
“If… we do a deal on trade and we elect to defer… all of the difficult issues, then I think the administration gets a “win” and the markets rejoice briefly, but when you look at the underpinnings of our relationship with China, it’s at a very difficult place in… historic terms. I think that, again, trade by March 1st may or may not happen… I think Trade Rep Lighthizer and his team won’t engage in getting just a trade deal done unless President Trump overrules them.”
“China purports to be the second largest economy in the world with 15% share of global GDP, but if you look at cross-border currency settlement according to SWIFT, less than 1% of the world settles in Chinese currency. So, China is just a paper tiger and they have done so much work in order to prop the… RMB up… The funny thing is we consider calling them currency manipulator on the weak side. In reality, what they’ve been doing is intervening, or strengthening their currency, to hold their whole credit market together… What is their true pile of FX reserves worth? How much money do they have in order to defend their currency before they have to let it go. Last year was the first year that China had a current account deficit, i.e. more money going out of China than coming in… They are so desperately short dollars that they need Foreign Direct Investment, portfolio investment, to hold everything together… They’ve got current account deficit and they are running a massive fiscal deficit. So their consolidated fiscal deficit is a little bit north of 10% of GDP, including local government finance vehicles. Think about the US. We’re at a little over 4% of GDP and all the alarm bells are going off and China’s at 10% of GDP. China is starting to look like a traditional EM problem… (The) Chinese banking system is more levered than any banking system has ever been in the world… They’re a twin deficit country with reserves that are dwindling… If you look at how much RMB they’ve printed… since 2009. Realize, they have printed $30 trillion worth of RMB, if you look at Chinese money supply. They’ve printed like it’s a national past-time. They’ve embarrassed the US, Japan, and Europe on the printing side.”
There is much more to the interview, so enjoy it above.
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