Investor That Can See The Future

Chapter 484

A bank in Inner Mongolia, China went bankrupt.

According to the Deposit Insurance Ordinance, principal and interest are protected up to 500,000 RMB per person, but those who deposited more and creditors lost their money.

As a small local bank went bankrupt, the amount of damage itself was not that great, but it caused a huge aftermath.

Bankruptcy in China is unusual.

This is because, in the meantime, whenever a crisis occurred at individual banks, the central bank, the People’s Bank, forcibly took over and prevented depositors from losing. But this time, they left it bankrupt without taking any action.

This meant that the government was no longer stepping in to bail out bad banks. Anxiety spread, and astonished depositors all rushed to the bank to withdraw their deposits, and the banks were engulfed in fear of a bank run.

The Financial Times published an article stating that five additional local banks, including Liaoning and Shandong, went bankrupt, and about 20 were at risk.

The Shanghai Composite Index, which had risen slowly as the theory of the Chinese economic crisis grew, began to plummet ahead of the end of the year.

It fell 6.5 per cent in one day, followed by a further 4.63 per cent the next day.

When the situation took a turn for the worse, the Chinese government took action. First, to prevent financial insolvency, they decided to check the banks and increase the guarantee amount for the deposits of ordinary people.

In addition, various stock market stimulus measures were introduced, such as banning the sale of shares by major shareholders and encouraging companies to purchase treasury stocks.

A spokesperson for the Commerce Department said in a strong tone.

“The Chinese economy has no problems. Foreign exchange reserves are sufficient, and the government is always ready to take further measures to ensure financial stability. Those who spread rumors will be severely punished.”

300 journalists who wrote articles pointing out the dangers of the Chinese economy were questioned by the authorities.

Even without official instructions, portals and social media companies deleted or blinded their posts.

Unprecedentedly strong media control and public opinion control were enforced, and the People’s Daily and CCTV published articles defending the government’s position.

However, despite this precipitation, the stock market decline did not stop, and many people lost their fortunes.

Instead of raising the benchmark interest rate, the People’s Bank of China lowered the yuan’s announced exchange rate by 6.3 percent.

China has a uniquely managed floating exchange rate system. Therefore, transactions must be made within 2% of the exchange rate announced by the People’s Bank of China.

Asian countries’ currencies actually move like a peg. As China devalued the yuan, the Thai baht, the Philippine peso, the Vietnamese dong, and the Indonesian rupiah also fell one after another.

Bank runs and stock market crashes were also problems, but the most serious problem was real estate.

In the meantime, the price of real estate in China has skyrocketed to the extent that it is said that it is money just by buying it. Concerns have been raised that real estate prices may plunge if financial instability spreads to the real estate.

First-tier cities such as Beijing and Shanghai had the highest PIR (Housing Price to Household Income Ratio) indices in the world, and local governments all started developing new cities.

When a city is built on a wasteland land and apartments are sold, the construction industry is revitalized, increasing employment and increasing tax revenue.

Therefore, the development of a new city was nothing more than a goose that lays golden eggs to the local government. However, the number of people who can purchase real estate is limited, but the number of vacant houses has increased as pre-sales are pouring in, and corporate and household debt has also increased significantly.

Anyway, there is no problem when real estate prices go up. But the moment it falls, all problems arise.

When the price falls, fewer people want to buy a house, and when demand decreases, the price falls further. If a situation arises where it is impossible to repay the loan even if the house is sold due to falling house prices, banks may go bankrupt one after another.

The anxiety that started with the bankruptcy of local banks spread to the real economy after the stock market and real estate.

Professor Nouriel Roubini published an editorial in the New York Times saying, “The gray rhino is heading head-on toward China.”

A number of bad news happened at the same time, and the Internet was flooded with fears that China would soon collapse.

– The situation in China is serious now.

– Why is the Shanghai Composite Index like that?

-It’s my Chinese fund ㅜㅜ

– Real estate is also in the process. That’s how I’ve been building the house.

-Now inland cities are overflowing with empty houses. There are even ghost towns that are completely uninhabited.

-Isn’t this a real financial crisis?

– How long will this guy’s stock fall?

-The bankruptcy of China has begun! Get out of here quickly!

-Isn’t Korea dangerous too? Stocks are no joke, and the exchange rate fluctuates.

-Aren’t Korea lucky to have Kang Jin-hoo?

– What are you talking about? If there is a problem with the Korean economy, Jinhoo Kang will be the first to leave. Where are you going for the speculator class?

-OTK Company is also said to be increasing its holdings of dollars.

– What’s going on with Saemangeum? Will the construction go ahead as planned?

-The situation in Russia is also serious, isn’t that the point of inter-Korean economic cooperation?

-I wonder what Jinhoo Kang is thinking.

* * *

As the Chinese economy faltered, the crisis in Europe became more and more serious.

As hard Brexit becomes a reality, tensions have risen on the border between Ireland and Northern Ireland. Britain has suggested that it can control the border, and the Irish Republican Army (IRA) has said, ‘For the unity of Ireland, an armed struggle is necessary. “I will not avoid it,” he warned of terrorism.

Germany and France have rejected financial aid from southern Europe. Greece has refused to implement further austerity measures, and calls have been made to leave the EU in Italy, Portugal and Spain.

Another primer was Turkey.

