Category Archives: Presidential campaign

The Next Border Fence

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Apparently, they do work and have some significant value, in Europe that is. With the constant flow of migrants, several major problems have literally cracked the security of countries.  Further, there are no signs that migrants flowing into Europe will wane or stop at all, so the true costs in 2016 or beyond. The immigration flood in Europe is a clarion call to the United States as the issues are virtually the same. Not only is the United States taking in Middle Eastern refugees, but we have been taking in Cubans, Mexicans, as well as Central and South Americans. For America is goes much further that a trifecta and costs and security.

Anti-migrant force builds in Europe, hurting Merkel’s quest

WARSAW, Poland (AP) — So where should the next impenetrable razor-wire border fence in Europe be built?

Hungary’s right-wing Prime Minister Viktor Orban thinks he knows the best place – on Macedonia’s and Bulgaria’s borders with Greece – smack along the main immigration route from the Middle East to Western Europe. He says it’s necessary because “Greece can’t defend Europe from the south” against the large numbers of Muslim refugees pouring in, mainly from Syria and Iraq.

The plan is especially controversial because it effectively means eliminating Greece from the Schengen zone, Europe’s 26-nation passport-free travel region that is considered one of the European Union’s most cherished achievements.

Orban’s plan will feature prominently Monday at a meeting in Prague of leaders from four nations in an informal gathering known as the Visegrad group: Hungary, Poland, the Czech Republic and Slovakia. The Visegrad group, formed 25 years ago to further the nations’ European integration, is marking that anniversary Monday. Still, it has only recently found a common purpose in its unified opposition to accepting any significant number of migrants.

This determination has emboldened the group, one of the new mini-blocs emerging lately in Europe due to the continent’s chaotic, inadequate response to its largest migration crisis since World War II. The Visegrad group is also becoming a force that threatens the plans of German Chancellor Angela Merkel, who wants to resettle newcomers across the continent while also slowing down the influx.

“The plan to build a new “European defense line” along the border of Bulgaria and Macedonia with Greece is a major foreign policy initiative for the Visegrad Four and an attempt to re-establish itself as a notable political force within the EU,” said Vit Dostal, an analyst with the Association for International Affairs, a Prague based think tank.

At Monday’s meeting, leaders from the four nations will be joined by Macedonian President Gjorge Ivanov and Bulgarian Prime Minister Boiko Borisov so they can push for the reinforcements along Greece’s northern border. Macedonia began putting up a first fence in November, and is now constructing a second, parallel, fence.

“If it were up only to us Central Europeans, that region would have been closed off long ago,” Orban said at a press conference recently with Poland’s prime minister. “Not for the first time in history we see that Europe is defenseless from the south … that is where we must ensure the safety of the continent.”

Poland has indicated a willingness to send dozens of police to Macedonia to secure the border, something to be decided at Monday’s meeting.

“If the EU is not active, the Visegrad Four have to be,” Slovak Prime Minister Robert Fico said recently. “We have to find effective ways of protecting the border.”

The leaders will try to hash out a unified position ahead of an important EU meeting Thursday and Friday in Brussels that will take up both migration and Britain’s efforts to renegotiate a looser union with the EU. The Visegrad countries have also recently united against British attempts to limit the welfare rights of European workers, something that would affect the hundreds of thousands of their citizens who now live and work in Britain.

The anti-migrant message resonates with the ex-communist EU member states, countries that have benefited greatly from EU subsidies and freedom of movement for their own citizens but which now balk at requests to accept even small numbers of refugees. The Visegrad nations maintain it is impossible to integrate Muslims into their societies, often describing them as security threats. So far the Poles, Czechs and Slovaks have only accepted small numbers, primarily Christians from Syria.

Many officials in the West are frustrated with what they see as xenophobia and hypocrisy, given that huge numbers of Poles, Hungarians and other Eastern Europeans have received refuge and economic opportunity in the West for decades.

Indeed there are plenty of signs that the countries are squandering a lot of the good will that they once enjoyed in the West for their sacrifices in throwing off communism and establishing democracies.

Orban’s ambitions for Europe got a big boost with the rise to power last year in Poland of the right-wing Law and Justice party, which is deeply anti-migrant and sees greater regional cooperation as one of its foreign policy priorities. Polish Prime Minister Beata Szydlo’s government says it wants to do more to help Syrian refugees at camps in Turkey and elsewhere while blocking their entry into Europe.

