by Simon Black
It’s not very often that you hear a senior government official refer to their economic situation using the word ‘crisis’.
Yet with uncharacteristic bluntness of any government official anywhere, at least one senior Chinese government official is sounding the alarm bells.
And he would know.
Guan Tao oversees the foreign exchange of China’s $4 trillion stockpile of reserves, so he has an incredibly unique view of capital flows and currency movements in and out of the country.
Currency movements and capital flows are extremely interesting indicators.
They don’t necessarily tell you that there’s a problem. They tell you that people have figured out there’s a problem.
Look at Greece, for example.
The government is bankrupt, another default is looming, and the country is literally about to run out of money. It’s pretty obvious that there’s been a problem for a very long time.
But the central bank data in Greece now shows that roughly 8% of all customer deposits have vanished from the Greek banking system so far this year.
That’s an astonishing figure.
Again, a currency movement like this doesn’t tell you that there’s a problem. All the other data can tell us that.
The currency movements out of the banking system tell us that the people of Greece have figured it out… that they’ve lost confidence in the system.
This is extremely important… because the entire global financial system is only held together by a very thin layer of confidence.
Nearly every western government is bankrupt. Central banks are borderline insolvent. Banking systems are extremely illiquid.
Everything about this system is fundamentally weak. And the only reason that people aren’t panicking is because no one else is panicking.
Like a very thin piece of glass, the tiniest chip can turn into a crack… and ultimately shatter the confidence in this system. That’s exactly what happened in 2008.
Major currency movement and capital flows tell us that people are starting to panic.
It’s happening in Greece. And it’s happening in China.
Mr. Tao informed the audience that the capital flight from China in December alone amounted to $20 billion, and that was just from official channels. The true amount could be four times greater.