China’s Crisis and The Coming Global Recession (w/ Kyle Bass) | Interview | Real Vision™

So let’s go back to that chart, because that’s
a shocking chart to me. It’s assuming that there’s enormous amounts
capital flight going on. Yes. And it’s not showing up in the currency market. The one that shows illicit capital. That’s right. Yeah. The diamonds obviously corroborates it. Yes. And then we’ll show you also, one of the things
that when you think about how China operates, when you understand that they’ve now gone
to current account negativity for the first time in the first half of 2018, what is important
to China going forward? It’s capital flows. And so we put together this chart from SAFE
and CEIC’s database. When you look at the green bars there, the
green bars are the current account building that reserve balance that enables China to
just keep printing money on the other side of their balance sheet, running their domestic
economy they want to do. That turned negative in the first half of
2018. So you see the green bars went negative. The blue bars here are quote, “net errors
and omissions,” which is Chinese for illicit capital flows. So the only thing holding China up right now–
This hasn’t changed trend. We still think that this is negative now,
going into 2019? Well, I’ll say that– think about what happened
in December. Crude oil dropped from $75 a barrel to, what
did it hit, like $43 a barrel? Yep. That’s one of China’s biggest imports, is
crude oil. So that will give them a brief reprieve on
the current account side of things. But again, the question with that, is that
a secular or is that a cyclical phenomenon? That’s right. This is key to understand. You see you see the dotted line? Yeah. That’s volume of crude importation by China,
using the right y-axis. And this is the dollar value of imports. So back in the end of 2014, early 2015, when
crude collapsed from 100 to 30, they got a massive reprieve in their current account. But if you look at the volume, does that line
look like equals y equals mx plus b? It doesn’t look very cyclical. No. It’s not. The thing about this, they were importing
just under 300 million tons the beginning of 2015. The most recent number is 462 million tons. Think about this. They’re now importing 50% more crude in only
four years ago. 50% more today than they were importing four
years ago. That’s staggering. Right. So is this a secular or a cyclical phenomenon? It is clearly secular, when you look at this
line. Yep. And now, energy prices will stabilize. So you say, well, are they going to have a
positive current account or negative, this quarter? And the fourth quarter’s probably positive,
because oil collapsed. But in the long run, smoothed. They have a secular problem where they, from
now on, will have a negative current account. Right. They’re starting to look more and more like
Argentina, and Turkey, and the other twin deficit countries. Because what are they doing? They’re running a negative current account,
they’re running a negative fiscal balance of roughly 9% of GDP. So they’re running twin deficits, their FX
reserves are dwindling, and they’re starting to borrow a lot of dollars. So how much of the FX reserves is liquid,
out of what’s left? What’s the composition of that, now? Well, first of all, if you remember when they
were led into the IMF SDR basket, they said they would disclose the composition of their
reserves within two years. That was a long time ago, and we haven’t seen
it. So again, look at what they do, not what they
say in China. And clearly, they lied to everyone with that
statement. But more importantly, I think, getting back
to your question, what does that composition of reserves look like? One thing we know for a fact is US treasury
tick data shows that they own a little bit less than $1.2 trillion in treasuries. So we think that their only liquidity that
they have any size of is our treasuries. So they own a little bit of, call it yen,
euros, pounds. But they mostly own treasuries. We think the number is closer to $2 trillion,
instead of $3.2 trillion. Which is dangerously below adequate levels. Because it sounds like a huge sum, but for
the signs the economy and the potential capital flows, that can go super quick. So if we’re going to play large numbers here,
the broad measure of credit in the Chinese financial system’s $48 trillion worth of RMB. They only of $2 trillion of reserves. Think about these numbers. In their last banking crisis, which was between
’98 and 2002, the loss given defaults were 80% of loans that defaulted. And at one point in time, they had 35% of
their entire system was non-paying. But the counterargument always, for everybody,
is, it doesn’t matter. But it’s China. That’s always the thing. It’s China. They’ll smooth it. Kyle’s being an alarmist. Everyone’s being an alarmist. You’re wrong, Raoul. It’s not a trade through seven against the
RMB. All of this. And those people sleep well at night, until
