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The ripple effect of China's out of control black hole of debt
with its overbuilt and uninhabited ghost cities throughout China as well as its
poorly regulated and hyper valuated stock market is becoming a world crisis
which, like a black hole in space, is drawing most of the world into its
rapidly collapsing debt vortex where the mother of all real estate bubbles is
in the process of bursting: Allen L Roland, PhD
In
the immediate aftermath of the 2008 global financial crisis, the claim was
advanced that China could serve as the growth engine for the world economy.
That illusion was dashed some time ago by China's recent currency devaluation ~
but it has been replaced by growing fears that an unravelling of the
massive Chinese investment and real estate boom will have major global
consequences, especially for so-called emerging markets that are dependent on
the Chinese economy and its already happening. See CBS 60 minutes 12 minute report
on China's real estate bubble and ghost cities ~ https://www.youtube.com/watch?v=uxjwhk1ktNw
To a large extent, China's
authoritarian command and control economic governance is to blame for its current financial peril. Limits on legal migration to
cities promoted an underclass of illegal urban workers toiling for meager
wages, slowing consumer spending and hindering urban development. State-owned
monopolies plowed profits back into investment rather than into government
spending on social welfare. Near-zero interest rates on deposit accounts
provided cheap loans to business but penalized savers and the name of the game
became to buy real estate ~ it's the mother of all mothers real estate
bubble and its bursting at the seams.
Further economic change in China will inevitably lead to
political instability ~ which is not exactly the strongest incentive for
government reform in China so it's time for China's leaders to circle the
wagons and protect the authoritarian regime, regardless of the consequences to
the people ~ for the Chinese Potemkin village of progress must be maintained
or China will financially bring the world down with its immanent stock market
collapse.
As usual, WSWS provides the on target lurid details of
this world wide Ponzi scheme;
"An article
published Sunday in the New York Times (“Investors Race To
Escape Risk In Global Bonds”) sheds light on a
significant factor behind the crisis atmosphere on global markets. The Times
explains that some of the biggest bond mutual funds based in the US, including
BlackRock, Franklin Templeton and Pimco, are massively invested in emerging
market government bonds whose values are now collapsing.
The article raises
the very real possibility that one or more of these firms could be bankrupted
by demands from investors for the return of their cash, under conditions where
the firms cannot offload their emerging market bonds and meet these demands. Such
an event would be comparable to, if not worse than, the collapse of Lehman
Brothers in 2008.
Following the 2008
Wall Street crash, the American ruling class led the way in using unlimited
supplies of virtually free credit provided by central banks to push stock
prices to record highs and generate an emerging market bubble, while laying
siege to the jobs, wages and conditions of workers through mass unemployment
and austerity policies.
The resulting “recovery”
had the character of a gigantic Ponzi scheme, resting on a stagnant real
economy and ever-increasing social inequality. This financial house of cards
is being undermined by the growth of deflationary tendencies in the world
economy, reflected most starkly in collapsing commodity prices and the slowdown
in China, but also in anemic growth or outright recession in Japan, Europe and
the US."
On September 16,
2008, the day after the collapse of Lehman Brothers, the WSWS declared: “A sea change
is unfolding in the US and world economy that portends a catastrophe of
dimensions not seen since the Great Depression of the 1930s.”
See WSWs article http://www.wsws.org/en/articles/2015/08/24/pers-a24.html
China's black hole of
debt is now twice the
size of its gross domestic product and it's fueling a Potemkin Village of potential growth. China’s total
debt amounted to RMB 111.6
trillion ($18.3 trillion) at the end of 2012, which was 215.7 percent of that
year’s GDP. Of this amount, corporate debt equaled 113.5 percent of GDP;
government debt, 53.5 percent; household debt, 31.1 percent; and financial
sector debt, 17.6 percent.
