CHINA: COUNTDOWN TO CRISIS? YES OR NO? via Tedbits
Every major corner of the world’s economies is sitting on a knife’s edge of one type or another; the question becomes who falls first triggering the next leg down in the Global Economies and ongoing depression. All are in debt spirals as deficits and debt compound at a high rate, while the growth to service them is but an illusion of official account measures, public sector growth and understated inflation.
Waves of insolvency are just waiting to strike as elites, academics, government servants and banksters worldwide cling to the dying Consumption, asset-backed economic model created at Bretton Woods II. Before that time, the developed world created wealth the old fashioned way: they produced more than they consumed creating savings for allocation to productive enterprises, also known as capitalism. Now growth is measured in how much you can consume creating a top line while ignoring the amount you borrowed from future income to do so.
“Men, it has been well said, think in herds. It will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay, Scottish journalist, circa 1841
VERY FEW realized at that time that CLOSET socialists in developed world capitals, elites, and the banksters that owned them had fully captured the printing presses and fractional banking systems which had just been UNCHAINED from any form of REAL reserves. And, that going forward, the economic model would be the consumption of wealth rather than the production of it.
People had semi-sound money and the ability to save money, which held its purchasing power in a far superior manner than the IOUs called money today. Capitalism created the greatest piles of wealth and broad, rising middle classes in recorded history. Money now is nothing more than a confiscation device used by the powers that be to rob their constituents of the fruits of their stored labor.
Henceforth, consumption reported as growth fueled by borrowing from the future became the model. A borrowing spree began which has now morphed in a government policy to borrow money with NO INTENTION of ever paying it back while telling the world it is RISK-FREE when, in reality, mathematically, it is ALREADY worthless and the world is just waiting for people to WAKE UP.
This model of debt/leverage masquerading as growth, welfare states using the printing press to feed the people as economies collapse under socialists policies, and continuous currency debasement (theft of the stored capital in the savings of the private sector) are to fool the people and useful idiots everywhere.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises
Every developed economy and many emerging economies sit directly in the crosshairs of this simple statement. The debt orgy continues and shows no sign of abatement as the BIS recently published a paper outlining that over $30 Trillion dollars of debt has been issued since the Global financial lows in 2008. What is $30 trillion in terms you and I can possibly understand? 30 million million.
Look at how much of the borrowing is CROSS BORDER holdings. The world’s financial systems are inextricably entangled. People think the Ukraine conflict is a conventional war; in my mind it is a financial conflict as Russia holds Hundreds of BILLIONS of loans from Western Banks as does the Ukraine – one misstep by the US and it’s kerblooey for Euro area banks who are in way too deep. The IMF loan to Ukraine was rushed into place to prevent this explosion from happening.
Trapped in debt orgies of their own, China and Japan must import inflation and export deflation to the world. It is “INFLATE or DIE” to keep their debt piles from imploding. This is the order of the day throughout the world. Europe particularly is affected by the deflation as capital flows from China and Japan and lands on the continent. The fun will really start when the flows REVERSE (back to China and Japan), as they ultimately WILL….
China has decided to try and walk back from the edge of a Minsky moment and engineer a soft landing while Japan careens headlong into it. The task for China is enormous as HALF ($15 Trillion, or $15 million million) of the world’s credit creation mentioned previously emanates from the Chinese economy.
Much of the credit creation went into real estate development and lending:
Floor space per capital is now 30 square meters, surpassing the level that preceded the level in japan just before the property collapse in 1988. Much of the lending is also threatened by rehypothication as developers have borrowed from many using the same collateral. So titles are BLURRED!
Now the property markets are beginning their tumble:
The Chinese have fully anticipated this and have instructed the major banks to pick up mortgage lending to individuals to cushion the fall. Other measures to follow in my opinion. They are trying to execute a controlled crash. They have made a decision to pop the bubble DELIBERATELY, allow defaults to instill market discipline and remove the moral hazard currently in place. Let’s pray for their success, no other central bank or government dares to walk this path. They are doing what Von Mises said in an attempt to avoid an extinctions event.
Looked at more broadly, corporate debt has been the principle destination for the credit creation and profits have barely budged or declined due to Yuan appreciation.
This is a face of the debt spirals we see throughout the world as developed world economies’ debt compounds ferociously and growth is a distant memory. The Chinese just did it in the private sector while the developed world have done it in the public sectors since 2008.
The corporate buildup of Infrastructure – industrial, energy, and state owned enterprises – is excess capacity that lays idle or underutilized. It is why the Yuan has suddenly weakened as China must become more globally competitive; what was a one way train in Yuan appreciation is now probably going to become a one way train lower to regain export competitiveness and profitability regardless of US POLITICAL CATERWAULING. The Chinese just need to say, “Do you want us to buy the treasuries or not?”… and they will privately…
Huge carry trades are in place to capture the appreciation of the YUAN and have enjoyed a one way bet for years. This