A foreign exchange crisis occurred in Turkey, which was already suffering from a trade deficit due to capital outflows. As the government gave up its currency defense, the lira plunged as much as 25 percent in one day to a new low.

Inflation is also serious, and there has been talk of whether redenomination should be carried out again.

President Hakan Herener said Turkey’s economy is suffering because of the refugees, and has asked the EU for additional aid.

In the meantime, Turkey has been receiving aid from the EU to accommodate the influx of refugees to Europe. They were still arguing with each other over the amount of the subsidy, but Turkey unilaterally issued a huge bill.

The EU refused to do so, and demanded that the details of the aid provided be disclosed, and President Erenair threatened to send refugees to Europe.

In fact, it opened the way for some refugees to the EU because the refugee camps were saturated.

As refugees flooded across the Turkish border, the already in crisis in the Balkans was turned upside down. Greece, Bulgaria and Romania have criticized Turkey and said they will also allow refugees to pass through.

Refugees prefer to settle in Western European countries with good economic conditions rather than Eastern and Southern European countries, which have difficult circumstances.

This led to riots, this time in Germany and France.

Even though they belonged to the same community, their circumstances were different and they had different ideas, which was a fundamental problem with the EU.

The interests of each country were sharply opposed on issues such as Brexit, the Southern European financial crisis, and refugees, but no solution was found.

* * *

[Moaning from various crises in the EU and China][World Economy Perfect Storm Threat][Is the financial crisis starting?][It’s hard to feel safe even in Korea][The U.S. should stop raising interest rates… … ][If isolationism intensifies, it will have a big impact on the Korean economy]

Even after the new year, depressing articles continued to pour in from the beginning of the year.

In the meantime, there were many concerns that whenever bad news broke out, it could spread into a financial crisis. The positive theory that it will pass this time, and the negative theory that it is really dangerous this time were opposed.

Time will tell which one is right.

* * *

We decided to have dinner at Hyeon-joo’s sister’s house for the new year.

Unlike at work, my sister greeted us in comfortable clothes. Henry went to the Chinese branch to find out the exact situation, so he was the only one at home.

We sat around the table, ate, and drank alcohol and drinks.

Hyunjoo noona said with a tired expression on her face.

“Even though it’s a new year, it doesn’t feel like a new year.”

Ellie shook her head as if she didn’t want to think about it.

“It was the worst December ever,” she said.

I don’t know how Christmas and the end of the year passed.

The financial markets fluctuated day after day, Ellie worked overtime every day, and she barely had a day off for Christmas.

She was tired that day too, so she slept at home.

Until just two months ago, the global economy was growing at a moderate pace. When this atmosphere was turned upside down in an instant, everyone responded that they did not know what was going on.

Experts all raised their voices saying that this year is dangerous, and companies did not even properly plan for one year.(Read more @ wuxiax.com)

At the end of the year, governments around the world tried their best to defend the exchange rate, but the Chinese stock market crash, capital outflows, and hints of further rate hikes by the Fed made the dollar stronger, and the financial statements of banks and companies were messed up.

Compared to other countries, the won is holding up well.

Hyunjoo’s older sister smiled bitterly.

“It’s a funny situation. The United States, which had driven the global economy into recession due to the subprime mortgage crisis, has recovered, but now other countries are collapsing.”

The US economy is booming thanks to the California recovery project, the commercialization of self-driving electric vehicles, and the growth of internet companies, but many countries have to worry about recession and deflation.

Ellie asked.

“What is America thinking? After they burst into a crisis, they release money all over the world to overcome it, and now they collect it without even caring about the situation in other countries.”

When the foreign exchange crisis broke out, Korea implemented strong austerity measures such as raising interest rates, privatizing public enterprises, selling assets, and cutting staff in the public sector, following the instructions of the IMF.

So, what was the US response to the financial crisis?

Surprisingly, it was the opposite.

They released money by lowering interest rates, financed private companies to make them public, bought assets, and increased jobs in the public sector.

The astronomical amount of money released by low interest rates and quantitative easing spread all over the world, causing an asset bubble. But when they suddenly decided to recover the money they had sowed, there was another uproar.

It was the United States that caused the global financial crisis, it was the United States that sowed the dollar, and it was the United States that reaped it.

From the point of view of emerging countries, they stand still and are engulfed in shock every time. Like it or not, this is the international reality.

“It was triggered by the rate hike in the US, but it would explode someday if left alone.

Ellie nodded her head.

“Even though everyone knew it was a crisis, she let go of her hand. I should have prepared for it earlier.”

The theory of the global economic crisis did not come out a day or two ago. Everyone is well aware that debt reduction, industrial reform and restructuring are necessary.

However, no one was properly prepared, and they got drunk on money and had a lot of fun. Even countries that have already experienced a crisis have no intention of tightening or repaying their debts. Even though the national finances are in debt, politicians are only thinking about the next election, and they have overused populist policies.

Looking at what other countries are doing these days, it seems strange that Korea took out even a gold ring from a closet and paid off its debts diligently.

Would things have been different if there had been more time?

There are many people who take advantage of crises to profit. Maybe I am one of them.

Then, are the people who created the crisis and those who knew it was a crisis and did nothing to blame for it?

I muttered, remembering the words of Grace Rothschild.

“What will happen will happen.”