"China syndrome"
is a fanciful term that describes a fictional worst-case result of a nuclear
meltdown, where reactor components melt through their containment structures
and into the underlying earth, all the way to China. In
today's global
economic climate it means that China's over
built managed economic boom fueled by margin buying and excessive debt has
exposed its global illusion of prosperity, as well as a commodity bubble and the threat of a worldwide economic recession. This looming financial meltdown is potentially more ominous than the 2008 Global Financial
Crisis: Allen L
Roland, PhD
Kedar Grandhi, ICH, reports "Albert Edwards, a strategist at Société Générale bank, has warned of an impending global financial crisis similar to the one that occurred in 2008-09. This time, he said, it could lead to the collapse of the Eurozone.
The warning
follows a recent note issued by analysts at Royal Bank of Scotland (RBS) to
investors to "sell everything" ahead of
an imminent stock market crash. It also comes at a time when global markets see
a short period of relief from the bearish trend that commenced since the New
Year.
At an
investment conference in London, Edwards said: "Developments in the
global economy will push the US back into recession. The financial crisis will
reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly
indeed. Can it get any worse? Of course it can." See article ~ http://www.informationclearinghouse.info/article43955.htm
China's debt of at least 250 % of GDP is indicative of
the growing debt problem but the biggest problem for China is transparency.
Here's the China
syndrome in a nut shell ~ “Now that this
debt bubble is unwinding, growth in China is going offline,” Michael Pento, president of Pento Portfolio Strategies, wrote
on CNBC.com last week. “The renminbi’s
falling value, cascading Shanghai equity prices (down 40 percent since June
2014) and plummeting rail freight volumes (down 10.5 percent year over year)
all clearly illustrate that China is not growing at the promulgated 7
percent, but rather isn’t growing at all. The problem is that China
accounted for 34 percent of global growth, and the nation’s multiplier effect
on emerging markets takes that number to over 50 percent.”
So what if China is
not growing at all ~ which is what I
strongly suspect and that startling truth is
being manipulated by a less that transparent Chinese regime who cannot take the
risk of telling the truth ~ much as the United States did in 2008 and is
still doing today to a large extent.
Just grasp that for a
moment and we can see where the stock market could well be going which would be
substantially lower in 2016 ~ particularly when you factor in that it's an
election year.
Beginning last year, Chinese
officials also used state-owned media to encourage
individual investors to pour their savings and borrowed money into the
stock market, leading to a massive bubble. When the market started to tumble
over the summer, the government blamed
rumormongers and speculators, and ordered securities firms and
state-owned companies to keep buying, which simply disguised the underlying
problems.
The lesson here is clear: Instead
of trying to micromanage stock prices, Chinese officials ought to be
strengthening the economy, foremost by shifting its emphasis from
investment to consumer spending and services ~ but that's not going to
happen.
The Financial
Times cited figures from the Bank for International Settlements showing
that China has the highest private debt levels in the world, and that the cost
of servicing this debt has risen from 12 percent of GDP in 2009 to 20 percent
today.
“The danger now
is that the contraction in industrial profits, the debt service burdens, and a
flagging property market could together depress household income growth ~
jeopardizing the consumer spending that forms the most robust stratum in the
economy,” the editorial continued.
What is referred to
as the “pain of transition” involves the destruction of whole
swathes of industry and the loss of millions of jobs, raising before the regime
its greatest fear ~ an upsurge in the struggles of the working class. There
are already signs of such a movement. See WSWS article ~ http://www.wsws.org/en/articles/2016/01/20/econ-j20.html
So here's the bottom
line ~ Think of the world's economy like a
giant luxury cruise ship, similar to the Titanic ~ well, it just hit a giant
iceberg (named debt) and it's sinking fast although many of the passengers are
still unaware of that reality. A few are re-arranging chairs on the deck
oblivious to the fact that the ship is already listing and taking on water ~
the rest is history.
And here's what it looked
like to WSWS a
few weeks ago;
" The
quantitative easing policies pursued by the Fed and other major central banks,
which pumped trillions of dollars into the global financial system, led to an
explosion of borrowing by corporations in emerging markets, which more than
quadrupled their debt from $4 trillion in 2004 to over $18 trillion by 2014.
Now this money is heading for the exits.
According to the
Institute for International Finance, emerging markets saw a $735 billion
capital outflow last year, most of it coming from China, a shift characterized
by the organization's chief economist as an “unprecedented event.” Other estimates put the outflow even
higher, with one economist telling the World Economic Forum recently held in Davos, Switzerland that the
capital flight from China had reached $1 trillion since mid-2015.
But the emerging
market tailspin is only one of the most prominent symptoms of the deepening
crisis of the global financial system. On the eve of the recent Davos
meeting, William White, former chief economist of the Bank for International
Settlements and now chairman of the Organization for Economic Cooperation and
Development’s review committee, warned that the global financial system was
unstable and faced an avalanche of bankruptcies.
“The situation is
worse than it was in 2007,” he said. “Our macroeconomic ammunition to
fight downturns is essentially all used up.” Debts had continued to build
up over the past eight years and it would become obvious in the next recession
that many of them would never be repaid."
See WSWS article ~ http://www.wsws.org/en/articles/2016/01/21/pers-j21.html
The growing ugly
reality that the world must now face is that China is probably not growing at
all ~ only a managed economy and a secretive leadership is keeping that from
becoming obvious.
Briefly, the Chinese
centralized regime pledged that the restoration of capitalism would open the
way for the country’s “peaceful rise” and overcome the legacy of
decades of economic backwardness ~ and unfortunately that program has turned
into a disaster.
In an Op Ed in the
New York Times, Thomas Friedman posed the China Syndrome What If question at
a recent dinner party.
"Just get me talking about the world today and I can pretty well
ruin any dinner party. I don’t mean to, but I find it hard not to look
around and wonder whether the recent turmoil in international markets isn’t
just the product of tremors but rather of seismic shifts in the foundational
pillars of the global system, with highly unpredictable consequences.
What if a bunch of eras are ending all at once?
What if we’re at the end of the 30-plus-year era of high growth in China,
and therefore China’s ability to fuel global growth through its imports,
exports and purchases of commodities will be much less frothy and reliable in
the future?"
"But here’s the worst “what if”: What if we’re having a presidential election but no one is even asking these questions, let alone “what if” all of these tectonic plates move at once?
How will we generate growth, jobs, security and resilience?" Thomas Friedman, NYT
In summary, China is rapidly approaching an economic hard landing that imperils the global economy and it's failure to face this reality only deepens this impending global threat.
Allen L Roland, PhD
http://allenlrolandsweblog.blogspot.com/2016/03/china-meltdown-triggering-worldwide.html
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 is a
featured guest on many radio and Television programs.
