Posted on 01/21/2014 5:12:30 PM PST by Tolerance Sucks Rocks
Did you know that financial institutions all over the world are warning that we could see a “mega default” on a very prominent high-yield investment product in China on January 31st? We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in “sky-high interest rates” and “a precipitous plunge in credit“. In other words, it could be a “Lehman Brothers moment” for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that “hot money” has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen. Never before has so much private debt been accumulated in such a short period of time. All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads. In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014.
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PING!
A Country Boy Can Survive
http://www.youtube.com/watch?v=I4s0nzsU1Wg
Who loaned the Chinese firms the money? If it’s the chinese banks, then I wouldn’t worry much. China can print money and wipe out the debt. China might have to sell their stocks at less than they paid for them. That would be okay with me too.
And Freepers thought our Commies were big spenders. No way we could out commie the commies in China. They’ve had a head start at it, after all.
TPTB will not allow this to happen, they have too much capital invested in China’s industrial sector. One way or another, we’ll be on the hook for bailing them out.
One other thought--why would this 1/2 billion dollar default trigger a collapse in a debt pyramid of $20 trillion? The author hasn't justified how the counterparty risk mirrors Lehman and AIG systemic risk in the US.
Not to worry, China will just cash in a few T-Bills.
...although nobody I’ve seen talks about it, I’m convinced there’s a political struggle afoot in China that may shake the country to its foundations. And I don’t see how the western world would not be affected by that, possibly quite severely.
That is to say, while everyone still holds on to the notion that the Communist Party and the – central – People’s Bank of China (PBOC) have near absolute power over the Chinese economy, I think power over the shadow banking system has been relinquished. The size of that shadow banking system was estimated by JPMorgan at $5.86 trillion, or 69% of GDP, in May 2013, and that’s an in your face indication of what powers the “official” leadership still has.
Interested to see what your take is on this.
Someone on a different FR thread (forget who, but credit to them) made a very interesting observation. You may be onto something as well. “TPTB” don’t want full blown collapse, but they DO want enough of one that they are the ones financing the “re-build” of societies and “owning” small countries when all is said and done as a result. Tinfoil? Maybe, maybe not. All I can do is prep my little kingdom and prepare to resist.
I have been hearing about the imminent collapse of the Chinese bubble for about 10 years now. I’m not saying it won’t happen, it almost certainly will, and the world will survive, get up dust itself off as it always has done, and move on.
Ping me if this “Lehman Brothers-sized collapse” does actually happen next Friday and I will be first to congratulate you on your financial acuity.
Otherwise I’ll be playing golf that day.
That's awful!
Their banks are making lots of really questionable loans.
Much of that “hot money” has flowed into stocks, bonds and real estate in the United States.
Prove it. None of Synder's sources said that.
So what do you think is going to happen when that bubble collapses?
When the Chinese bubble collapses, the Chinese will lose a lot of money. Very little will happen to our market, and Synder will have to make up another silly about-to-happen collapse story.
Wonder if the Free Trader Globalists will have the US bail out Communist China, if they do go bust?
We bailed out Mexico right after NAFTA passed. We are bailing out Europe. I guess Communist China is next...even though we have TRILLIONS in TRADE DEFICITS with the Communist Chinese
Curious how our more statist Globalist friends spin this....
China has been preparing for this for some time.. They have been accumulating actual Gold to protect as much of their own currency as possible to pacify their pumped up values.. Germany has been doing the same..
We haven’t anything to secure our own paper, our Gold is only paper promises with nothing to back it up, so hold on to your ass.. ugh!
That’s why I started ignoring Zero Hedge. Everyday is TEOTWAWKI. Some day they may be right but they talk a lot of people into sitting on their hands during a bull market. I’ve decided it is better to wait until you come to a bridge before jumping off.
Here is how the bad loans in China work
Mr Chan buys a high dollar luxury complex and sells it to his brother-in-law Mr Xie for a 15% profit.
Mr Xie sells the building to Mr Wong (His cousin) for a 15% profit
Mr Xie then sells the building to his uncle Mr. Li for a 15% profit
Mr Li sells the building to his friend Mr Pan for a 15% profit.
This all happens in the space of about 2 weeks
Mr Pan sells the building to a group investors from Australia or the US who are looking to capitalize on the booming real estate market in China.
The problems is the building now cost so much that very few Chinese who are not related to Mr Chan, Xie, Wong, Li and Pan can afford the rents.
So not wanting to take an endless loss the group of non-Chinese investors end up selling the building to Mr. Chan at a 50% loss who then sells the building to Mr. Xie.....
All of the Chinese players in this shell game made money Only the overseas investors lost and they had financed through non-Chinese banks. There are cabals of speculators in China that drove the real estate prices up with the intention of dumping the properties on foreigners.
The problem is once those overseas investors get burned they stop speculating in Chinese real estate. Most non-Chinese real estate investors now realize that the Chinese luxury market is way over built. The Chinese conman-speculators can’t unload their over priced inventory. That inventory is financed through Chinese banks.
Except that all of the Chinese banks are state-owned.
The PLA owns the land, and the PLA will own the buildings defaulted on. So when the time comes, the PLA will give the best quarters in the new cities to party loyalists.
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