Well, all those things are true. When I say they're going
Imagine you make $50,000 a year and your taxes and your expenses and your rent and all of the things you've got to pay come to $40,000 a year, and you have $10,000 left over, you put that in your savings account or you can put it in the stock market, whatever you want with it, but that simple example where you make $50,000, you spend and pay taxes up to $40,000, you've got $10,000 left over, that's your surplus. That goes
But if at the end of the day you have more hard currency coming in than going out, that's your savings, and your national savings account if you want to think of it that way, is your reserves. That's what we mean by reserves and China had basically a four trillion-dollar reserve at the end of 2014. Today, that number is about 2.9 trillion. In other words, they have lost 1.1 trillion dollars in their reserve position in a little over two years, not quite two years. The reserves are going out the door. Now, people say, "Well, you've got 2.9 trillion left, isn't that a lot of money?"
Well, it is a lot of money except of the 2.9 trillion, about one trillion of that is not liquid, meaning it's wealth of
When you look at the Chinese banking system, private estimates are that the bad debts are 25% of total assets. Banks usually run with 5, maybe 7-8% capital. Even if you said 10% capital, well, if 25% of your assets are bad, that completely wipes out your capital, so the Chinese banking system is technically insolvent, even though they don't admit that. I mean, they cook the books, they take these bad loans. Let's say I'm a bank and I have a loan to a state-owned enterprise, a steel mill or something and the guy can't pay me, can't even come close to paying me and the loan's due, I say, "Well, look, you owe me 300 million dollars. I'll tell you what. I'll give you a new loan for 400 million dollars, but I'll take the money and pay myself back the old loan plus the interest, and then I'll give the new loan to your maturity and I'll see you in two years."
So, if you did that in the U.S.
Well, the answer is they could, and they
So, if you just say, "Well, I've got 900 billion in the kitty, it's going out the door at 50 to 100 billion a month," I'm going to be broke by the end of 2017. That's what I mean by going broke. You say, "Well, wait a second. Where did the 1.1 trillion, the first part we talked about that the reserve position went down, where did the money go? It didn't disappear." Well, no, it didn't disappear. What's happening is that everybody in China is getting their money out. They're scared to death that the yuan's going to devalue, so what are the Chinese doing? By hook or by crook, some of it's legitimate, some of it's corrupt, some of it involves bribery, some of it involves false invoicing.
As I said, by hook or by crook. I travel around the world quite a bit and you go to Sydney, Australia, Melbourne, Vancouver, Canada, London, Istanbul, Paris, New York, the story's the same everywhere. The Chinese are buying up all the high end real estate, the Chinese are buying up condos. Well, they sure are, and that's part of this capital flight, that's part of this money getting out of China. We've seen it before in Argentina in 2000, Mexico in 1994. It's happened over and over again, and it always ends in complete disaster. This is what's confronting China.
- Source, James Rickards via Minyanville