Steve Bannon Joins The Gateway Pundit’s Joe Hoft — Masterful Discussion on Latest China Developments — From Hong Kong (VIDEO)

Live from Hong Kong, China

“The youth of Hong Kong are the patriots of today as they join President Trump in standing up to the China regime.”

–Says President Trump’s former Chief Strategist, Steve Bannon.

 

Steve Bannon joined TGP’s Joe Hoft for a discussion today on the latest developments in China.

 

The Gateway Pundit reported the following over the weekend…

President Trump recognizes that China is in an all out war with the US in regards to information and economics. For years Western leaders have done nothing but negotiate into weak positions, never standing up to the Communist regime. Former US Presidents treated China like they did Russia 50 years ago, as their superior always giving them what they wanted and never standing up to their abuse and criminal acts.

It is different with President Trump. The President knows he has the authority and ability to inflict a fatal blow to the Chinese economy. The US is arguably in its best economic period in history while China’s economy is its weakest in 30 years.

This weekend President Trump tweeted the following:

The President knows that now is the time. China cannot handle the US tariffs while their economy implodes. They are on the brink of a massive economic collapse, so colossal that the regime is in danger of being dethroned!


The President retweeted the following post bringing attention to his action to designate China as a currency manipulator, further challenging the regime:

 

The President also tweeted out orders on Friday for American firms “to immediately start looking for an alternative to China”.

President Trump knows that China needs the US now more than ever but the US doesn’t need China .

Two weeks ago we posted a presentation that former Trump Chief Strategist Steve Bannon gave regarding China.

Steve Bannon’s talk was historic. He discussed how China is at economic war with the US. He said America was losing until President Trump. Then he added this:

Well here’s the game and right now we are converging on a point and they understand this. We could take the whole thing down. We can take, the whole thing’s built on a house of sand…

If they [China] devalue their currency they are just going to flood more out. They got $3 trillion of reserves and trust me, in a New York second that thing would flood out in a second. That’s what their own people think about their economy. We’ve allowed these guys to push us around. We’ve allowed these guys to take the South China Sea…

This trade war is going to end in victory and what you’re going to see is a reorientation of the entire supply chain out of China…

Bannon is right. We reported in May that just like the US in 2008, a perfect storm is building in China. The excessive and extravagant construction projects, cash-flow challenges and lack of demand in China all could combine for a major financial disaster. Trump is right – now is the time to make a deal with China.

As the movie The Big Short showed, in 2008 few individuals saw the US sub-prime crisis before it raised its head.

The cause of the 2008 sub-prime crisis is discussed in Falling Eagle, Rising Tigers:

Politicians would have you believe that the 2008 financial meltdown was related to the more recent actions of one party or the other, but the roots of the 2008 housing market crisis really began in the 1930s with the creation of the Federal Housing Administration (FHA), which guaranteed banks’ mortgage risks and the Federal National Mortgage Association (FNMA), which effectively insured mortgages by purchasing mortgages from lenders. Both shifted risks from the lenders to the US taxpayers. Then in 1977, the Community Reinvestment Act (CRA) was signed into law by President Jimmy Carter. This law was designed to promote home ownership for minorities by prohibiting banks from refusing mortgages in poor areas due to the loan’s high risk. In addition, mortgage lenders were required under the 1975 Home Mortgage Disclosure Act (HMDA) to provide data about who they lent to. Then in 1991, HMDA rules were tightened and included specific demands for racial equality in the institution’s lending.

Credit-worthiness was no longer relevant in the US and the volume of subprime loans exploded. The government had inserted itself in the mortgage business. Like most government initiatives, their plans were doomed. Americans lacking the ability to pay for mortgages were provided mortgages at teaser rates that when fully adjusted would never be paid. This ultimately climaxed in 2008 with the subprime crisis that sent shock waves around the world and put financial markets in a tailspin.

A financial meltdown is in the works in China

Over the past few decades, China opened its borders and corporations around the world fled to China due to its cheap capital and meager payroll costs. As a result, China’s economy exploded. Again, from Falling Eagle, Rising Tigers:

While the US is moving more and more towards a welfare state, China is moving more and more towards prosperity. “Since the launch of economic reform in 1978 more people (in China) have been made materially better off in a shorter span of time than ever before in human history.”

China’s rise out of poverty has been dramatic. For example, considering a consumption threshold of $1 a day using the 1993 Power Purchasing Parities (PPP), the World Bank tracked a reduction of poverty from 652 million Chinese people in 1981 to 135 million in 2004. China’s anti-poverty performance is even remarkable with a standard of $1.25 a day at 2005 PPP. “The numbers in poverty by this measure dropped from 848 million in 1981 to 351 million in 2004. This denotes that there were 517 ($1 standard) or 497 million ($1.25 standard) people who had escaped from absolute poverty during 1981-2004.” A half a billion Chinese citizens have risen out of poverty due to China’s changing policies!

The Chinese were relentless in their efforts to obtain Western technology and grow their economy. They set up trade barriers and manipulated their currency in ways that helped China. The US was at a disadvantage in trade resulting in massive deficits in the billions.

