Dollar Liquidity: The End Game for China

Published on
November 19th, 2019
37 minutes

“The Biggest Opportunity Since Russia in the 90s”

Dollar Liquidity: The End Game for China

The Expert View ·
Featuring Brian McCarthy

Published on: November 19th, 2019 • Duration: 37 minutes

China is one of biggest debt bubbles in the world, so why haven't we seen a credit crisis yet? Brian McCarthy, chief strategist at Macrolens, makes his Real Vision debut to dissect the structure of the Chinese banking system and to examine the probabilities of a full-blown financial meltdown. McCarthy walks through why he believes Chinese economic growth will continue to deteriorate and explains the dollar shortage through Mundell's framework of the impossible trinity. He then argues that China is on a path towards self-decoupling from the rest of the world, similar to that of North Korea. He notes why the Chinese Yuan will continue to weaken and considers the near-term ramifications from Hong Kong and the trade war. Filmed on November 13, 2019.



  • MT
    Mark T.
    19 January 2021 @ 05:07
    Fourteen months later and I find myself going back to this interview to glean insights on the someday to be experienced China collapse. Interesting how neatly the matter of Xi’s inability to apply stimulus to his economy was addressed by the global public policy response to the pandemic not suggesting that China might have been its source of course. I’ve been performing a diligent search for any follow up commentaries from him but they don’t seem to exist or at least aren’t available in the public domain. To borrow a phrase from a Simon & Garfunkel song “Oh where have you gone Brian McCarthy. A world turns its needy eyes to you.”
  • XZ
    Xiaoguang Z.
    17 September 2020 @ 17:18
    Lots of events occurred since the last interview. Looking forward to a update interview on this.
  • PB
    Paul B.
    31 March 2020 @ 21:19
    China, America, Europe......All insolvent.......China is the only one that can actually direct the flow of money. This comes as an extreme advantage going foward....China is well heeled with low Debt Country's...Russia, India, South Africa etc. You American's don't seem to appreciate just how unloved you are by the far majority of the World.....No matter which way you slice it....The US Dollar is going to die....All currency's will die but the USA will get the worst of it....It's the title holder of the Worlds Currency with no friends, only addicts....The Addicts are about to go Feral
    • SW
      Sze W.
      4 April 2020 @ 09:33
      sounds like someone who got brainwashed by chinese propoganda....the only "friends" china has is Russia and North korea
  • MB
    Mimi B.
    8 March 2020 @ 18:48
    Thank you. I think we need to have him back to talk about China since so much had happened since then.
  • wm
    willem m.
    12 January 2020 @ 13:03
    Thx for this. Wonderful insights!
  • DR
    Donald R.
    28 December 2019 @ 12:43
    I LOVE the intro music.
  • WR
    William R.
    9 December 2019 @ 00:30
    Interesting counter argument here:
  • BS
    Brian S.
    4 December 2019 @ 03:29
    I loved this talk, made me want to go long USD/RMB, but I am having trouble finding a good instrument to do so as a US based investor, I tried looking into RMB future options, but there appears to be 0 volume, anyone have a good recommendation for a good contract for RMB from the US?
  • DB
    Doug B.
    29 November 2019 @ 21:30
    I come for the edgy intro music, but stay for the content. Loved it.
  • CE
    Ch E.
    28 November 2019 @ 18:35
    Well done- this is Real Vision!!!
  • WB
    William B.
    27 November 2019 @ 04:17
    This is what RealVision is all about. I really appreciate it.
  • JB
    Jason B.
    26 November 2019 @ 06:56
    This is really good. Thanks for interviewing Brian.
  • wj
    wiktor j.
    25 November 2019 @ 14:07
    Great interview but last I heard Chinese regulators have put in capital controls.
  • LH
    Laurent H.
    25 November 2019 @ 04:49
    Great interview, great answers on the possible outcomes. Especially liked how he elaborated on the Japan scenario that I've heard Pettis talk so much about
  • CN
    Chak N.
    23 November 2019 @ 15:59
    I learned a lot from this interview - thanks.
  • NA
    Nicolas A.
    21 November 2019 @ 05:30
