[jcampbell1]

I'll make it simple.

Ordinary chinese citizens save $1T in bank deposits.

Bank loans the $1T to mall developers, and high speed railway developers. The developers promise to pay the money back.

They don't pay the money back, because the mall is empty, and no one can afford the high speed trains.

The people worry that the bank can't pay them back, all rush to the bank to get cash.

The Chinese treasury uses $1T in USD reserves to stop the run on the bank.

So, what he is saying, is that the Chinese central bank is already on the hook for about $1 trillion in bad bank loans.

[narrator]

"Ordinary chinese citizens save $1T in bank deposits."

Wrong. Chinese save in Renminbi. Mall developers pay builders in Renminbi. Banks potentially default on borrowers in Renminbi. Dollars are only for buying commodities, and external trade. There's 1/5 of the world's population in China who trade and do work for each other and they don't pay each other with dollars.

[louislouis]

"The Chinese treasury uses $1T in USD reserves to stop the run on the bank."

How does it do that? Do you mean the whole money is an illusion thing? And people only work when they have trust in the government backed bills? Cos this argument can work for any country too really..

[joe_the_user]

A fine summary except...

.. what does a rice farmer in Northern China do when the government gives him 1000 crisp dollar bills ("or their electronic equivalent")?

[jcampbell1]

He should go back to farming. He now knows he can spend the 1000 bills, or gold coin, or whatever at a later date when he so chooses. When the time is right, the $1000 dollars can be used to pay his daughters college tuition, or buy a tractor. It doesn't matter, the only important thing is "when the time is right." It is an economic mess when ordinary people can't time shift their spending. This is why good governments guarantee deposits, and keep inflation low.