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🇨🇳 🇺🇸 Hank Paulson: ‘I think it’s pretty likely we will see a recession’
The former US Treasury secretary on why the banking crisis isn’t over — and why the US-China relationship ‘is on the brink’
“What we’re seeing right now is Biden waiting to have a sorely needed call with Xi and meanwhile Xi’s everything-but-America strategy is a whirlwind of activity,” Paulson says. “Xi is playing the global statesman, meeting with heads of state around the world and in China. The Chinese are arguing that the US is trying to contain them and the Chinese people definitely believe that. They’re putting out to the world, and to American CEOs, that China is open for business again. If America goes too far in curtailing trade and investment with China and we go far beyond what our allies and partners want to do, the result will be to isolate the US.”
“This is a dangerous situation. I strongly believe that Biden would like to stabilise the China relationship but both Republicans and Democrats in Congress have staked out a very strong line which complicates things for Biden. I have a concern that Congress is underestimating the relative power of China, the permanence of China, and China’s relationship with so many other countries.”
“What we know is that if you’re running a small or regional bank right now, you wouldn’t be lending. The capital markets shut down for two or three weeks. Now they’re opening but not to the extent they were. So I think it’s pretty likely we will see a recession if you look at what’s happening to credit.”
“It’s been a real wake-up call. Confidence has been shaken. The risks are still out there. There was a theory that in the midst of a systemic crisis, the government could wind down a failing institution and stop a panic without damaging the economy. That should have been disproved by Covid. In early March, the failure of two banks, which had just over 1 per cent of US banking assets, threatened to destroy the regional banking system, and the Biden administration came with a very quick response to stop that. There shouldn’t be a myth that ‘too big to fail’ has been solved, because it hasn’t.”
https://www.ft.com/content/a101d2c1-13b7-4a20-9e8e-38fb1d54723d
https://archive.ph/8ACTW