Submitted by Taps Coogan on the 4th of March 2019 to The Sounding Line.
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Kyle Bass, founder of Hayman Capital Management, recently spoke with Real Vision to reiterate his concerns about the Chinese economy.
Kyle Bass on China’s dwindling FX reserves:
“We think the number is closer to $2 trillion, instead of $3.2 trillion, which is dangerously below adequate levels. The broad measure of credit in China’s financial system is $48 trillion worth of RMB (Chinese Yuan). They only have $2 trillion of reserves… In their last banking crisis, which was between 1998 and 2002, the loss given defaults were 80% of loans that defaulted and at one point in time… 35% of their entire system was non-paying.”
“What brings this to a head is the current account. When the current account goes negative and the reserve balance is going the other way (going negative), the rubber meets the road there. As long as that balance is increasing annual along with GDP in RMB terms, they can keep going… Now their fiscal balance is… -9.5%. Their current account balance goes negative, and its a secular negativity, then they have more money leaving then coming in and they have to desperately borrow and now they’re changing their laws. They’re saying ‘You know what? Now Westerners can own more than half of our banks. Not a problem…’ Without Western capital flowing into China, China can’t hold this all together… (Chinese President Xi) has made the West think somehow his economic model is superior to that of Western capitalism and it’s all a facade. The whole thing is a mirage. The whole thing is made up with a printing press, keeping a closed capital account, and hoping the world doesn’t notice it…”
There is much more to the interview, so enjoy it above.
As we noted here, since 2009, Chinese money supply has grown more than three times as much as the US, and over twice as fast as its economy.
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