    Very sound analysis although I feel it misses a few elements such as China looking to trade more in RMB, which would seriously question a lot of this analysis. Also the constant barrage about China real estate with anecdotal data cannot be taken serious, there are price ceilings in China to contain prices, not floors. I don't see how the statement that Chinese equities are expensive has any logic, if anything they are cheap (especially compared to US equities!). Unfortunately a typical passive index buyer gets all the rubbish SOEs exposure and therefore will underperform. Lastly, the fact that the credit system is totally controlled by the government is portrayed as negative when in fact in the case of China it might actually be the smartest thing they could do. I for one would be less optimistic about China if for some reason they let their credit system run as a free market. We would have had a series of serious busts over the last 20 years which we avoided. Yes, credit is not as easily available for non-SOE companies but that does not stop startups from finding funding at all. Quite the contrary.
    • CM
      Carl M.
      23 November 2019 @ 00:02
      ...RMB here, get your RMB here. Anybody want RMB get it, get while it's hot. A steaming hot pile of RMB.
  • SS
    Shanthi S.
    22 November 2019 @ 22:52
    Wow! Best analysis I’ve heard on China. Thank you.
  • WR
    William R.
    21 November 2019 @ 20:05
    "The North Korea scenario" works fine if the domestic consumer market continues to expand. I suspect CCP thinks they can pivot at the appropriate time. This interplays with surveillance capitalism, and makes CCP think they can more finely adjust systemic inputs where previous autocratic systems have failed. They may be right, that command economies just needed better data. However, corruption and graft ensure suboptimal outputs, so robust skepticism is required.
  • PB
    Paul B.
    20 November 2019 @ 01:47
    Bear case for China, if global trade blows up, the country with the least amount of people who depend on global trade is in the strongest position. USA can build factories and get growth from building infrastructure. China has 3x more people who depend on global income that might be a lot less. Imagine all those redundant factories being worthless. Also as the video stated China has already done a lot of fiscal stimulus building hundreds of giant ghost cites. Maybe China built those cities knowing that trade with USA would decline (end), and had to shift millions of Chinese to service sector jobs from manufacturing. Honestly exponential population growth is a real negative when you need to employ them all in a finite world.
    • NA
      Nicolas A.
      21 November 2019 @ 05:19
      What are you on about? Hundreds of ghost cities? A few temporary examples in a country that was ramping up its infrastructure for the largest urbanisation in human history is not statistically noteworthy at all, it's just a cool headline and some nice pictures. Also, China's population is not exponentially growing, it is actually aging. You may be confusing this with India which indeed needs to create like 10mil jobs a month (if my recollection is not wrong) which is a serious challenge!
  • se
    steve e.
    21 November 2019 @ 02:44
  • ET
    Eduard T.
    20 November 2019 @ 23:06
    Great interview! Thank yoy
    • ET
      Eduard T.
      20 November 2019 @ 23:06
      Thank you*
  • CH
    Charles H.
    20 November 2019 @ 22:26
  • DN
    Dave N.
    20 November 2019 @ 20:27
    This was really quite good. Most macro of the past 10 years has been about whether there is a limit of CB / government policy, and whether China has some secret sauce for being able to defy gravity. By delving into basic fundamentals with clear language and logic, Brian did a great job of exposing some of cracks in the arguments.
  • JT
    Jason T.
    19 November 2019 @ 23:23
    As of mid-October, since the Fed has begun its Not QE asset purchases, the Dollar has been steadily weakening in both EUR and CNY terms. US Equities have also responded by going straight up. And if Luke Gromen is correct, the dollar shortage is not nearly that bad for China, with China buying certain raw goods with CNY and able to export refined products for USD. This represents, in my opinion, a serious threat to the thesis presented here. Finally, my own thoughts, at the end of the day, past this huge mess of paper problems, China has all the real capital. Real factories, products, supply chains, educated people, and trade routes (one belt). It's long overdue for China to simply consume what they produce instead of propping up the US standard of living.
