KYLE BASS: China is already out of money…(Brace For Impact…)
Julia La Roche
BusinessInsider.com
Feb. 10, 2016
Texan hedge fund manager J. Kyle Bass, the founder of Dallas-based Hayman Capital, sent out a big letter to investors explaining why he thinks China has a problem much larger than the 2008 subprime crisis.
China has been burning through cash of late as it manages the devaluation of its currency, and there is a big debate over exactly how much money it has to burn.
Bass notes that many folks look at the foreign-exchange (FX) reserves of $3.2 trillion and think that China will be just fine.
It’s really not enough, though, based on Bass’ calculations. According to Bass, the country is out of money today. In other words, China no longer has enough liquid reserves.
The letter said, with Bass’ emphasis:
Responses we receive when discussing the FX reserve levels of China are filled with reverence: ‘No country in the world has ever achieved $4 trillion in FX reserves by running such enormous trade surpluses with the rest of the world.’ While true, this analysis fails to frame the proper context of the larger situation. When a host country has a large industrial base, enormous money supply (M2), and large import/export business, there is a certain amount of liquid reserves that are required to run the day-to-day operations of the country (think working capital). Over the years, the IMF has fine-tuned the formula used to calculate this ‘reserve-adequacy’ metric. It can be best calculated as follows:
The Rest…HERE
