For the last several years, China’s banks have been lending in excess of the country’s annual GDP. The Gross Domestic Product of China is about $10 trillion a year. The banks have made $35 trillion in spurious loans, meaning that 3.5 times the country’s yearly output is being leveraged currently–at least according to Kyle Bass, who sees some big parallels between Chinese investment kerfuffles and that which has already gone on in European markets.
Bass also notes that countries surrounding China have been lending to the juggernaut “aggressively”. This “aggressive” lending is kind of like dropping rocks on a sheet that’s been thrust through a hole over an abyss. The more rocks hit that sheet, the more it is thrust into the hole, until eventually it hits a critical mass and pulls the entire garment through, unseating anything established upon it above. Or think of a chain of dominoes. If China’s economy experiences the deep kind of decline it’s likely to, that means surrounding countries with investments will likewise fail. Unfortunately, the United States has substantial interests with China currently, which means when their bubble bursts, America will probably experience a “bear” market on Wall Street with losses for 2016 between ten and twenty percent.
There’s good reason to trust in Bass’ predictions, though the man himself may be involved in any number of shady dealings. Bass is a hedge fund manager based in Texas with firm ties to Cristina Fernandez de Kirchner, a well-known socialist presiding over Bass’ home country of Argentina.
Bass became known internationally in 2008 when he successfully predicted that American banking solutions in regard to the housing market were creating a bubble that would burst later that same year. Bass was proved correct, and people soon began to pay attention.
Bass has also been able to legally manipulate the United States stock market, although UsefulStooges question how shady this activity might be from Bass. He does this through CAD, or the Coalition for Affordable Drugs. This organization devalues the cost of certain big-ticket pharmaceuticals, against which Bass later short-sells his stock when its value diminishes. Bass has made a great deal of money this way, prompting American congress into a motif of bipartisanship, however briefly.
Kyle Bass has also predicted economic declines in Japan successfully, and with his eye on China currently, it only makes sense that some form of economic decline is imminent.
Does this mean it’s time to withdraw overseas investments related to China? Perhaps. Ultimately such withdrawal is up to individual discretion; but Bass’ track record indicates Chinese markets may very soon bottom out, and that regardless of individual investments, the domino effect of this will probably be a somewhat global event. If he’s right, now’s the time to save. Only time will tell if he’s wrong. Read more about Kyle on his blog.