Ruchir Sharma, Head of Emerging
Markets at Morgan Stanley Investment Management, wrote last year that:
“Since 2008, China’s total public and private debt has exploded to more
than 200 percent of GDP ~ an unprecedented level for any developing country” in
his opinion ~ and that China’s debt problems are “huge.” See article http://www.forbes.com/sites/jackperkowski/2014/01/21/chinas-debt-how-serious-is-it/
Chanos and his crew at Kynikos don’t make big “macro” bets on economies; their style is more “micro”: looking at the fundamentals of individual companies or sectors. And so it was with China. “I’ll never forget the day in 2009 when my real estate guy was giving me a presentation and he said that China had 5.6 billion square meters of real estate under development, half residential and half commercial,” Chanos told me the other day.
“I said, ‘You must mean
5.6 billion square feet.’ ”
The man replied that he hadn’t
misspoken; it really was 5.6 billion square meters, which amounted to over
60 billion square feet.
For Chanos, that is when the light bulb went on. The fast-growing
Chinese economy was being sustained not just by its export prowess, but by a
property bubble propelled by mountains of debt, and encouraged by the
government as part of an infrastructure spending strategy designed to keep the
economy humming. (According to the McKinsey Global Institute, China’s debt load today is an unfathomable $28 trillion.)
That insight soon led Chanos to make
an audacious call ~ Short Chinese stocks. China was in the midst of
an unsustainable credit bubble ~ witness the countless Chinese ghost cities
fueled by nationwide false hope and
manipulation.
Chanos soon went public with his thesis, giving
interviews to CNBC and Charlie Rose, and making a speech at
Oxford University. He told Rose that property speculation in China was rampant,
and that because so much of the economy depended on construction ~ in
most cases building properties that had no chance of generating enough income
to pay down the debt ~ China was on “the treadmill to hell.”
This loss of confidence has rightfully spooked stock
markets around the world because we are all part of this world wide credit/debt
scam and China's descent into this black hole of debt will have worldwide
ramifications that will affect us all.
Every great con game or Ponzi scheme eventually comes to an end and it's always painful.
"Why would any rational investor want to put money into
investments that will make them poorer on a purchasing power basis in
the long run? And when any central bank initiates a policy of “quantitative
easing”, any rational investor should immediately start demanding a higher
rate of return on the bonds of that nation. Creating money out of thin
air and pumping into the financial system devalues all existing money and
creates inflation. Therefore, rational investors should respond by
driving interest rates up. Instead, central banks told everyone that
interest rates would be forced down, and that is precisely what happened.
But now things have shifted. Investors are starting to behave more
rationally and the central banks are starting to lose control of the financial markets, and that is a very bad
sign for the rest of 2015. See http://theeconomiccollapseblog.com/archives/tag/quantitative-easing
The confusion and
bankruptcy of governments and policymakers in the face of the renewed China
downturn was summed up in a column published in the Financial Times over
the weekend by former Treasury Secretary Lawrence Summers, who called on the
Federal Reserve to keep interest rates at zero indefinitely.
Summers wrote: “Satisfactory
growth, if it can be achieved, requires very low interest rates that
historically we have only seen during economic crises. This is why long-term
bond markets are telling us that real interest rates are expected to be close
to zero in the industrialized world over the next decade"
Summers,
who has virtually no financial credibility, is also in denial for the die is
cast and China's collapsing Debt vortex has already captured if not been
inspired by the United States who has been playing the same con game as well as
delaying the inevitable economic collapse.
We stand at the precipice or the event horizon of the greatest
economic transition that any of us have ever seen.
China's black hole of debt has taken China beyond the point of no return and even though things may
seem very “normal” to some
people right now ~ the truth is that the global financial system is
fundamentally flawed, and large cracks in the system are appearing throughout
its infrastructure..
One thing is certain ~ when this economic Ponzi game does
collapse, it will take most people entirely by surprise.
But it shouldn’t for it has always been in plain sight for those
willing to see beneath the surface as well as the Potemkin Chinese ghost cities without inhabitants.
All con games eventually fall apart in the end, and we are about
to learn that lesson the hard way.
Heart centered spiritual consultant and advisor Allen L Roland can be contacted at allen@allenroland.com Allen is also a lecturer and writer who shares a weekly political and social commentary on his web log and website allenroland.com. He is also featured columnist on Veterans Today and guest hosts a monthly national radio show TRUTHTALK on www.conscioustalk.net
