On April 17, V, also known as the Guerrilla Economist, provided a new update to the ongoing crisis taking place right now in the Chinese banking system. This former head trader from a major Western bank announced that the fears rumbling through the mainstream news of liquidity problems are mostly unfounded, and that the primary issues are residing within China's shadow banking system, and not the People's Bank of China (PBOC), or other nationalized front line institutions which themselves are fully capitalized by gold and other hard assets.
Like most bubbles created by the major economic powers since the early 2000's, the most important one has been the push by central banks to inflate housing prices and to facilitate the creation of new construction. The United States was the first major power to create this policy, and it resulted in the near collapse of the entire financial system, requiring a taxpayer bailout and the Federal Reserve to support banks and corporations to the tune of $13 Trillion.
Subsequently, these policies have been followed in nations such as Canada, the U.K., and China, with all three experiencing the beginning of, or ending with, a liquidity trap and financial collapse in their own housing sectors and general economy.
Yet unlike the West, China is unique in that they have been using their monetary reserves to accumulate hard assets such as gold, commercial property, and mining interests. And while their riskier shadow banking system experiences a sharp decline in liquidity, the China's front-line banks are engaging in new agreements with Russia and the BRIC's nations worth nearly $1 trillion.
Lets crush the China fear mongering in simple ways. First the credit “crisis” that is spoken of is majority in the “Shadow Banking” system. This is a loosely run rag tag of affiliates ranging from local and regional banks, mom and pop businesses and even pawn shops. That being said the major Chinese banks and investment houses do often back a loan in shadow banking. The key thing that often people forget about is that the “problems” China faces is in reality regional and contained. It is NOT systemic. In order to prove that look at the balance sheets of their biggest banks, granted all corporate and governmental entities lie to a degree but there is something to be said of where a bank puts it’s assets. ICBC (biggest bank in China and biggest in the world) balance sheet is rich in hard assets and loans to stable companies in strong economic sectors. - V, Guerrilla Economist
Both China and Russia are not debt free in their financial systems, but they are far better off than the U.S. and Europe who hold nearly three quarters of a quadrillion dollars worth of derivatives. It is these liabilities, and the continuous need for forms of 'Quantitative Easing', that are pushing the global monetary system headlong towards a complete collapse, or at the very least, a global monetary reset. And even as the global economy teeters on the precipice of a new financial crisis, China and their allied BRICs nations have been preparing for the end of the current petro-dollar system, and are betting on a monetary reset to dissolve their nominal amount of debts when a new system emerges.
Unlike the U.S. in 2008, China is choosing the course that banks within its shadow system are not 'too big to fail', and that their banking interests are best served in allowing toxic loans to collapse, and asset prices to fall. And although Wall Street and the mainstream are trumpeting the end of the Chinese housing bubble and subsequent bull market, the reality of the matter is that China's problems are not systemic, and whichever toxic institutions fail or are allowed to fail, will result in the nation becoming much stronger, since their foundations are built on gold and hard assets, and not simply a paper trail like the West.