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Will China Bail Out Evergrande?

Courtesy of ZeroHedge View original post here.

Submitted by Quoth the Raven at QTR's Fringe Finance,

Markets took a shellacking on Monday as the world sits idly by and waits to see whether Chinese property developer Evergrande’s insolvency and leverage come back to haunt the rest of the global financial markets.

The question that is going to drive the markets is whether or not the People’s Bank of China will eventually step in to provide some liquidity.

And while investors are worried that they may not, given the Chinese government’s new hawkish posturing with domestic companies, it is difficult for me to believe that they won’t help ring-fence the potential contagion from a credit event.

US investors are also on edge heading into what is believed to be a hawkish Fed statement on Wednesday, and few investors are considering what the Evergrande situation may actually mean: yet another excuse for US central banks and global central banks to delay or outright cancel a potential taper.

A complete scorched Earth default for Evergrande would be somewhere in the neighborhood of over $300 billion worth of unpaid bills and liabilities. While it’s certainly a sizable tranche of cash, and contagion from a major credit event would definitely ripple through markets, it isn’t going to be an unbearable shock that is going to seize up the entire global financial system. I know this sounds batshit crazy, but $300 billion simply isn’t what it used to be.

For example, the outstanding amount of money in all crypto markets right now is trillions of dollars being shuffled around trading assets that don’t even tangibly exist. I’m one of the few people that have noted that this may be cause for an eventual seizing up of global markets, but I don’t think $300 billion is a death blow.

The market isn’t seeing things my way Monday, but that’s fine: it’s the PBOC’s reaction this week that matters.

Sadly, part of my reasoning for thinking a bailout and/or ring-fencing is coming is simply the new climate (no pun intended) of central banking that we’re in. The pandemic has given central banks carte blanche to implement full-on MMT and saddle their respective nations with significant inflation as standard operating procedure.

The United States, for example, literally just papered over its entire economy for the entire year of 2020 by stacking $4 trillion onto the Fed’s balance sheet. What the hell is $300 billion?


Even if China wants to posture up and make a statement by not bailing out Evergrande, there’s no doubt in my mind it will help contain the contagion. And while China has been notoriously more careful with its Central Bank’s balance sheet and issuance of new money, something like $100 billion or $200 billion in liquidity – an amount that the Fed injects into the bond market in less than a week – isn’t off the table.

Putting aside what will be an obvious moral hazard disaster and one more step in the long-haul to the complete implosion of the entire financial system down the road, Evergrande right now seems like it may just be a blip on the radar and a quick problem that the Chinese central bank can “solve” to bring stability back to market in short order.

I would love your take on the situation.

  1. Do you think Evergrande will be bailed out?

  2. Do you think that if the Chinese government doesn’t build them out, it will still wind up bailing out the industry?

You can join the discussion on my blog "Fringe Finance", for free, by clicking here and scrolling down to the comments. 

Additionally, Zerohedge readers get 10% off an annual subscription to my blog by using this special link here.


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