Although Orban is alienating Greek authorities, who are staggering under the sheer numbers of asylum-seekers crossing the sea from Turkey in smugglers’ boars, he insists he must act as a counterweight to Western leaders, whom he accuses of creating the crisis with their welcoming attitude to refugees.

“The very serious phenomenon endangering the security of everyday life which we call migration did not break into Western Europe violently,” he said. “The doors were opened. And what is more, in certain periods, they deliberately invited and even transported these people into Western Europe without control, filtering or security screening.”

Dariusz Kalan, an analyst at the Polish Institute of International Affairs, said he doesn’t believe that the Visegrad group on its own can destroy European unity but says Orban’s vision is winning adherents across the continent in far-right movements and even among mainstream political parties.

“It’s hard to ignore Orban,” Kalan said. “People in Western Europe are starting to adopt the language of Orban. None are equally tough and yet the language is still quite similar.”

Cuban Migrants Flood the SW Border

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2015: At Least 44,000 Cubans Entered US Through Texas and Southern Border This Year, Number on the Rise – Report

The number of Cubans attempting to come to the Unites States via Texas has increased this year, thanks in large part to the thaw in political tensions between the U.S. and Cuba.

 

After President Obama and Cuban leader Raul Castro announced their plans to normalize relations between the two nations, many Cubans feared that the special migrant status they have enjoyed for over 50 years would come to an end. The current “wet foot, dry foot policy” allows anyone who has fled Cuba and entered the U.S. the ability to pursue residency and work in the country.

The Los Angles Times reports that at least 44,000 Cubans have reached the southern U.S. border during the fiscal year which ended in September. This figure is more than twice as many of the 17,466 Cubans who came through the southern border the year before. Full article here.

Tension Simmers as Cubans Breeze Across U.S. Border

LAREDO, Tex. — They are crossing the border here by the hundreds each day, approved to enter the United States in a matter of hours. Part of a fast-rising influx of Cubans, they walk out to a Laredo street and are greeted by volunteers from Cubanos en Libertad, or Cubans in Freedom, who help them arrange travel to their American destination — often Miami — and start applying for work permits and federal benefits like food stamps and Medicaid, available by law to Cubans immediately after their arrival.

The friendly reception given the Cubans, an artifact of hostile relations with the Castro government, is a stark contrast with the treatment of Central American families fleeing violence in their countries. And it is creating tensions in this predominantly Mexican-American city, where residents saw how Central American migrants, who came in an influx in 2014, were detained by the Border Patrol and ordered to appear in immigration courts.

“The people here are starting to feel resentment,” said Representative Henry Cuellar, Democrat of Texas, whose congressional district includes the city. “They are asking, is it fair that the Cubans get to stay and the Central Americans are being deported?”

The disparity will be in sharp relief next week when Pope Francis comes to the border at El Paso to offer prayers for the many migrants who have faced danger or arrest trying to cross the United States border.

Town officials have warned Cubans not to loiter in the streets. Local bus companies complain that Cubans are chartering special vans to travel. Some residents here have also begun to speak up.

A group of veterans from Afghanistan and Iraq held two protests by the border bridge in recent weeks, saying the federal government was spending money on Cubans when it was not meeting the needs of people here.

“We make everyone from Central America wait in line, while the Cubans walk in even though they are not refugees,” said Gabriel Lopez, a Mexican-American Navy veteran who is president of the group of veterans. “We are saying, don’t open the borders to Cubans and give them instant benefits while we have American veterans living on the streets.”

In coming weeks the number of Cubans is expected to spike, as more than 5,000 who have been stalled in Costa Rica since late last year will leave there on regular plane flights agreed to by governments in Central America and Mexico. Already about 12,100 Cubans entered through Laredo and other Texas border stations in the last three months of 2015, according to official figures. Border officials say as many as 48,000 Cubans could cross here this year, more than all those who came in the last two years combined.

Under the Cuban Adjustment Act, a law Congress passed in 1966 in the early years of enmity with Fidel Castro, any Cuban who sets foot on American soil is given permission to enter, known as parole. Cubans are also eligible for federal welfare benefits including financial assistance for nine months under separate policies from the 1980s. After a year, they can apply for permanent residency, a gateway to citizenship.

