It’s Probably Nothing

It's Probably Nothing 18 Comments

Reader Melinda (via email);

Most everyone has heard some variant of the looming bankruptcy/default of the Chinese Real Estate giant, EverGrande. They have declined to make offshore interest payments on their issued bonds, last week. Just yesterday, they paid only 10%, I think, of their domestic issuance owed. EverGrande at one point held approx. $2,4 Trillion in assets. No more.

Nearly all of the operating capital was generated by offerings of debt, in Chinese parlance “Wealth Management Products”. These are now vaporized. 171 domestic financial institutions are exposed to these losses, and 121 foreign. Few know in what way, I sure don’t, because in China, a public corporation doesn’t have to say.

That being said, you ask, “How does that affect lil’ ole me?” Here’s one aspect of why it matters, the 30 year “floor” under global commodity prices just had a sinkhole open up underneath it. Joe l’Asouille explains the construction side of the demand curve beautifully, here.

Most of you will recall the credit collapse of ’07-’09 here in the US, that was approximately 20% of the US economy at the time. The deflationary effects were global, as that bubble collapsed. In China, the real estate industry is roughly 1/3 of their total GDP, and in total, roughly $5.5 Trillion in total. State encouraged ownership of commodities to support this industry kept a global floor in commodity prices. No more. This deflationary in Chinese Real Estate will not only stop the bidding for these commodities, inventories on hand will be liquidated.

So, why now, you might ask? Well, that’s even harder to gauge, but there are tell-tales here and there. Chinese corruption stories abound. Yet an anti-corruption speech Xi gave some 2 and 1/2 years ago laid out the ground work for this, and others have been trying to read the tea leaves of what it actually meant ever since, given the arrests of very, very prominent people such as Jack Ma, for trying to bolt the PBOC as the financial backstop of his AntBank project without asking first. That would tack $8 Trillion of exposure onto the PBOC’s balance sheet. Not a ballsy move at all. The Chinese oligarchic structure, under the protective umbrella of the CCP, has been steadily picked off, such as the Fentanyl King of Macau, and his billions in cash. The rationale for those acts by Xi, and more, is speculated on a bit here: https://morningporridge.com/blog/china/part-2-whats-the-driving-force-in-china/

Watch the money laundering arrests/indictments for the other telltale on this.

Much to watch. But Deflation is unquestionably coming, and those pressures last a looooong time.

18 Replies to “It’s Probably Nothing”

  1. remember the americans “bundled their losses” and sold them to the Germans , mostly small municipalities

    1. Wrong.

      Germans have no kids. So they are old and need retirement income. Ditto Italians, Greeks, French.
      They had no place to invest. So THEY, their well paid, expert investment managers, bought US mortgages.
      Tuff.
      Many others took short positions, on every single trade of these mortgages. Every. Single. One. Also experts. These made fortunes.

  3. 07-09 was intentional, so they could get their man, O’Butthole in the WH. Now know why China needed Trump out, and a bought and paid for puppet IN. Watch the WH offer to bail the Chinese out on this one, as I’ll bet dollars to donuts many Dims have $$$$$$ tied up in EverGrande

  4. This whole system is getting pretty shaky…
    Among our politicians keeping us distracted from reality.

  5. The take-away information for us plebs is that international banks are invested, and that investment has just disappeared -can you say write-off!-thus the banks which all operate on flimsy margins of real assets with the fancy title of fractional reserves are much weaker.

    If you are a pensioner with cash in the bank earning 1.5% , when inflation is 4, 5 or 6% why would you risk it? It would make as much sense to take the money out and spend it now on things of real value or hide it somewhere. Of course if enough people do that then there is a real crisis, lotsa banks becoming insolvent, calling in loans, people having to sell second homes at greatly reduced prices-it would be an awful shame. /sarc

    1. I was told watch for cash to be knocked out of circulation by the use of credit and then the banks to control withdrawals some years ago. Now that it’s progressing to the cashless society money has no real value to the spendthrifts. Numbers without reality, in effect Canadian Tire money has more substance. Controlling the current inflation or future deflation will be very unpopular. Barter anyone ?

  8. Lost so much money in my pension fund and rrsps in 2008. Glad I never reinvested and bought some property.

  9. Zero percent interest rates and the resultant exponential rise in debt will catch up to us sooner or later.

  10. The decision by Putin to de-dollarise Russia is interesting. They sell a LOT of commodities to China, but they have VERY low debt levels. So falling prices may not hurt them nearly as much as they will hurt the debt-swamped US and EU.

    Time to accelerate the immigration application?

    1. Anyone wanting to emigrate to Russia is deeply ignorant of that 3rd world sh!thole.

      Or, maybe Canada is not authoritarian enough for you.

      1. “Third World” is a designation for countries not aligned with with either the United States (“First World”) or Russia (“Second World”).

  11. That came out way wordier than I intended.

    One: Deflation makes cash the most valuable asset, always.

    Two: Global Corruption is an unlegislated tax that ranges from 30 to 60% on all economic activity, no matter where you live.

    One is coming, the other is getting a big haircut. No question.

    1. Deflation will never happen. The United States is run by someone who is intent on bankrupting it by the unlimited issuance of greenbacks

  12. Time to buy back our debt from China, pennies on the dollar. Of course Chinese Justin will send foreign aid.

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