they don’t. That’s the nickels in front of a steamroller
approach. Yeah. I think what brings this to a head is the
current account. When the current account goes negative, and
the reserve balance is going the other way, that the rubber meets the road then. As long as that balance is increasing annually,
along with GDP, in RMB terms, they can keep going. But as soon as those balances go– now, their
fiscal balance is negative 10, negative 9.5. Their current account balance goes negative,
and it’s a secular negativity, then they have more money leaving than coming in. They have to desperately borrow. And now, they’re changing their laws. They say, you know what? Now, Westerners can own more than half of
our banks, not a problem. That’s right. Please invest more in Chinese equity. They have to get rid of all the shit they
can. Right. So please invest more in Chinese equities. So when you look at capital flows, this is
a really important chart. This is from CEIC and SAFE. The red bar and the striped bar is just portfolio
investment and FDI. So without Western capital flowing into China,
China can’t hold this all together. Literally, we are providing them–
Which is Turkey and Argentina, right? That’s the only way that–
That’s right. –they were supported. But what’s interesting about China is this
gives them– first of all, their economy has given them the confidence globally to be more
geopolitically assertive in their dealings. It’s given their military the ability to be
much more assertive in the South China Sea. And it’s given Xi an aura that he’s made the
west think that, somehow, his economy, his economic model is superior to that of Western
capitalism. And it’s all a facade. The whole thing is a mirage. The whole thing is made up with the printing
press, keeping a closed capital account, and hoping the world doesn’t notice it. But can they get away with it? Can they do a smooth, Japanese-style decline,
20, 30 years of below-trend growth or growth of trends lower, and just kind of work out
the bad debt? Because Japan’s surprised everybody of how
they actually managed it. Now, it’s a different economy, because they
have a bunch of surpluses. Yep. But, can they do it? I don’t have the chart in here. I didn’t bring it with me. But the other thing that Japan has, that China
doesn’t, if you look at the net international FX reserve position abroad– so it’s the investments
of Japan, Inc. abroad, both from a sovereign perspective and from a savings perspective
of the population. Japan’s net international effects position
is 250% percent of their GDP. China’s is 18% of GDP. And most of China’s are the state. It’s the left side of the PBOC’s balance sheet. Lending to ports in Sri Lanka, buying the
port in Greece, owning a Ugandan copper mine in Congo, for lithium, and things like that. Those are things they are not going to monetize
and bring home. So China doesn’t have that net international
FX position that Japan can really rely upon, to keep its dream alive. Now, Japan still runs a positive current account. And Japan has a quadrillion yen of debt, right? Yeah. They also have a quadrillion yen of net international
savings, where China doesn’t. So Japan is a completely different animal. So there’s two things I want to put into this. One of the things that I’ve been talking about,
I think the probability of a global recession is reasonably high, at this point. What do you think it is?
80%. 80. Yeah. Yeah, I agree with you. It’s very high, and all the data I look at
looks like it’s coming. Could it be 2016 again? Well, we kind of avoid it, because the Chinese
got us out of it. I don’t think that’s coming. We saw that a fiscal stimulus in the US lost
two quarters. It’s not going to help. So we’re running out of something. We’re running out of ability to get around
this. Looks like Australia is about to go into the
recession. All of this is starting to happen. So let’s assume ceteris paribus in China,
they don’t anything different, but the world goes into recession. They’re screwed, right? Yeah. Because they can’t sell goods. And then so their current account–
Goes more negative. Exactly. Because that offsets the oil thing, because
the fact is– because we saw a similar kind of thing happened when oil fell last time. It’s because, well, trade fell, as well. That’s right. And if Chinese cannot sell enough goods, then
that’s the end of the game. I think the writing’s on the wall, when you
look at– everything that you look at. You look at Australia, you look at Southeast
Asia. But look at Italy just entered a recession
a week ago. If you look at the subcomponents of Germany’s
industrial production, it’s actually tracking, right this minute, as bad as it was when Lehman
came down. And you know what it’s highly correlated to? China. But that’s my point. Germany’s headed into recession. The US numbers look really good right now. It’s because we just stimulated at full employment. That’s right. That’s stimulus– I think peak stimulus is
February 27.

