Posted on 10/07/2019 5:21:37 AM PDT by BeauBo
China’s major commercial banks have a funding issue outside Beijing’s control: They’re running low on the U.S. dollars they need for activities both at home and abroad.
The combined dollar liabilities at the big four commercial banks exceeded their dollar assets at the end of 2018, their annual results show—a sharp reversal from just a few years ago. Back in 2013, the four together had around $125 billion more dollar assets than liabilities, but now they owe more dollars to creditors and customers than are owed to them.
Bank of China is by far the greatest contributor to the shift. Once the holder of more net assets in dollars than any other Chinese lender, it ended 2018 owing about $70 billion more in dollar liabilities than it booked in dollar assets.
(Excerpt) Read more at wsj.com ...
The bottom line is that most of China's growth has been from massively printing money, and loaning it out crazily - lots of bad debts that will never be paid back.
When they need to buy something from outside the country though, they need to use real money - Dollars, Euros or Yen (over 80% is US Dollars). They are massively dependent on imports of oil, gas, raw materials and food. Their reported foreign reserves are inflated, like every number the communists report. They probably have $2 trillion, about half in US Treasuries (about 5% of outstanding US Treasuries). If they burn through their foreign reserves, they will hit an epic financial crisis - Westerners will likely lose 100% of their investments, and the Chinese population will probably lose a big chunk of their life savings.
It is not just these few banks - the whole Chinese economy has sky high debt loads - over half of their industrial companies are straining just to make the interest payments on their debt (many are taking additional loans, to make the interest payments on their other loans). They can (and likely will) continue to print mountains of their play money, but real US Dollars are increasingly running short for them.
"It isn’t just that the country’s banks are lending dollars overseas, though it doesn’t help that Belt-and-Road projects are overwhelmingly financed in the U.S. currency. Chinese property developers have a rapacious demand, too.
The root of the problem is simple: Beijing would like to be a major financial player overseas, but few borrowers have any interest in the yuan. Most international trade is accounted for in dollars, the yuan is difficult to convert and foreign owners of Chinese assets have at best an uncertain relationship with the country’s legal system.
Investors should keep an eye out for stresses in dollar funding markets. Bank of China may be feeling the squeeze."
All this economic stuff speaks to the ONE way Trump loses in November: The economy collapses. It is how it’s worked for centuries. And it happens even if the leader in charge has nothing to do with it. e.g. drought causing a famine.
China has rampant fraudulent accounting and crazy bank lending, there is going to be the most epic bubble pop when it goes.
Unfortunately we won’t be able to stand back and laugh, the way the intertwined commerce works it will hit us badly in turn
Can’t China create it’s own QE on our currency by having North Korea print more?
China’s economy is collapsing. Our’s will not. China is going to fall and Trump will get credit for it. That’s my prediction from a high level view.
Here is a piece from the Wall Street Journal (from April), about China’s growing shortage of hard foreign currency (background for your thread yesterday on Hong Kong cash shortages).
This is their Achilles Heel. When their foreign reserves run out (dip below about 1/2 trillion dollars), it is game over for their take over the world plans, and likely back to a more typical communist command economy, with slow growth and shortages.
And, just what kind of "money" is so-called "real" US Dollars, if not our own version of play money.
Well, as long as it doesn’t affect us negatively for at least another 13 months, I’m good!
Democrats thought their impeachment circus would hurt the stock market but investors aren’t playing their game
The Chinese Communist Party still controls the flow of capital. There is no real free market in China. Banks do what the Party tells them. The banks were forced to finance the construction of over $1 trillion worth of “ghost cities”. Complete large cities with apartments, shopping malls, infrastructure were constructed and remain vacant and deteriorating. There has been no return on investment. Also the banks were forced to finance the construction of China’s military buildup. Over $1.5 trillion has been pumped into the construction of all sorts of ships and military aircraft. There has been no return on the capital.
The Chinese should have paid closer attention to the sub prime lending fiasco in the United States. When American politicians forced banks to lend money for mortgages and consumer loans to people who could never repay, the American economy almost collapsed. The squandering of capital is economic poison.
China may indeed become desperate. All that military equipment is awful tempting to a desperate Chines Communist hierarchy. Taiwan and Siberia beware.
Sell hard assets such as gold.
Buy dollars with Chinese money..... ha, ha
Turn obligations into loans which is bad for ‘forced’ creditors.
Don’t pay. Chinese will tough it out while Western countries suffer and fail.
This maybe be the Chinese plan B, control the world economically or sink the West. Either way China is left standing.
I feel sorry for all those private schools and universities that will lose their Chinese student gravy-train. /sarc
Once the Soviets reached the tipping point it was surprising how rapidly they collapsed. Could the Chinese suffer the same fate?
Thanks for the article and summation.
“just what kind of “money” is so-called “real” US Dollars”
Freely exchangeable and internationally accepted.
-- Salvavida (Free Republic, 7 Oct 2019)
Your misunderstanding is profound
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