Tags: Paulson | China | financial | economy

Hank Paulson: 'China's Financial System Will Face Reckoning'

By    |   Tuesday, 14 April 2015 08:20 AM

Hank Paulson knows a thing or two about financial crises, having endured a bird's eye view of the 2008 version as Treasury Secretary under President George W. Bush.

But despite talk in the media that the United States is at risk of another meltdown, Paulson sees the danger in China now.

"It's not a question of if, but when, China's financial system, particularly the trust companies, will face a reckoning and have to contend with a wave of credit losses and debt restructurings," he writes in his new book, "Dealing With China: An Insider Unmasks the New Economic Superpower," USA Today reports.

To be sure, he thinks the Chinese government can manage the economy's problems. "It is important that China stop its over-reliance on municipal debt to finance infrastructure," Paulson tells the paper. "I take comfort in the fact that China's leaders understand this."

And could another financial crisis hit the United States?

"Of course it could," Paulson argues. "But I don't see anything the magnitude we dealt with happening in the U.S. anytime soon. We have already taken some very, very significant steps. Our banks are much better capitalized. They're much better managed. We have better regulation. We have better risk control."

David Stockman, White House budget director under President Reagan, isn't quite so sanguine.

"The worldwide central bank money printing spree of the last two decades has generated massive excess capacity and mal-investment all around the planet," he writes on his blog.

The Federal Reserve has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008 and inflated its balance sheet to $4.5 trillion through quantitative easing.

"What is coming, therefore, is not their father's inflationary spiral, but an unprecedented and epochal global deflation," Stockman states. In the United States, consumer prices were unchanged in the 12 months through February.

"So the central banks just keep printing, thereby inflating the asset bubbles worldwide. What ultimately stops today's new style central bank credit cycle, therefore, is bursting financial bubbles," he says.

"That has already happened twice this century. A third proof of the case looks to be just around the corner."

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Hank Paulson knows a thing or two about financial crises, having endured a bird's eye view of the 2008 version as Treasury Secretary under President George W. Bush.
Paulson, China, financial, economy
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2015-20-14
Tuesday, 14 April 2015 08:20 AM
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