The Greatest Financial Bubble In History

Tyler Durden's picture

Authored by James Rickards via The Daily Reckoning blog,

China is in the greatest financial bubble in history. Yet, calling China a bubble does not do justice to the situation. This story has been touched on periodically over the last year.

China has multiple bubbles, and they’re all getting ready to burst. If you make the right moves now, you could be well positioned even as Chinese credit and currency crash and burn.

The first and most obvious bubble is credit. The combined Chinese government and corporate debt-to-equity ratio is over 300-to-1 after hidden liabilities, such as provincial guarantees and shadow banking system liabilities, are taken into account.

Paying off that debt requires growth, but the growth itself is fueled by more debt. China is now at the point where enormous new debt is required to achieve only modest new growth. This is clearly non-sustainable.

The next bubble is in investment instruments called Wealth Management Products, or WMPs. You may remember hearing about in the Daily Reckoning and also covered in Bloomberg’s article China Is Playing a $9 Trillion Game of Chicken With Savers.

Picture this. You’re a middle-class Chinese saver and you walk into a bank. They offer you two investment options. The first is a bank deposit that pays about 2%. The other is a WMP that pays about 7%. Which do you choose?

In the past ten years, bank customers have chosen almost $12 trillion of WMPs. That might be fine if WMPs were like high-quality corporate or municipal bonds. They’re not. They’re more like the biggest Ponzi scheme in history.

Here’s how they work. Proceeds from sales of WMPs are loaned to speculative real estate developers and unprofitable state owned enterprises (SOEs) at attractive yields in the form of notes.

So, WMPs resemble collateralized debt obligations, CDOs, the same product that sank Lehman Brothers in the panic of 2008.

The problem is that the borrowers behind the WMPs can’t pay their debts. They’re relying on further bubbles in real estate or easy credit from the government to meet their interest obligations.

What happens when a WMP matures? Usually the bank customer is encouraged to rollover the investment into a new WMP. What happens if the customer wants her money back? The bank sells a new WMP to another customer, then uses those sales proceeds to redeem the first customer. The new customer now steps into the shoes of the first customer with the same pile of bad debt. That’s where the Ponzi dynamic comes in.

Simply put, most of the debts backing up the WMPs cannot be repaid, which means it’s just a matter of time before the WMP market goes into a full meltdown and triggers a banking panic.

Finally, there is an infrastructure bubble. As explained in more detail below, China has kept its growth engine humming mostly with investment instead of aggregate demand from consumers.

Investment is fine if it is directed at long-term growth projects that produce a positive expected return and help the broader economy grow as well. But, that’s not what China has done.

About half of China’s investment in the past ten years has been wasted on “ghost cities,” white elephant transportation facilities, and prestige projects that look good superficially, but that don’t produce enough revenue or efficiencies to pay for themselves.

Much of this investment was financed with debt. If the project itself is not revenue producing then the associated debt cannot be repaid, and will go into default.

The toxic combination of government debt, corporate debt, WMPs, and unrealistic growth expectations have set up China for the greatest market crash in history. But, not yet. As analysis will continue to prove, political forces will put off a day of reckoning until early 2018.

The Middle-Income Trap

Most of the debt statistics noted above are well known. Analysts are relaxed about it. They acknowledge that debt levels are high, but point to the fact that China has the second largest economy in the world, and is by far the fastest growing major economy in the world.

Even though growth rates have fallen from 10% to 6.5% in recent years, that 6.5% growth is still enviable compared to 2% growth in the U.S., and less than 1% growth in Europe. China’s debt burdens are manageable as long as the growth is there to support the debt.

This rosy scenario ignores two harsh realities. The first is known as the “middle-income trap.” The second is a death spiral of rising debt and rising interest rates that choke off growth just when it is needed most.

When I studied development economics in graduate school in the 1970s, it was widely believed that the most difficult part of moving countries from poverty to wealth was the initial stage. Societies seemed stuck in a permanent rut of primitive agrarian culture and simple resource extraction.

