Submitted by Taps Coogan on the 30th of September 2019 to The Sounding Line.

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Kyle Bass, founder of Hayman Capital Management, recently spoke with The Epoch Times in a wide-ranging, must watch interview about China’s extremely unsustainable credit growth, China’s reliance on US dollars to fund its imports, and how China has been gaming the global financial system for years.

 

Some excerpts from Kyle Bass:

“What you have to understand about China is that they run two completely different systems. One is the system internally. How many times have you heard ‘China’s banking system is going to collapse’ or ‘Chinese companies are going to collapse because they are too levered’ but someone responds to you ‘But they’re China. They can do whatever they want’? That’s true internally. Their system internally, they control the printing press, the price level, the police, and the narrative. They control everything… They can put off the Grim Reaper for a long time. The other side of China is they have to interface with the rest of the world and the rest of the world won’t take their monopoly money. They have tried to price oil in Renminbi… and no one is really subscribing to this ideology because no one can spend the Renminbi… When they interface with the Middle East or the West, they have to interface in Dollars, Euros, Yen, or Pounds, mostly Dollars… They have a desperate need for dollars. When you understand China’s MO, it’s to keep their domestic financial system stitched together and to try to cajole, arrange, borrow, steal dollars. That is their international MO is…”

“In theory, they represent 15% of global GDP. They’re the second largest country in the world with the US at 25%. And yet, less than 1% of… global cross border transactions settle in their currency. So, we just buy their narrative. We just say ‘OK, I guess your currency is worth what you say it’s worth…'”

“When you grow a credit system much faster than you grow GDP, which is what China has done, especially since 2008, they expanded their banking system assets, let’s say the amount of credit in their system, 50% of the size of their entire GDP every year for five years. Imagine if we lent $10 trillion into the (US) economy in one year. It would explode up, double digits, but then we would have a massive hangover, a lot of loans that go bad and we’d have to restructure them… (In actuality) we grow our credit system about the size of our GDP growth, call it 2%-3%. Today, we have about $20 trillion in GDP and about $20 trillion in banking assets… In China…, they have about $13 trillion at today’s exchange rates in GDP… They have $55 trillion worth of credit in their system. Mind you, we have the most advanced largest economy in the world. we have $20 trillion, they have $55 trillion.”

“The IMF has said, publicly, the level of non-performing loans (in China) exceeds 7%. China has said it’s 1%. We think it’s more like 20%-25%. To put it in perspective, in the Asian Financial Crisis, 1998-2001, 2002, about 35% of Chinese loans went bad and they had to restructure their financial system… If a third of the Chinese loans go bad, we are talking about $15-$16 trillion dollars of loans going bad. They only have $2 trillion of equity in their system… In the US Financial Crisis, our entire banking sector lost about $800 billion and we recapitalized it. I am telling you that China’s going to lose at least $3 trillion if not $5 trillion in their… first recession.”

There is much more to the interview, so enjoy it above.

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