The recent exodus from Cuba began in mid-2014, even before President Obama in December of that year announced a restoration of diplomatic relations with the government, now led by Mr. Castro’s brother Raúl. In a major change, President Raúl Castro allowed Cubans to leave the country without exit visas. Many Cubans have said that rumors that the special entry to the United States would be canceled had caused them to pack up and go.

“The rumors are unfounded,” Alan Bersin, assistant secretary of Homeland Security, said in an interview, seeking to dispel the fears. “The Cuban Adjustment Act is still in effect and is part of the overall immigration policy and there is no intent presently to change that.”

Mr. Cuellar has called for the act to be repealed, but he acknowledges there is little prospect that Congress will act this year.

The recent influx is nothing like the chaotic rush of Cubans fleeing the Communist government that overwhelmed South Florida with the Mariel boatlift in 1980, and the rafter crisis in 1994. The federal border authorities, who have been watching the number of Cubans growing steadily, added officers and opened extra rooms in the border station, doubling their capacity to process them. Most Cubans move through in less than an hour, officials said.

Frank Longoria, assistant director of field operations for United States Customs and Border Protection, said that despite their numbers, the Cubans’ entry has not affected the huge flows of people and freight trucks each day through Laredo, the country’s largest land port of entry.

At the border, Cubans are fingerprinted and pass through routine criminal and terrorism background checks. There is no special vetting for Cubans, and there are no medical examinations or vaccination requirements.

“Right now I feel like the freest Cuban in the whole world,” said Rodny Nápoles, 39, a coach of the Cuban national women’s water polo team who crossed into Laredo this week.

This week, the first direct flights from northern Costa Rica to the Mexican city just across the border brought more than 300 Cubans, including at least 41 pregnant women and their families.

One of them, Yadelys Rodríguez Martín, 28, who was 19 weeks pregnant, sat down to rest and enjoy a moment of relief on the front steps of Cubanos en Libertad, right after emerging from the border station. After traveling through Ecuador and being stuck for three months in Costa Rica because of a political dispute in the region, she said she was stunned by how quickly she had been admitted into the United States.

“We are not used to things happening so fast,” Ms. Rodríguez said.  More here.

Pay Your Bills Years in Advance, Negative Interest Rate

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Primer: 

The Federal Reserve System‍—‌also known as the Federal Reserve or simply as the Fed‍—‌is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s were major factors leading to changes in the system.[10]

The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve’s dual mandate. Its duties have expanded over the years, and as of 2009 also include supervising and regulating banks, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed conducts research into the economy and releases numerous publications, such as the Beige Book.

Negative 0.5% Interest Rate: Why People Are Paying to Save

When you lend somebody money, they usually have to pay you for the privilege.

NYT’s: That has been a bedrock assumption across centuries of financial history. But it is an assumption that is increasingly being tossed aside by some of the world’s central banks and bond markets.

A decade ago, negative interest rates were a theoretical curiosity that economists would discuss almost as a parlor game. Two years ago, it began showing up as an unconventional step that a few small countries considered. Now, it is the stated policy of some of the most powerful global central banks, including the European Central Bank and the Bank of Japan.

On Thursday, Sweden’s central bank lowered its bank lending rate to a negative 0.5 percent from a negative 0.35 percent, and said it could cut further still; European bank stocks were hammered partly because investors feared what negative rates could do to bank profits. The Federal Reserve chairwoman, Janet Yellen, acknowledged in congressional testimony Wednesday and Thursday that the American central bank was taking a look at the strategy, though she emphasized no such move was envisioned.

But as negative rates — in which depositors pay to hold money in bank accounts — become a more common fixture, there are many unknowns about what these policies mean for finance, for the economy and even for the definition of money.

These are some of the key questions, and, where we have them, the answers.

So how do negative interest rates work?

It depends. In the cases of interest rate targets set by central banks like the E.C.B. and Swedish Riksbank, they set a negative target rate for banks, and banks in turn pass it along to their customers. The E.C.B., for example, currently has a negative 0.3 percent rate, meaning that when banks deposit money at the central bank overnight, they pay for the privilege.

Banks have different ways of passing the negative rates on to depositors, often framed as fees for keeping money in an account, which is basically negative interest rates by another name.

