Wednesday, May 31, 2017

Another mainstream warning signal on the Chinese economy...something bad is brewing...

Thanks to Joe for the link!
via The Hill
Banks in the U.S. have limited credit exposure in Hong Kong at only $67 billion. What should give us pause is that when you add up the exposures of the very interconnected China and Hong Kong financial systems, U.S. banks’ exposure is almost $151 billion, or a few billion dollars higher than U.S. banks’ total exposure to Switzerland.

American banks are exposed to China and Hong Kong directly because they buy Chinese and Hong Kong debt and have financial transactions with Chinese and Hong Kong financial institutions and corporations.

It is also incredibly important to remember that not only are U.S. banks directly exposed to China, but so are myriads of other types of U.S. financial institutions and corporations. In turn, U.S. banks are exposed to those financial institutions and corporations because the banks lend to them, invest in their bonds and equities and, in some cases, invest in them directly. If Chinese economic conditions continue to worsen, U.S. companies and banks would also get hurt from stock and bond market turmoil in Asian financial markets.

Moreover, the largest U.S. financial institutions, especially large banks, often transact credit derivatives linked to Chinese and Hong Kong sovereign, corporate and financial institution debt, as well as the debt of other global companies impacted by Chinese developments. The extent of those contingent liabilities is difficult to measure since parties transacting credit derivatives do not have to report publicly on what type of debt they are paying protection.

What is usually not discussed at all is that the U.S. banks’ two largest exposures are to the U.K. and Japan, for which China represents very large foreign exposures. Hence, any negative repercussions that would impact U.K. and Japanese financial institutions and corporations from a Chinese slowdown would end up trickling down to U.S. banks, even if with a lag.

Moreover, in the U.S. banks’ top-20 foreign exposures, they also have Australia, South Korea, Singapore and Taiwan, all of which hold China as an incredibly significant counterparty. 
Story here. 

Another mainstream news organization is talking about the dangers of the Chinese economy.  Something bad is brewing over there and no one seems to be paying attention.  I don't have the knowledge to put this together but I'll monitor it.

If past is prologue then we'll have a couple of weeks warning (if we're watching) before everything goes tits up (that's how it worked in the housing crisis...the wise guys had time to pull money out before the average joe got bombed).

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