ThePythonicCow
23rd May 2016, 08:50
Zerohedge is reporting that China has mandated that several major bankrupt companies within China be taken over by the Chinese banks they owe money to: China Has Quietly Bailed Out Over $220 Billion In Bad Debt In The Past 2 Months (http://www.zerohedge.com/news/2016-05-22/china-has-quietly-bailed-out-over-220-billion-bad-debt-past-2-months).
The banks will become the primary stock holders of the companies. The existing debt and existing stock in the companies will be canceled.
Zerohedge is not impressed ... finding this to be just a shell game making way for more debt.
I have a different view.
China's debt has risen dramatically over the last few years, but unlike many other nations, their debt is internal. Their companies owe money to their banks. Unlike the US and many other nations that owe massive amounts, as nations, the Chinese national government has massive reserves, such as of US Treasuries.
There are essentially three ways to handle an excess of debt:
Default - just don't pay it.
Inflation - cheapen the money that is owed in repayments.
Debt for equity swap - replace the debt with equity, which might yield future profits if the debtor firm/nation does well later on.
China has a fundamental advantage in such operations, being a centrally controlled economy. They can mandate reform, top down.
They have just used this advantage, and begun mandating that the excess debt of some of their companies be replaced with equity - a call on future profits, if any.
In my view, this is the best of the three ways to handle excess debt, and it is a demonstration of China's advantage in being able to handle such affairs. What was a serious weakness for China, the excess burden of debt payments in their companies during this deepening economic depression, is being lifted.
If Donald Trump were to ask me how to handle the excess of US debt, when and if he takes office next January 2017, I would recommend that the US do its own debt for equity swap. Dismantle both the Federal Reserve and the Internal Revenue Service (which administers the US national income tax), and institute instead a national sales tax, with a mandated portion of which would be paid to those who had held our US federal debt, instead of paying that debt and interest back. (There is zero chance that Trump will ask me, and almost zero chance the US will do this, of course.)
This is a major move, and a strong move for China. The world's economic, financial, and monetary affairs are progressing relentlessly toward a reset that will end the US Petro-Dollar reserve system, remove the US from the pinnacle of world power, involve a substantial economic collapse and depression, and lead to the next world monetary system.
This new world monetary system will evolve out of International Monetary Fund (IMF) Special Drawing Rights (SDR's), as implied by Zhou Xiaochuan, governor of the People's Bank of China, in this MarketWatch article a month ago: China aims to make IMF’s special drawing right a real currency (http://www.marketwatch.com/story/china-aims-to-make-imfs-special-drawing-right-a-real-currency-2016-04-26).
However I continue to anticipate, as I posted two months ago in How the global monetary conspiracy is unfolding (http://projectavalon.net/forum4/showthread.php?89274-How-the-global-monetary-conspiracy-is-unfolding.), that this new monetary system will unfold towards having a foundation, in the core reserves of the world's nations, in gold and silver and other such tangible assets, not in the bonds and other such debt paper issued by banks.
Debt will surely remain, as corporations, nations and individuals will continue to borrow. But the debt will be denominated in terms of various currencies, the value of which will rise and fall depending on the precious metal reserves and the trading balance of the nation issuing such a currency.
The banks will become the primary stock holders of the companies. The existing debt and existing stock in the companies will be canceled.
Zerohedge is not impressed ... finding this to be just a shell game making way for more debt.
I have a different view.
China's debt has risen dramatically over the last few years, but unlike many other nations, their debt is internal. Their companies owe money to their banks. Unlike the US and many other nations that owe massive amounts, as nations, the Chinese national government has massive reserves, such as of US Treasuries.
There are essentially three ways to handle an excess of debt:
Default - just don't pay it.
Inflation - cheapen the money that is owed in repayments.
Debt for equity swap - replace the debt with equity, which might yield future profits if the debtor firm/nation does well later on.
China has a fundamental advantage in such operations, being a centrally controlled economy. They can mandate reform, top down.
They have just used this advantage, and begun mandating that the excess debt of some of their companies be replaced with equity - a call on future profits, if any.
In my view, this is the best of the three ways to handle excess debt, and it is a demonstration of China's advantage in being able to handle such affairs. What was a serious weakness for China, the excess burden of debt payments in their companies during this deepening economic depression, is being lifted.
If Donald Trump were to ask me how to handle the excess of US debt, when and if he takes office next January 2017, I would recommend that the US do its own debt for equity swap. Dismantle both the Federal Reserve and the Internal Revenue Service (which administers the US national income tax), and institute instead a national sales tax, with a mandated portion of which would be paid to those who had held our US federal debt, instead of paying that debt and interest back. (There is zero chance that Trump will ask me, and almost zero chance the US will do this, of course.)
This is a major move, and a strong move for China. The world's economic, financial, and monetary affairs are progressing relentlessly toward a reset that will end the US Petro-Dollar reserve system, remove the US from the pinnacle of world power, involve a substantial economic collapse and depression, and lead to the next world monetary system.
This new world monetary system will evolve out of International Monetary Fund (IMF) Special Drawing Rights (SDR's), as implied by Zhou Xiaochuan, governor of the People's Bank of China, in this MarketWatch article a month ago: China aims to make IMF’s special drawing right a real currency (http://www.marketwatch.com/story/china-aims-to-make-imfs-special-drawing-right-a-real-currency-2016-04-26).
However I continue to anticipate, as I posted two months ago in How the global monetary conspiracy is unfolding (http://projectavalon.net/forum4/showthread.php?89274-How-the-global-monetary-conspiracy-is-unfolding.), that this new monetary system will unfold towards having a foundation, in the core reserves of the world's nations, in gold and silver and other such tangible assets, not in the bonds and other such debt paper issued by banks.
Debt will surely remain, as corporations, nations and individuals will continue to borrow. But the debt will be denominated in terms of various currencies, the value of which will rise and fall depending on the precious metal reserves and the trading balance of the nation issuing such a currency.