•The Chinese are going to have to accept a devaluation of the yuan.
• When the Chinese crisis hits, the Chinese are going to have to react similarly to the way central bankers did after the mortgage crisis.
• “They're going to expand the PBOC’s [People's Bank of China] balance sheet. They're going to slash the reserve requirement. They're going to drop the deposit rate to zero. They're going to do everything the US did in our crisis,” he said.
• And it won't look good. “Every single thing the Chinese central bank has to do is currency negative for them.”
• The takeaway? You better get ready. “In the next two years, this is happening. If you want to pretend that it's not going to happen, you're going to do poorly somewhere in your portfolio.”
One other thing that bears notice and Mr Bass left out.
The Chinese are are the primary US bond buyers who buy the bonds that are supporting that unprecedented and unsustainable deficit spending that is propping up the Obama Economy.
The reason the Chinese keep buying our debt is to keep their exchange rate a rock bottom so they can flood the American market with cheap, under valued goods. It's like the old trade war dumping schemes only it's monetary based and across the board rather than in a isolated market segment like steel or oil production.
As soon as the exchange rate imbalance (another unsustainable ) collapses, the Chinese will cat way back on US government bond purchases and the liquidity that is fueling the borrowing for our out of control social welfare spending will dry up over night.
What is going to happen when our Federal Government can no longer borrow the money to fill the EBT cards of the tens of million of unemployed, “disabled” and welfare cases added to the entitlement rolls by President Obama?
I think Alan Greenspan who, love him or hate him, was aways a financial guy ahead of the curve. He has recently made some very disturbing predictions regarding collapse of the US economy due to the inability to fund out of control entitlement spending leading to martial law.
Just sayin'
“...the Chinese will cat way back on US government bond purchases...”
Actually, I think the Chinese will suddenly dump US bonds, use the devalued yuan generated to reduce internal debt, and then sit back and watch as their piles of precious and strategic metals blossom.
Don't think that Obama and the domestic enemies in his administration aren't aware of and supporting this, moreso if Trump gets into office. They hate us more than they hate any other country.
The Fed will buy the bonds if nobody else will.
Of course, before we get there interest rates will go over 10% (full market rate) for US Bonds.
And that will be the trigger for an accelerated Debt Deflation.
Large swaths of the economy will lose access to credit, slowing growth. The combination of flat or declining growth, crashing consumer demand and high rates will drive a cascade of BK throughout the economy...small business, individuals, large corps, municipalities, states, banks. Everyone.
Except those who are holding cash.