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Commentary

China's Debt Is A Problem: Satyajit Das

This guys is usually spot on, but you can’t time him. Satyajit Das, author of Traders, Guns and Money, talks about the issues with China and Europe:

 

  • ECB is insolvent – it’s got $130 bn of Greek bonds, with just $5bn of capital. The ECB is technically in deep doo-doo, but because it’s a central bank, no one seems to care. The rating agencies need to look at this. (Does this apply to the US Fed?)
  • Greece is going to default anyhow.
  • Ireland and Portugal are also likely to, unless rescued.
  • China has been hiding debt. They recovered by forcing banks to lend, who doubled their loans. Most of the lending was by local munis and state owned corporations. They can’t pay it back.
  • This is not uncommon in China. Usually the government takes this debt, packages it and then guarantees it.
  • So technically a few trillion dollars worth of loans are likely to be bust.
  • But they can’t use their reserves – nobody will buy that scale of dollar crap.
  • China’s probably going down the Japanese way.