Bond markets reflect these negative rates, too, including for longer-term government debt. For example, if you bought a two-year Swiss government bond on Thursday, you would have needed to pay a price that resulted in a yield of negative 1.12 percent. Even 10-year Swiss bonds have a negative rate, a sign markets expect below-zero rates to persist in Switzerland for many years to come.

Generally companies that borrow money are viewed as riskier than governments, so they have to pay higher interest rates. Therefore negative-rate corporate debt is still rare. But it has happened, including with corporate bonds issued by the Swiss food giant Nestle.

But don’t people just withdraw cash rather than pay to deposit it at their bank or buy a government bond that will give them back less than they paid?

You’d think, right? This was exactly why economists had long thought that negative interest rates were impossible. It helps explain why central banks first turned to other tools, including quantitative easing, when they saw a need to ease monetary policy despite interest rates that were already near zero.

But it looks as if the convenience of keeping money in a bank account is worth a small negative interest rate or fees for most consumers and businesses, at least at the only slightly negative rates currently in place. Storing and providing security for cash may be more expensive than a small bank charge.

When initial experiments in Switzerland and Sweden didn’t result in mass withdrawals from the banking system, larger central banks in need of easier money moved gingerly in the same direction. They’ll stop when either their economies start to grow or they see more concrete evidence that negative rates are doing more harm than good.

How is this supposed to help the economy?

Pretty much the same way it always is supposed to help the economy when a central bank cuts rates. Lower rates encourage business investment and consumer spending; increase the value of the stock market and other risky assets; lower the value of a country’s currency, making exporters more competitive; and create expectations of higher future inflation, which can induce people to spend now.

We have decades of experience with central banks trying to manage the economy by, for example, cutting bank rates to 2 percent from 3 percent when there is an economic downturn. The shift to negative rate policies is, hypothetically at least, the same, but with a starting point of rates already around zero.

So does it work?

It’s hard to say with any certainty yet. At a minimum, it seems to have an effect of lowering the value of a currency, which makes export industries very happy. It’s less clear whether it can help create sustained economic growth, particularly when the hard-to-calculate downsides are factored in.

What are those downsides?

The global financial system is built on an assumption of above-zero interest rates. Going below zero could cause damage to the very architecture by which money and credit zoom through the economy, and in turn inhibit growth.

Banks could cease to be viable businesses, eliminating a key way that money is channeled from savers to productive investments. Money market mutual funds, widely used in the United States, could well cease to exist. Insurance companies and pension funds could face their own major strains.

In a speech last year, Hervé Hannoun, then the deputy general manager of the Bank for International Settlements, even argued that this could “over time encourage the use of alternative virtual currencies, undermining the foundations of the financial system as we know it today.”

Is the Federal Reserve going to do this in the United States?

Janet Yellen doesn’t think so. But in two days of congressional testimony this week, she also didn’t rule it out.

For one thing, the United States economy, and particularly its labor market, looks to be in stronger shape than that of many others around the world. So the Fed expects to be in interest-rate raising mode this year (though exactly how fast is very much in question). But even if the economy does take a turn for the worse, there’s no certainty that negative rates are the path the Fed would take.

There is a question of whether that would even be legal. It’s not clear if the language of the Federal Reserve Act allows negative bank rates (J.P. Koning, a financial commentator, runs through the legal issues here). Ms. Yellen said in testimony this week that the legality of negative rates “remains a question that we still would need to investigate more thoroughly.”

She also said that “it isn’t just a question of legal authority.”

“It’s also a question of could the plumbing of the payment system in the United States handle it?” she said. “Is our institutional structure of our money markets compatible with it? We’ve not determined that.”

Financial markets do not now price in meaningful odds of negative rates in the United States. Want one modest clue that negative rates can’t be ruled out, though? In its annual stress test of major banks, the Fed asked the firms to figure out what would happen to their finances in a “severely adverse” scenario that included a sharp rise in unemployment and a rate of negative 0.5 percent rate on short-term Treasury bills — in other words, what you’d expect to see if there were a recession and the Fed cut rates well below zero.

Ms. Yellen noted that the rates on Treasury bills could go negative even in the absence of a policy shift by the Fed, as has happened a few times in the past.

So what are some of the weird things that could happen in a world in which negative rates become routine?

