Evergrande DEFAULTS - Contagion risk will spread to crypto, institutional investors, pension funds and more
Evergrande, China's Ponzi property developer, is now officially in default as Fitch has confirmed the indebted company has missed interest payments on bonds, with over $300 billion in bonds outstanding. Property developer Kaisa is also named in the default decision, and there are nearly a dozen other Chinese property developers that are widely believed to be on the path to default.
"This is not just a default of Evergrande, this is a default of China and the banking system," Dan David told Fox Business this morning (see video below). "Now they're going to have their Bear Stearns moment," he added, referring to the 2008 sub prime housing bubble collapse in the USA.
We have warned for several weeks that this default had already happened, telling our readers it was only a matter of how long it would take for the ratings agencies to catch up to the reality of the default.
Evergrande's public share price plunged on Monday, just one business day after Evergrande issued a letter stating it could not sustain its debt repayment schedule.
Importantly, Evergrande is prioritizing domestic debt holders in China and has been ordered by the Chinese government to bail on overseas debt holders
. This means any non-China holders of Evergrande debt are going to be lucky to eventually get paid 10 cents on the dollar for the Evergrande paper they hold. More likely, they will get next to nothing.
Contagion will spread across the global financial system throughout 2022
As we all learned from watching the 2008 sub prime real estate market collapse, large-scale defaults take time to ripple through the financial system. While Evergrande is officially in default today, holders of its debt -- who are due interest payments from Evergrande -- will have their own grace periods for making their own debt interest payments to their debt holders. Typically, these grace periods are 30 days in duration, meaning every 30 days or so, we are likely to see defaults down the line, all stemming from Evergrande failing to meet its own obligations. (Everybody is leveraged, and one catastrophic financial event can ripple through the entire system over time.)
Throughout 2022, we are all going to witness extreme financial stress -- and many possible defaults -- spreading through various institutions that held Evergrande debt. This can affect pension funds, hedge funds, institutional investors, private investors and even central banks. Every investor who held Evergrande debt is going to get hammered by this default, especially if they were expecting Evergrande's interest payments in order to meet their own debt obligations. Contagion has begun
The Tether / Crypto Black Swan scenario
The default of Evergrande is a Black Swan event, and as we have covered the last several days, many analysts believe that Tether, the "stablecoin" provider that creates cryptocurrency out of thin air -- digital currency printing -- may have tens of billions of dollars of exposure in Evergrande
. With default now officially proclaimed, this means Tether's holdings of Evergrande, Kaisa or other Chinese property developers is effectively worth zero. Importantly, this could mean that Tether no longer has sufficient assets to cover the USDT coins it has issued into the crypto ecosystem
Logically, if a sufficient number of users seek to redeem their Tether coins and demand dollars, this could spell a run on Tether and theoretically lead to a Tether default. Worsening the context of all this, Tether continues to refuse to submit to any legitimate financial audit
, and many observers believe Tether is simply minting USDT coins with nothing to back them
. This would be the equivalent of a digital fiat currency counterfeiting operation.
Since two-thirds of all Bitcoin purchases are actually made using Tether coins, it would also mean that Bitcoin's market valuations may be wildly inflated by digital money printing operations. While Bitcoin itself isn't at fault here, Bitcoin's valuations can be heavily manipulated by any other coin that can be traded for Bitcoin.
John Perez, whose interview appears below, warned me in a lengthy interview that he believes the entire crypto ecosystem is pinned on a massive digital currency counterfeiting operation and that the bubble will soon burst, leaving crypto holders in the same position as Evergrande debt holders. Watch that full interview here:
I also went public last Sunday with a podcast stating that Evergrande was already in default, days before Fitch and other ratings agencies finally confirmed what we've been saying. Global financial contagion is now a simple matter of cause and effect:
I also interviewed silver guru David Morgan on the Evergrande situation, the "crypto conspiracy" and the global financial reset that's being unleashed upon the world. This was recorded last Friday, before the Evergrande default was official:
Finally, in today's Situation Update, the first 30 minutes or so focus on the massive crypto BUST that's coming, due to human nature and the obvious inflating of crypto valuations through the use of digital fiat currency printing via Tether. The outcome of all this is not in doubt:
If you want to know what's going to happen in 2022, listen to these interviews and podcasts and get up to speed. Note that many crypto advocates will say that there are no risks, that Bitcoin is going to a million dollars a coin, and that Tether is just fine because it's backed by whatever the Tether company says it is, and that everyone should just trust a money printing company that refuses to subject itself to a single honest audit, even though that same company has been deemed a criminal operation by the State of New York.
But human nature also tells us that most people will give in to their greed and follow the herd right off the cliff
, into the abyss of default, where they get clobbered by counterparty risk that they fail to understand. When the crypto hype implodes, the vast majority of crypto speculators will experience catastrophic losses, and it will shatter their entire perception of "reality."
It has happened countless times throughout history and is happening yet again right now, in the slow motion collapse of the Evergrande Ponzi scam and its ever-widening contagion risk.