Naked Capitalism pointed to The Telegraph article World asleep as China tightens deflationary vice.

The transmission channel to the global banking system is through Hong Kong and Macao. Bejing’s credit squeeze is causing a scramble for off-shore dollar credit to plug the gap. It is this that keeps global regulators awake at night, for foreign currency loans to Chinese companies have jumped from $270bn to an estimated $1.1 trillion since 2009.

The Bank for International Settlements says dollar loans have been growing “very rapidly and may give rise to substantial financial stability risks”, enough to send tremors across the world.

The BIS data shows that British-based banks — a broad-term, including branches of US and Mid-East outfits — are up to their necks in this. They hold a quarter of all cross-border bank exposure to China. By contrast, German, Dutch, French and other European banks have cut their share from 32pc to 14pc as they retrench to shore up capital ratios at home.

With my newly acquired knowledge of Modern Monetary Theory (MMT), I am quite sure that I do not understand this article at all.  As I understand it, China has huge dollar reserves.  So I do not understand why dollar loans are a problem.  I also don’t understand who is lending to whom.  If US banks are involved, are they making dollar loans to China, or is the loan in the other direction?  Why would either one of them borrow dollars from the other?

Well, if Naked Capitalism thinks we need a dose fright, who am I to disagree?  Enjoy.