100 thoughts on “China’s Crisis and The Coming Global Recession (w/ Kyle Bass) | Interview | Real Vision™”

  1. Charts are not shown so people will sign up for "Real Vision". This is a free teaser sample. Trouble is lots of free stuff on internet.

  2. I know I am old because now I realize, no matter what I learn, I still don't know. No one knows more than 1% of what there is to know. We are all operating on incomplete information. That is why they call it speculation.

  3. – Kyle Bass from track record to broken record.
    – Raoul Pal the ultimate yes man. Real Vision subscription no thanks.

  4. I didn't hear any mention of China's enormous gold reserves..?
    This guy reminds me of Harry Dent.. (which is not a good thing)

  5. ‪If you need help of any kind or interested in Cryto bitcoin or binary you can contact my broker on whatapp +122670255028 he is of a great help to me in recovery and making profiles with his trading experience. And he is an open minded person willing to help any time. ‬

  6. China had lots of savings. I believe much more than average american adjusted by gdp. So why picking up some random charts and leave the important ones?

  7. Damn, Kyle Bass is the only person I've ever seen who comes to interviews with his own charts and graphs. That's prepared.

  8. The Chinese economy is a facade. Really Kyle Bass… that's your criticism of China? Talk about the pot calling the kettle black… They almost certainly learned that trick from the US. Why does RT keep interviewing morons who refuse confront house of cards that the Fed has built right in their own backyard (and actually expect people to pay for that kind of garbage)? That is the exact kind of useless nationalistic propaganda I could find on CNBC.

  9. total bullshit, the only smart thing you did is you just showed some random charts to the host which you know you can not show to the audience

  10. China watchers, economists, and investors have been forming battle-lines for years as they debate the true strength and sustainability of China's economy and its role as a global player. Those of us that paint a picture of future collapse are often accused of spreading "doom-porn." The following article argues what happens in China will have a major impact in currency markets.

  11. what about the immense human capital of china ?? 40% of all sci-tech faculties of US universities are now Chinese.

  12. BITCOIN, please please learn about BITCOIN!! It WILL be THE protocol for value transfer GLOBALLY! Learn it and be ahead of the game, or be forced in later.

  13. Never believe what China says but what China does because it's the biggest liar in the world and fool the world since decades

  14. Kyle Bass is spot on 100% correct as I have predicted what he's been saying in the same measure for many years. The proof is mathematical and sociological due to China's depravity and corruption not to mention inequality in income with quite a number of billionaires and a lot of people making just several hundred dollars a month. Such a society with no real middle class cannot sustain itself.

  15. It's against the rules and the law to post a video that says the economy is going to get better and better . I guess that's why there's not a single one on you tube . Look for yourself . It's all doom and gloom . Always has been , always will be .

  16. Can't see why China's current fiscal situation is similar to Turkey and Argentina. Also I am much more optimistic about Germany. These are not failing nations, they are just growing at slower pace than the past. Their economies are back up by manufacturing industry which is highly resilient during the downtime. Plus that 3.2 trillion Chinese reserve is only the foreign currency reserve not the entire pool that Chinese government holds. I don't understand why Kyle was confused about it with the rest of reserve. Not to even mention his own valuation – only 1.2 trillion which is solely based on his 'opinion'. Please provide more facts rather than keep using "I think…I believe " instead.

  17. What Kyle Bass does not understand, is the electric vehicle rate of adoption in China, and the incentive provided for electric vehicles purchases. Crude oil, import into China will decline, and their current account balance will grow. Your concerns are relevant about China economic demise!

  18. Kyle has changed his JCB tune quite a bit. Where is the JPY interest rate blowing up the government theme gone? I suspect Kyle has realized that Japan's off-shore asset base is funding it's impressive central bank printing exercise and general government profligacy. IMO JPY is a great hedge currency for a global collapse because there are so many deflationary pressures in the country.