The policies in Europe and Japan are still relatively new and involve rates only slightly below zero. But if the policies become long-lasting, or negative rates go much lower, there are a lot of mind-bending ways it could affect routine transactions.

For example, would people start prepaying years’ worth of cable bills to avoid having money tied up in a money-losing bank account? How about property taxes? Would companies and governments put in place new policies prohibiting people from paying their bills too early?

Or consider this: Many commercial transactions now take place with some short-term credit attached — for example, a company that gets a 60-day grace period to pay bills from its suppliers. Would that flip, and suddenly suppliers would prohibit upfront payment and insist that their customers wait 60 days to pay?

Might new businesses sprout up that allow people to securely store thousands of dollars in bundles of $100 bills, or could people buy physical objects as stores of value that the banks can’t charge a negative interest rate on?

“Negative interest rates in Japan is blowing my mind,” said Jose Canseco, the provocative retired baseball player not normally known for his economic musings, on Twitter. And the truth is, he’s not the only one.

Russians Working at Islamic State Gas Plant

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Why Are Russian Engineers Working at an Islamic State-Controlled Gas Plant in Syria?
Moscow says it’s at war with the jihadist group — but both sides aren’t opposed to cutting economic deals amid the bloodshed.


FPM: Officially, Syrian President Bashar al-Assad’s government and his Russian allies are at war against the Islamic State. But a gas facility in northern Syria under the control of the jihadi group is evidence that business links between the Syrian regime and the Islamic State persist. According to Turkish officials and Syrian rebels, it is also the site of cooperation between the Islamic State and a Russian energy company with ties to President Vladimir Putin.

The Tuweinan gas facility, which is located roughly 60 miles southwest of the Islamic State’s de facto capital of Raqqa, is the largest such facility in Syria. It was built by Russian construction company Stroytransgaz, which is owned by billionaire Gennady Timchenko, a close associate of Putin. The company’s link to the Kremlin is well-documented: The U.S. Treasury Department previously sanctioned Stroytransgaz, along with the other Timchenko-owned companies, for engaging in activities “directly linked to Putin” amidst the confrontation over Ukraine.

The story of the controversial plant involves the Assad regime, Russian-Syrian businessmen, the Islamic State, and moderate Syrian groups, which together tried to activate the facility for the financial and logistical benefits it could provide for them.

The Syrian government originally awarded the contract to construct the Tuweinan facility to Stroytransgaz in 2007. The construction utilized a Syrian subcontractor, Hesco, which was owned by Russian-Syrian dual national George Haswani. Last November, the Treasury Department sanctioned Haswani for allegedly brokering oil sales between the Islamic State and the Assad regime, charges he denies.

The partnership between Hesco and Stroytransgaz goes far beyond this one deal. The companies have worked in joint projects in Sudan, Algeria, Iraq, and the UAE since 2000, according to Haswani’s son-in-law, Yusef Arbash, who runs Hesco’s Moscow office.

Construction continued slowly until a coalition of Syrian rebel groups seized the facility in a joint operation with the al Qaeda-affiliated al-Nusra Front in January 2013. Abu Khalid, a member of the Qwais al-Qarani brigade, which was a part of the rebel coalition, said that when they entered the area, Russian engineers and advisors had already fled, leaving Syrian employees behind. “We decided to protect this plant; we thought it is belonging to Syrian people since it was owned by the Syrian state,” he said.
The Islamic State has been in control of the facility since early 2014.

A senior Turkish official said that after its seizure, Stroytransgaz, through its subcontractor Hesco, continued the facility’s construction with the Islamic State’s permission.

 

Syrian state-run newspaper Tishreen published a report appearing to corroborate this claim. In January 2014, after the facility was captured by the Islamic State, the paper cited Syrian government sources, saying that Stroytransgaz had completed 80 percent of the project and expected to hand over the facility to the regime during the second half of the year. The article didn’t mention that the facility was under the control of the Islamic State.

According to David Butter, an associate fellow at London-based Chatham House, who has seen a letter written by George Haswani explaining the details of the project, the facility’s first phase of production started towards the end of 2014, and it became fully operational during 2015. “Some of the natural gas goes to the Aleppo power station, which operates under the Islamic State’s protection, and the remainder is pumped to Homs and Damascus,” he said.