What was needed was a “takeoff” that would move citizens to cities, improve productivity on the land (the “green revolution”), and employ newly urbanized workers with foreign direct investment, foreign aid, and national savings. From there the expectation was that growth would be self-sustaining and economies would grow rich over time — just as Japan and Germany had achieved high-income status from the ruins of World War II.

It turned out that the first part of this model was true, but the second part was not.

In broad terms, the IMF and OECD define a “low-income” country as one with per capital income of less than $5,000 per year. A “middle-income” country lies between $5,000 and $20,000 annual per capita income. Above $20,000 per year of per capita income is generally considered “high income.”

Obviously such measures are somewhat arbitrary. Also, because they are averages they mask a lot of relevant information about income distribution. In the case of China, per capita income is about $8,000 per year, but extreme income inequality means that the median income if far less.

These figures also do not take into account government benefits and social safety nets than can produce a decent quality of life even at lower income levels. China has no robust social safety net (one reason the personal savings rate is so high). This means the $8,000 per year income figure overstates the income security of Chinese workers compared to some other countries.

Even adjusting for income inequality and no social safety net, the Chinese per capital income figure puts it solidly in the middle-income ranks. By way of contrast, India today is stuck in poverty at $1,600 per year. In the high-income ranks, Switzerland’s per capital income is $81,000, almost 50% greater than the United States.

In 1960, per capita GDP for China was $90 in constant dollars. The Chinese Miracle is that per capita income has risen 10,000% in less than 60 years, with most of that coming in the past 35 years since the death of Mao Zedong.

All of this is consistent with the 1960s takeoff theory I studied in the 1970s. The problem is that this growth is not self-sustaining. It turns out that the path from poverty to middle-income is straightforward, but the path from middle-income to high-income is far more difficult.

Moving from poverty to middle-income is just a matter of mobilizing factor inputs of labor and capital. The labor comes from hundreds of millions of citizens moving from subsistence level farms to cities and taking manufacturing jobs. Finance capital comes from export-related savings and foreign direct investment.

The result is an explosion of income through simple assembly-type manufacturing and cheap exports. This process is helped by a cheap currency, which China manipulated from 1995 to 2008.

Moving from middle income to high-income is a different challenge. It cannot be done with more of the same urbanization and manufacturing. It requires high-value added products that come from education, technological innovation, and entrepreneurship.

Germany and Japan managed this after World War II because they had huge reservoirs of human capital in the form of an educated workforce despite the destruction of physical capital.

Since then, only three major countries (other than oil exporters) have moved from middle-income to high income. Those three are Taiwan ($22,000), South Korea ($27,500), and Singapore ($53,000). (Macau and Bahamas also made the leap, but those are special cases based on tourism and gambling that cannot be applied to major industrializing economies).

China is not alone in the middle-income trap. It is stuck there with Malaysia ($9,300), Mexico ($8,500), Turkey ($11,000), and several others.

All of these countries have grown through some combination of assembly-type manufacturing, tourism, energy exports, and commodity exports. None has generated the kind of self-sustaining technological innovation seen in Taiwan, South Korea, and Singapore.

The prospects for China to break out of the middle-income trap are poor. China’s theft of intellectual property and weak rule of law make it an unattractive venue for technology development. Its Communist Party dictatorship also does not allow the free exchange of ideas, social media connections, and entrepreneurship needed to generate high-value added processes.

At the same time, China’s advantages in assembly-type manufacturing are being siphoned away by low-income countries such as Vietnam ($2,100), Philippines ($3,000), Indonesia ($3,600), and others in Central and South America.

Of course, the greatest threat to Chinese output in the manufacturing sector in India. There, one billion people are ready to make the same transition from farm to city that China made in the 1980s and 1990s.

In short, Chinese growth is in severe jeopardy. Its manufacturing base is being taken over by competitors and its high-tech future has yet to emerge, and may never emerge in time to avert a debt crisis.

The Chinese Miracle is no miracle at all, it’s just simple development economics. China is now out of time and out of good options.