  19. Newbie question: What are the likely implications for the US if China no longer buys US T-bills etc? & liquidates what it owns. Would the US have enough buyers or need to make them more attractive? Sorry if it's a dumb question.

  20. China will just spend less if it can't become a global reserve currency. And then they'll settle trade in Gold. Nations will just open bilateral swaps everywhere and then settle in Gold. China doesn't need large FX reserves to defend the peg. They'll just clamp down on capital outflows and let the Yuan drift lower.

  21. Much better to invest in an all-weather proof stock like Burford Ltd

    Here is a great investment thesis for the ultimate 100-bagger

  22. Idiots such as Kyle Bass conveniently ignored the largest debt accumulation (US budget deficits) in human history. The world reserve currency status made things even worse. US is selling dollar like Venezuela selling oil. Other countries can afford a currency devaluation to reset the economy. US needs to preserve dollar to keep inflation at the bay. Kyle took heavy loss in 2016. He will get fucked again pretty soon

  23. #SupportMilesKwok Thank U
    End China sick CCP 2020

    We love China but the CCP is doing a bad job.
    Urge All Countries and Companies – No Business Transactions with CCP group of companies until CCP stop killing & suppressing their own people.

  24. The US needs to do Infrastructure projects and Trump needs to BLAME THEM for not helping economy because they are more concerned with winning elections then helping people.

  25. Kyle Bass has a very large shorting position in China. He thought he could play China like those southeast Asian mickey mouse countries in1997. He picked the wrong country to fight with. He got burned bad when he shorted RMB last year. Now he goes on various channel try to drum up this anti China anthem to recover his financial loss. I hope he end up losing all his money sleep under a bridge.

  26. Are you only having a chat with each other or do you have an audience?!!!! What is on the chart?!!!

  27. Export is only 19% of all Chinese economic activities these days, from the interview, you'd think its it 90%

  28. Rusty bathwater is cutting a deal with the Russian President to bail out the Federal Reserve also called America by leasing Russian gold to pay off China?

  29. China is importing so much oil because it is building up its strategic reserves in preparation for war with the United States.

  30. kyle is spot on about this, but his timing is out. if this goes the same way as japans growth cycle from 1976 to 1996 , the chinese crunch is circa 2024/2025. they are pretty much tracking the same 20 year pattern. exponential growth for 10 years followed by a credit crunch, in chinas case a slide, then one last spike to try and blow the bubble a bit bigger. whats going to drag this out till the mid 2020s is the US budget deficit care of trump.


  31. The conversations are usually top notch but seriously what were you thinking having a conversation about specific charts and never actually showing the charts to the audience? Really?

  32. Hayman’s performance has been sucking wind since 2012. Being bearish on China has cost him dearly. I stay away from this dog with fleas.

  33. So with only a couple of trillion reserves vs their money printing are you saying that China is more heavily levered than any other country? When is the weight of everything they're juggling going to give into gravity?