Abu Khalid said that Russian engineers still work at the facility, and Haswani brokered a deal with the Islamic State and the regime for mutually beneficial gas production from the facility. “IS allowed the Russian company to send engineers and crew in return for a big share in the gas and extortion money,” he said, using an acronym for the Islamic State and attributing the information to Syrian rebel commanders fighting the Islamic State in the area. “Employees of the Russian company were changing their shifts via a military base in Hama governorate.”

Haswani has rejected the Treasury Department’s allegations that he worked as a middle man in oil deals between the Islamic State and the Assad regime. But he has never denied Hesco’s continued work on the gas facility after the Islamic State captured it.

The details of the Tuweinan deal brokered between the Islamic State and Hesco was first reported by the Syrian media collective Raqqa Is Being Slaughtered Silently in October 2014. The group claimed that Hesco signed an agreement with the Islamic State promising to leave a larger chunk of the profit to them. In October 2015, the Financial Times reported that the gas produced in the plant was sent to the Islamic State-held thermal power plant in Aleppo. The deal provides 50 megawatts of electricity for the regime, while the Islamic State receives 70 megawatts of electricity and 300 barrels of condensate. The engineers who worked at the plant told the Financial Times that Hesco also sends the Islamic State roughly $50,000 every month to protect its valuable equipment.

While Syria remains politically fractured, the deal at the Tuweinan gas facility shows that the rival parties are still cutting economic agreements amid the war. Aron Lund, editor of the Carnegie Endowment for International Peace’s website Syria in Crisis, said that similar gas and oil arrangements exist all over Syria. “You have them between the IS and the regime, but also between IS and rival Sunni Arab rebels, between the Kurds and the regime, Kurds and rebels, the rebels and the regime, and so on,” he said. “You have lots of informal trade connections that emerge among armed groups, smugglers, or private business to fill the gaps between the various sides as the country falls apart, while national institutions, infrastructure, and much of the economy will necessarily remain shared.”

China banks may lose 5 times US banks’ subprime losses

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Yellin’s testimony includes China as the big worry.   

China is big concern

Yellen didn’t mince words about China: its economy is slowing down and uncertainty is rising about how much China will devalue its currency, the yuan.

A weak yuan has major implications for global trade. Yellen firmly blames the uncertainty of China’s currency for the rise in global growth fears.

“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.

Add in spooky dude, George Soros:

Bass: China banks may lose 5 times US banks’ subprime losses in credit crisis

CNBC: A Chinese credit crisis would see the country’s banks rack up losses 400 percent larger than the hit U.S. banks took during the subprime mortgage crisis, storied hedge fund manager Kyle Bass has warned in a letter to investors.

“Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” Bass, the founder of Dallas-based Hayman Capital, wrote in the letter dated Wednesday.

“Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.”

China’s banking system has grown to $34.5 trillion in assets over the past 10 years, from a base of $3 trillion, wrote Bass, who is famed as one of the few major investors to correctly call the U.S. subprime housing collapse that kicked off the 2008 global financial crisis. That prescience earned him a mention in Michael Lewis’ book “Boomerang,” which was about the European credit crisis.

This expansion in the banking system’s asset base was fueled largely by rapid credit expansion, Bass wrote, that helped fund the huge, and often inefficient, infrastructure spending program that has propped up China’s growth.

“China’s [banking] system is even more precarious when we realize that, even at the biggest banks, loans are not made to borrowers based on their ability to repay,” he wrote. “Instead, load decisions are political decisions made by the state.”

Add to this the danger posed by China’s shadow banking system – made up of instruments Bass claimed the country’s banks used to subvert restrictions on lending – and the upshot was there were “ticking time bombs” in China’s banking system, the hedge fund manager explained.

“Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10 percent of assets,” Bass wrote. “Historically, China has lost far in excess of 10 percent of assets during a non-performing loan cycle.”

He noted that U.S. banks lost about $650 billion of their equity throughout the global financial crisis.

The letter said that the Bank for International Settlements (BIS) estimated that Chinese banking system losses from the 1998-2001 non-performing loan cycle exceeded 30 percent of gross domestic product (GDP).

“We expect losses in this cycle to exceed prior cycles. Remember, 30 percent of Chinese GDP approaches $3.6 trillion today,” he warned.