    • AM
      Andrew M.
      20 November 2019 @ 14:56
      what? DXY is where it was 3 months ago after a very modest sell-off. according to Gromen and the $ bears, it should be a lot lower. China's need for $s has barely diminished. If anything it will rise as their current account goes secularly negative in coming years and they receive less $ revenues from exports. this was partly the point of US tariffs and Trump equalling their trade deficit with China to the tune of $100bn. I believe Trump and his team knows their weakness is $s. look at recent events too: their hurried lifting of restrictions on foreign investors (need capital inflows), the listing of various companies on HK exchange, their issuing of $ bonds. none of that looks strong. as for the Chinese consumer.. the fabled "rebalancing" hasn't happened, and I doubt it will. the reason being that they are addicted to growth (which is infrastructure and real estate). the CCP's legitimacy is tied to growth, and they still have 400-500m rural poor they need to lift out of poverty. but building roads and bridges to no-where is unsustainable, and the efficacy of the debt they take on is rapidly diminishing. sooner or later the rubber will hit the road. as for US standard of living, this will be unaffected in the long-term imo. the factories and supply chains in China are already moving to Vietnam, Mexico, Thailand etc. some US companies will be affected (Apple, Tesla, Qualcom), but it's hardly an existential threat (China represents like 2% of total US firms' sales). China has a lot, lot more to lose in the long run.
    • AM
      Andrew M.
      20 November 2019 @ 15:00
      and more importantly, they have no ability to stimulate the global economy anymore. a repeat of '08 or the Shanghai Accord is off the cards. why kowtow to them any longer, especially when CCP is basically modern day nazis and they are challenging the current international order? US companies may be seduced by the "Chinese consumer" story, for now, but even that has largely proved illusory and doing business in China is tedious and involves selling your tech - and soul. the consumer story definitely vanish if there's another mini crisis and CNY devalues.
  • RA
    Robert A.
    20 November 2019 @ 00:20
    Simply fantastic video. Great curation and timely presentation by RV. I’m sympathetic to some of the RV content dilution comments lately, but this piece, IMO, is one of the very best ever. A few more like this one every 12 months and my annual subscription cost is more than covered. Yes, there is a plethora of material being thrown up on the Platform these days, but a few of these nuggets makes the whole treasure hunt worthwhile.
    • Ar
      Ajay r.
      20 November 2019 @ 05:59
      I agree completely. make more like this. very valuable information.
  • WS
    William S.
    20 November 2019 @ 04:38
    Wow the best analysis of China laid out in layman fashion I have heard on RV, Hedgeye or Macrovoices. Kudos.👍👍
  • CD
    Chris D.
    20 November 2019 @ 04:16
    Excellent video, honestly so much more insightful than Kyle Bass who is just constantly shilling his HKD peg trade. In contrast, Brian uses data, sober insights, and explains concepts really well. Thank you.
  • BH
    Bin H.
    20 November 2019 @ 03:23
    Wow, great talk! I had some doubts about Michael Pettis's view that China would experience transition similar to Japan successfully. Great angle for me, thank you!
  • PL
    Phil L.
    20 November 2019 @ 03:03
    This video is severely underestimating the damage that is currently occurring to the U.S. balance sheet and service industry right now.
  • DS
    David S.
    19 November 2019 @ 16:53
    After watching many discussions on China, I am reminded of the old Indian parable of "The Blind Men and an Elephant" - see Wikipedia. Each blind man touches a different part of an elephant giving him a different subjective perspective. Some versions have the men coming to blows as some believe that their subjective perspective is the absolute perspective. There is money to be made in China. Be careful and size your trades well. Nuff said. DLS
    • AC
      Andrew C.
      20 November 2019 @ 02:39
