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China's Evergrande Contagion- How bad will it be for USA and World
[YahooFinance] China Evergrande (SEHK:3333) is the topic of the hour. Set to default on its debts, it is wreaking havoc on global markets. As of this writing, all major stock indexes were down significantly in pre-market trading. China’s hang seng index, which trades overnight in North American time zones, closed the day down 3.3%.It’s going to be a rough week. There’s guaranteed to be fallout from Evergrande’s implosion, and it’s going to affect stocks. The question is, how bad will it get? With the Evergrande situation, many of the world’s biggest financial institutions are at risk. It does not look like Evergrande will be getting a bailout, so it will go into default. The company doesn’t have enough liquidity to pay its debts quickly. So if bondholders do get paid, it will only be far in the future, after massive asset sales have occurred. WHY SOME THINK EVERGRANDE COULD TANK THE GLOBAL ECONOMY Many people think that Evergrande could collapse the global economy as U.S. banks did in 2008. Evergrande has a whopping $300 billion in debt owed to financial institutions all over the world. Major Chinese, U.S., and European banks could lose money over this. And as 2008 showed, when banks experience losses, economic contagion ensues. The 2008 financial crisis started when sub-prime mortgages went into default and banks and other financial institutions started taking losses. The losses were compounded by losses on derivatives built on mortgages and mortgage-backed securities. By the time all was said and done, $8 trillion in stock market value was wiped out.
Related: Evergrande: 2021-09-12 Angry Evergrande Homebuyers Protest Against Construction Halt Evergrande: 2021-09-09 Evergrande: China's fragile housing giant Evergrande: 2019-01-09 China's Demographic Crisis Posted by: Lord Garth 2021-09-21 |
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