Bass wrote that he expected the massive losses to force Beijing to recapitalize Chinese banks and sharply devalue the yuan.

“China will likely have to print in excess of $10 trillion worth of yuan to recapitalize its banking system,” he said. “By the time the loss cycle has peaked, we believe the renminbi will have depreciated in excess of 30 percent versus the U.S. dollar.”

The hedge fund manager didn’t return an email sent outside office hours requesting comment on the investor letter, which the Wall Street Journal reported was the first he had sent in two years.

Bass’ sentiments on the yuan aren’t new, with the Wall Street Journal reporting earlier this month that he was among the money managers making bearish bets on the currency.

The dollar has already fallen about 5.9 percent against the yuan since August, when a sharp devaluation by the People’s Bank of China (PBOC) roiled markets; the greenback was fetching around 6.5710 yuan on February 5, the last day of trade before China’s markets closed for a week-long Lunar New Year holiday.

The PBOC has introduced a slew of measures to arrest, or at least slow, declines in the currency in the hope of achieving an orderly depreciation.

The central bank has asked banks making yuan loans abroad to set aside more in reserves and has also hoovered up yuan in Hong Kong, a key market where the bearish bets have been made, effectively making it more expensive for traders to borrow the yuan to make these trades.

China’s state-owned publications have also chipped in with stinging editorials admonishing greedy speculators for betting against the currency. Prominent investor George Soros was recently likened to a “crocodile” that had declared “war” on China for suggesting while at the World Economic Forum in Davos, Switzerland, that China’s economy was headed for a hard landing.

In his letter, Bass casts the attacks on Soros as confirmation of his views.

“China’s public reaction in its state media to George Soros’ comments in Davos was in character for a country that is on the precipice of a large devaluation,” Bass said.

While many have pointed to China’s large – albeit shrinking – pile of $3.23 trillion in foreign-exchange reserves as a defensive wall against a crisis, Bass says that’s simply not enough.

He estimates China really only has around $2.1-2.2 trillion in reserves after adjusting for several factors including about $700 billion that could be tied up in China’s sovereign wealth fund CIC. That’s below his estimate of the $2.7 trillion minimum China would need to effect a banking sector bailout.

“China’s liquid reserve position is already below a critical level of minimum reserve adequacy,” he said.

Predictions of a Chinese economic disaster have been circulating for a long time; Gordon Chang’s book “The Coming Collapse of China” was published in 2001.

However, the mainland saw economic growth slow to a 25-year low of 6.9 percent in 2015 amid its transition toward a consumption-driven economy and away from its manufacturing roots.

When it comes to positioning for his expectations of a Chinese bank implosion, Bass wrote that he was thinking broad.

“What happens in China will not stay in China,” he said. “We decided to liquidate the majority of our risk assets.”

He did not appear likely to buy back in to the market any time soon.

“The next 18 months will be fraught with false-starts, risk rallies, and second-guessing,” he wrote.

To be sure, some of Bass’ other doomsday bets haven’t yet come to fruition.

For more than five years, he has called for a collapse in Japan government bonds (JGB) as part of a yet-to-materialize full-blown financial crisis there. That trade, dubbed a widow-maker, has so far backfired spectacularly.

Instead of a collapse in JGB prices, they’ve surged, with the benchmark 10-year seeing negative yields for the first time this week. Bond yields move inversely to prices.

Hayman Capital had returns of about 1.7 percent last year, according to a Bloomberg report.

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TOKYO (AP) — Japan’s main stock index dived Friday, leading other Asian markets lower, after a sell-off in banking shares roiled investors in the U.S. and Europe.

Tokyo’s Nikkei 225 was down 4.8 percent to 14,952.61 after earlier sinking as much as 5.3 percent. Hong Kong’s Hang Seng fell 1.0 percent to 18,364.14. South Korea’s Kospi gave up 1.4 percent to 1,835.01 and Australia’s S&P/ASX 200 fell 1.2 percent to 4,765.30. Shares in New Zealand and Southeast Asia also fell. Markets in China and Taiwan are closed until Monday for Lunar New Year holidays.

Global stocks have been in a slump since the beginning of the year when China’s market, which had been propped up by government buying, plunged dramatically. Concerns about China, however, are now just one of several factors behind the bloodletting.