      not sure why this comment gets thumbs down. My query was gunna be how to trade this and stay in the trade until payoff? The widow-maker name has been taken, but trading against the gov't keeping China functioning has to be a similar trade, no?
  • AB
    Aditya B.
    20 November 2019 @ 01:44
    3 mins in and this guy makes total sense. I always wondered along the same lines. He very simply put it in his first line. "As long as 80% of credit is controlled by state owned banks, they have enough liquidity to roll over bad debts , there is no credit crisis".
  • AL
    Alex L.
    19 November 2019 @ 23:00
    I think I've heard several of these points before, but Brian connected these in a really cohesive way that just left me thinking "wow." by the end. It will be interesting to see how the US politics end plays out between Mitch O'Connell stonewalling Congress and Trump deciding whether to cave in on his beloved tariffs to get a (weak and only "phase 1") deal done.
  • DS
    David S.
    19 November 2019 @ 18:07
    Fantastic. Would be interested in hearing his views on the US economy and what the Fed/Treasury are doing to try and stimulate our economy.
  • OT
    Omar T.
    19 November 2019 @ 16:57
    Brian was fantastic, need to hear his thoughts on the implications for the U.S. financial system in the next 5 years. It seems to me any serious breakdown in China will have serious consequences for the U.S. as well which is also in a fragile condition.
  • CB
    Chris B.
    19 November 2019 @ 16:02
    Best "new find" in quite some time. Stark improvement from the multiple book tour stops
  • IT
    Ivan T.
    19 November 2019 @ 06:24
    He's right, will be No deal unless Trump surrender & lay down his weapons - tariffs This is Not going to happen
    • LH
      Lik H.
      19 November 2019 @ 07:16
      I think it is worth referring to some of the Luke Groman viewpoints on China mechanism to deal with USD shortage. If you buy his argument, China has that problem but not as serious. The bigger problem for China is to acknowledge the power of market forces and adopt it so that it can be more efficient.
    • AM
      Andrew M.
      19 November 2019 @ 09:35
      there is no mechanism to bypass USD shortage, Eric. everything so far has been a temporary measure to limit their dependence and a final reckoning - yuan depreciation and potential de-coupling. global gold-backed petroyuan is a pipedream for now, even if there have been some inroads (mostly with sanctioned countries that have literally no alternative). equally, the world is not going to ditch the dollar overnight - it can't, its reliance on dollar funding has increased massively since '08, and China, Russia, Iran etc. would have launched a viable workaround if possible. imo, China is basically playing for time, hoping US fiscal problem eventually catches up with them and they are forced to monetise and devalue the dollar first.
    • AM
      Andrew M.
      19 November 2019 @ 14:48
      China has said it would never agree to another Plaza accord, so wary are they of following the Japanese. at the same time, the Chinese consumer is not yet ready to pick-up the slack, while Europe's savings / export model would get crushed unless Germany finally agrees to more fiscal stimulus / a surplus recycling mechanism imo. dollar needs to be weaker, but not by a lot.
    • IT
      Ivan T.
      19 November 2019 @ 15:46
      K, guys we're not talking about $ shortage/Plaza ... /Basel ... etc. THIS Is geopolitical, okay ? I'm trying to make the point that: Chinese DON'T want Trump reelected & they will not "give him" any victory in this war let's concentrate on the question about the POSSIBILITY of a deal I'm saying it's ZERO
  • BA
    Bruce A.
    19 November 2019 @ 14:18
    Why would the 'free market economies' have to force a China de-couple from open markets? Wouldn't the impossible trinity (capital account/ domestic liquidity/ fixed exchange rate dilemma) eventually force China's economy to be either less centrally controlled or less integrated with the world? The Japan and Argentina examples give us 'integrated but less controlled models' and N. Korea gives the 'self-isolated' example.............all without an international exercise to isolate China.
  • CL
    Charles L.
    19 November 2019 @ 12:50
    Fantastic interview
  • GB
    Gary B.
    19 November 2019 @ 12:07
    Phenomenal! More
  • JS
    John S.
    19 November 2019 @ 08:56
    enjoyed this interview hope he's right