Along comes the Trump Administration, the first administration to address China’s unfair trade advantage. The timing of Trump’s tariffs is not good for China as there are more pressing issues that must be addressed. President Trump is a shrewd negotiator and he obviously believes now is the time to encourage China to make changes to their trade barriers with the US. China may have no choice but to go with what the US offers to keep its economy afloat.

The more pressing issues for China surround real estate, in a manner similar to the US in 2008. As China grew, it invested in its infrastructure and in addition, it invested in large housing projects throughout the country. These efforts helped bolster China’s already fast growing economy.

The problem is that China over invested in these random properties all over China and these properties today remain empty.

(See below pictures of real estate projects the middle of China (Hubei Province) – massive but mostly empty.)

There simply are not enough people in the area where these massive complexes were built that make enough money to afford living in these communities. It appears that the Chinese communists misunderstanding of supply and demand economics may be their downfall.

Some say, no problem, China will just move all the peasants to these massive complexes. This will be devastating. First of all China needs to feed them. Secondly, as we have learned in the US, people on the dole with no work tend to get involved in drugs and crime. The human spirit needs a purpose – idle hands are the devil’s workshop!

These many properties throughout China sit unoccupied, and there is a cost to this. Bloomberg reported in September 2018 –

Cash-to-short-term debt levels at more than 80 publicly traded real estate companies tracked by Bloomberg were 133 percent on average in the first half, the worst since the first six months of 2015 and down from 297 percent a year earlier. Almost a quarter of developers sport a ratio below 50 percent.

In addition, Bloomberg noted:

But while business has been booming, developers have also been piling on the debt. Firms have been selling more bonds in the domestic market — and at the cheapest rates as investors shrug off default concerns. Those with dollar-denominated obligations, meanwhile, face higher borrowing costs as the U.S. Federal Reserves continues on its tightening path.

The amount of debt related to China’s over development is massive. The total amount is unknown with S&P estimating the amount not reported by local communities and banks being over $6 trillion:

China may be sitting on a hidden debt pile of as much as 40 trillion yuan ($6 trillion), concealed off-balance-sheet by the country’s local governments, according to research from S&P Global Ratings.

Many local governments in China raise debt and hold it off their balance sheet, in order to avoid lending limits imposed by central authorities. S&P says that this is a growing problem within the country, and that the amount of debt held this way has likely ballooned in recent years.

The government may have to take over these debts as they become insolvent –

Not only is the level of hidden debt held by local governments in the world’s second largest economy rising, but so too is the risk of those debts being defaulted on. Much of the debt is held by so-called local government financing vehicles (LGFVs), and S&P reports that central government may be willing to let these vehicles file for bankruptcy in the future.

“Default risk of LGFVs is on the rise. China has opened up the possibility of insolvent LGFVs filing for bankruptcy, but managing the default aftermath is a formidable task for top leadership,” the report noted….

The country’s total non-financial sector debt, which includes household, corporate and government debt, will surge to almost 300% of GDP by 2022, up from 242% in 2016. Fears abound that if this debt pile continues to grow, a spectacular blow up could be imminent.

China’s financial crash may make the 2008 crash in the US look small. The implications will no doubt impact the entire world. This is why China can’t afford to mess around with President Trump and must put together a treaty as soon as possible.

As China falls the US economy will be the one the world runs to and so the impact to the US will be a massive inflow of money resulting in rising markets due to capital infusions.

This morning we discussed all of this with Steve Bannon 

Here are some highlights from our discussion –

One of the things I’m excited about talking to you is why I think the Gateway Pundit is so important is the simple fact that you guys do as good or better coverage of anybody.”

I’ve known you [Joe Hoft] for years, I had you on the radio show years ago and on the pages of Breitbart because I said this guy knows China and I think that was in about ’13 or 14’…”

Again, the mainstream media in the United States doesn’t cover the important stories.  This is the defining story of the first half of the twenty-first century.”

They have state controlled capitalism, that’s what China has.”

Trump’s deal is so brilliant.”

This Frankenstein [China] is created by the West.  The Chinese people are going to free themselves and it has to be from them.”

Over in China you have slave labor.”

This is why Trump is President.  The Make America Great Again is about returning America to her former glory as a manufacturing superpower!”

This is the defining narrative for 2020.”

The deplorables, coupled with 20-25% of the African American working class, coupled with 25-30% of the Hispanic working class can form a coalition like in 1932 that can govern the country for 50 years…”

Hong Kong are like the patriots of 1776… these kids… refuse to buckle to the most totalitarian government in modern history.”

Unrestricted Warfare… the most significant book on military strategy…. information, economic and kinetic warfare.”

The moral choice of the West in the first half of the 21st Century is do we confront this now or do we do what the West did in the 1930’s?  Do we try to kick the can down the road and have a lot of happy talk and then have to engage in some sort of kinetic conflict sometime in the future?  I argue we don’t do that.”

There’s only a handful of people that really get what’s going on and Joe Hoft’s one of them. I’ve known you for years and your stuffs brilliant.”

What happens in Hong Kong over the next several months will determine, I think, the direct of the world for the next couple of decades.

Here is the audio from the interview.

Here is part II of the video.

President Trump is right. Now is the time to deal with China. Hong Kong is the epicenter!

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