Evergrande losses spark fears of looming credit contagion, Janet Yellen calls to raise US debt ceiling

Global investors have their eyes on Evergrande Group or Evergrande Real Estate Group, China’s second-largest real estate developer in terms of sales. Evergrande Group shares plunged to their lowest level in 11 years on Monday, and many analysts and economists are worried about possible credit contagion. Credit problems with the Chinese real estate sector hit global markets a lot as European and US stocks fell overnight from Asia.

Evergrande Group’s counterparty risk and liquidity shocks could trigger global credit contagion

Many people woke up to the news of Chinese group Evergrande lose a large amount of its market capitalization as the company’s shares plunged to their lowest level in 11 years. While Evergrande’s losses cannot bring the economy down on their own, they could domino effect as did the collapse of Lehman Brothers during the 2007-2010 financial crisis. The domino effect is called “credit contagion” and signs of this phenomenon are already happening.

Other real estate mega giants based in Hong Kong and China are feeling the heat of Evergrande Group’s losses and the possibility of business failure. Hong Kong’s Henderson Land Development Co. saw a massive sell-off, and Ping An Insurance Group Co. also saw its shares fall. The Hang Seng technology index plunged in value Monday morning as the news disrupted the markets. Analysts and economists believe that Evergrande’s debt could be transferred to other lenders and bond markets in the near future.

The problem with Evergrande and the Chinese housing bubble is that all of the Keynesian “fixes”, cash injections and bailouts have already taken place.

It is not a question of liquidity but of solvency.

– Daniel Lacalle (@dlacalle_IA) September 20, 2021

Basically, a credit contagion occurs when counterparty risk and liquidity shocks occur in the market and force creditors to deleverage their positions and move to safer places. Zero Hedge Columnist Tyler Durden Explain that the market expects the Chinese group Evergrande to default on a number of payments, which will cause a significant domino effect in global markets.

Sinic Holdings Group (2103HK)

Contagion: Another Chinese property development company down more than 90% this morning. #Evergrand pic.twitter.com/g8CorYBDSE

– To O’Mahony (@TurboCBDC) September 20, 2021

“Speaking of Evergrande’s impending default,” Durden wrote on Monday. “We noted earlier that although the company is expected to pay $ 83.5 million in interest on September 23 for its March 2022 offshore bond, then another interest payment of $ 47.5 million is due on September 29 for March 2024, the day of judgment could come. from Tuesday: it’s because Evergrande has to pay interest on bank loans on Monday, with a grace period of one day, ”added the author. Durden’s critique of Evergrande’s solvency continues:

In other words, if he fails to organize an expansion, he could be in a technical default as early as Tuesday (for a much more detailed analysis of the next steps, please see This is how the contagion of the Evergrande fault will spread to the rest of the world.) Spoiler alert: Default is coming because Chinese authorities have already told major lenders not to expect a repayment.

So far, Durden’s Bloomberg and Zerohedge have reported on at least eight blue chip companies that withdrew their bond offerings during the Evergrande crisis. Additionally, Durden and many others predicted Evergrande’s decline months ago as a person tweeted: “Evergrande bond flush update. If you’re wondering why you should care… you’ll learn soon” on July 20, 2021.

Janet Yellen’s plea to raise the debt ceiling before a possible October default

Meanwhile, US Treasury Secretary Janet Yellen has shown that she is worried to default values. Yellen on Sunday called on congressional lawmakers to raise the federal debt ceiling and said if the United States defaults on its debt it could be disastrous, adding to the effects of the Covid-19 pandemic.

“We would emerge from this crisis a sustainably weaker nation,” said Yellen. While Evergrande’s impending default is expected, Yellen said the United States could default by October. By that time, the Treasury will have exhausted all cash reserves it has and will be limited by the debt ceiling, the Treasury Secretary said.

“We can borrow more cheaply than almost any other country, and a default would jeopardize this enviable fiscal position. It would also make America a more expensive place to live, as the higher cost of borrowing would fall on consumers, ”Yellen explained. “Mortgage payments, car loans, credit card bills – anything bought on credit would be more expensive after default. “

Dear @ federal reserve can we just skip the drama and move on to the part where you start buying ETFs and stocks?

Everyone knows it happens

– zerohedge (@zerohedge) September 20, 2021

On Monday, US stocks like the Dow Jones, the Nasdaq, the NYSE and many others lost a lot in value during the morning trading sessions and continued to fall as the day went on. Gold markets fell to levels not seen in six months, and the crypto economy lost over $ 250 billion in 24 hours.

What do you think of the global markets disrupted by the fears of failure of Evergrande Group? What do you think of Janet Yellen’s call to raise the US debt ceiling? Let us know what you think of this topic in the comments section below.

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