  34. People ask: "When will the Great tribulation begin?" We know EXACTLY when it will begin. When they are saying "Peace and security!" in Israel, the 'sudden destruction' Paul referred to in 1Thessalonians 5: 2, 3 occurs when IRAN BOMBS ISRAEL. Daniel 11: 44, 45. Iran does this, and is very angry, as described there in Daniel, because pilots bombed their enriched uranium nuclear assets; and refuelled in Saudi Arabia. The great anger of Iran means the BOMBING of Israel WHILE THEY ARE SPEAKING: 'PEACE AND SECURITY!'
    This provides the exact time, and the exact reason for the 'sudden destruction', that has multiple consequences. It is the outbreak of Jehovah's Day of anger, as seen in Zephaniah 2: 1-11 and the cities in battle and distress named there are: Gaza, Ashkelon, Ashdod and Ekron. In Mark 13: 16 Christ told us at this time to 'get out of Judea'. This 'sudden destruction' introduces the Great tribulation. Christ arrives at the beginning of the tribulation Matthew 24: 29, 30 and displaces the authority of the political system. Ezekiel 21: 26, 27 Jehovah 'puts on high what is low; and brings low the high one'. Satan, Gog of Magog, came upon 'the soil of Israel' Ezekiel 38: 18, 19 and it was time for Jehovah to speak.
    We also see a parallel war appearing between Russia and the financially collapsed EU Ezekiel 7: 19-22. The artefacts of the Vatican and churches are the 'hidden treasures' that are pillaged to support the rouble.
    The arrival of Christ in earth-wide power is also seen in Matthew 25: 31, 34. Here we see the 'sheep-like' true Christians are in God's Kingdom when He arrives. This is why the faithful ones John 3: 16 will receive protection, and will survive the Great tribulation Revelation 7: 9, 14-17.
    The information about these future events has been inspired into writing 2Timothy 3: 16 by Jehovah to greatly increase the numbers of those being saved by Divine interventions. Understanding is the beginning. That is why YOU can live forever in Paradise Luke 23: 43 and see healing Isaiah 35: 4-7 and welcome back YOUR dead loved ones Acts 24: 15 Revelation 20: 13 into a new system under Christ Jesus Revelation 11: 15, 18 and His heavenly brothers Revelation 5:10.
    The bombing of Iran's nuclear assets is performed by pilots who refuel in Saudi Arabia. This also trips off wars between and inside all 23 Arab states. Jeremiah 25: 24-26. It takes one man one match to burn down an oil refinery or an oil well. That is why FIRE will bring the world's transport and industry to a STANDSTILL during the Great tribulation. Psalms 37: 20 Man causes it; man can't fix it or recover from it. But the details of it are written by the inspiration 2Timothy 3: 16 2Peter 1: 21, 22 of a living God who will perform the biggest rescue of mankind in history. That is why, right at the beginning of the catastrophe, in Matthew 25: 31, 34 Christ arrives in 'power and great glory' Matthew 24: 29, 30 and 'sits down on His glorious throne'; and we can see there the 'sheep-like' faithful ones John 3: 16 are already inside God's Kingdom; and so they will receive protection and healing Malachi 4: 2 Isaiah 35: 4-7. That is why their survival is announced ahead of time Revelation 7: 9, 14-17. John 3: 16.
    But the wicked ones are DESTROYED, as seen in Psalms 92: 7 and Psalms 37: 8-10; bringing the Great tribulation to an END.
    INFORMATION and UNDERSTANDING is the beginning of faith in Jehovah God, and so this matter had to be told ahead of time Romans 10: 13- 15. Matthew 24: 14.

  35. Chinese fiat will be supported on the asset of their central bank balance sheet by gold instead of dollars
    And no they have no challenge wrt oil। Russian deal 500 billion oil in 30 years। is a yuan deal। Russians will likely complete the pipeline this year or next, which the Russians are financing। Obviously the Russians expect to sell even more, via the same pipeline। And then there is Iranian and Venezuelan oil, both of which face pricing pressures।

    So chill। ??

  36. 80% chance of a recession – let us hear about that 20%, what can we do to prevent this, would like to hear an argument from the other side…?

  37. Kyle is right. The fact is that the #1 say to tell if a bubble will collapse is if people think it cannot — like China.

  38. China is not US China can devalue Yuan and destroy USA.China can destroy USA can win against USA in war.Remember USA is already bankrupt -if China pulls out of Derivatives then Western Banks will be destroyed-when Deutsche Bank collapse realising on balance sheet at collapse 54 trillion US dollar debt end of Derivativesarket.The real point of this post is Propaganda to keep Americans in the dark they even spread the lie that USA is booming drawing in trillions of US dollar investment/full employment etc..They do not mention the biggest lie in USA goverment-the secret US Treasury find Currency equalisation. Fund balance of which is only known to Chief of US Treasury!How much debt is held by this fund which buys US Treasury Bonds when no bids at US treasury bond sales(regular failure of bids must be hurting find.Fact is these guys now they are trying to keep USA alive but China has do many optionsit can bide it's time watch Trump crash and burn.Sad to say China is a master of fiat currencies they have a history of Fiat currencies over the centuries.

  39. And money which China borrowed has been used in infrastructure which will benefit country for a long term! Should this guest take every aspects of consideration?

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