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ThankUGartman's picture

If you had asked me 8 years ago where the Dow and S&P 500 would be at in 8 years I'd have said Dow sub 10000 and sp below 1000. Especially after Gary Ackerman and Congress made SEC lawyers look like baffoons in May 2009. Now I can't see any reason for the markets to die...to infinity! "They"won't let it go down. And they certainly won't tell us the date. Big move up coming imo.

webmatex's picture

I agree TUGartman - and with the global interconnected money flows and ridiculous debt levels if one big block goes down (US, EU, Japan, China, UK) the effect will spread quickly.

Theres nothing but hot air and more paper printing sustaining the present global ponzi.

PM's and food look very secure options. 

Alt Right Girl's picture

The world looks like a huge bubble wrap.

Bubbles all around. 

Anyone got a pin?

House Of Cards: Netflix is One of the Poster Children for Tech Bubble 2.0


fx's picture

The author misses two crucial things (at a minimum):
1) debt fueled economic "growth" is the only , universal "growth" model on the planet by now. So China isn't anything special , apart from the magnitude.
2) China is too big to fail for the world economy now. So expect the ECB, Fed, BoJ to help the PBoC to prop up the Chinese economy whenever the need arises.

I cannot but wonder why anyone in his right mind thinks that the current environment of unprecedented market manipulation should end anytime soon? Why should it? It will continue until the center cannot hold anymore, regardless of any propping efforts. That may be a long way off, though...

new game's picture

i say gold is the only thing in china that gives the little guy half a chance. hidden in a spot only the hidder know of. otherwise the plebs will be fuked, i  mean fuked like pol pot-bullet in head and dumped in trenches created by the next reciptiant of bullet. gotta luv command econ communism...

humans looking out for each other...

BandGap's picture

I also agree.  I am a bit confused, however, when hedge fund managers literally state they are moving into cash and no one else heads for the exits. Insiders are cashing out like crazy, too. I believe others ARE getting out, but this is being covered by some sort of Fed smokescreen.

AttilaTheGun's picture

It is when people start thinking like this that shit is starting to become a problem.

peopledontwanttruth's picture

When I first read the TITLE of the article I thought they would be talking about the USA until I read the article.

It's not good to throw stones when you live in glass houses.

Common_Law's picture

Especially if the banks own your glass house.

SoDamnMad's picture

Hey, Step up and buy your Silk Road WMPs. We all are going to be rich. We send goods to Europe, Russia and ME and get gold in return on the trains.

All Europeans want new smartphones and junk just like the stupid Americans bought. What can go wrong.

mavenson's picture

Too bad the commies can't just order everybody to become smarter and happier. What's that? The missing ingredient is love and freedom? Whoops, not gonna happen, better keep hocking WMPs.

roddy6667's picture

You have never been to China. Love and freedom abound here. You just believe you have it in America because you were told so. Get a passport and go to China. Spend at least a month with the everyday people. Eat at their homes and with them in restaurants. Let them show you where they work.Go to their weddings. Go shopping with them. Celebrate the holidays with them. Visit their schools and Universities and hospitals.

When you return to America you will feel the overwhelming police presence and notice that everybody is always fighting and hating.

You will feel very stupid for the remark you just posted.

Treason Season's picture

Rats as big as camels in Shanghai. Chinese cops make Clapper and Brennen look like flower childs.

Justin Case's picture

Rats as big as camels in Shanghai.

You don't have to go to China to see that. The rat population in N.Y city is greater than the human population. Really disgusting for a highly developed democratic rich country I'd say.

Justin Case's picture

I totally agree with yoar comment. I have been to Italy, UK, Poland, Germany, Puerto Rico, US, and Philippines. I worked in EU countries for months and I experienced their lifestyles and the strong unity and heritage they cherish. Their values ar far different then aours in N.America.

I find people here like to fling shit at other countries and peoples without knowing anything about the country or the people. Many can't even point out the country on a map. In a recent survey in merika, only 33% of the people asked, could point out where N.Korea was located. Even less know about the history and what mericans did to N.Korea in the 50's. This is why they don't teach it in history, only teach how merica saves the world by assassinating made up tyrants, like Saddam or Gadaffi, threat to hegemony that's all.

I'm leaving Canada next year, permanently, for Asia. Just visit this money, work, debt treadmill.

garcam123's picture

I agree completely!  I live in Mexico and never experience the feelings of being constantly watched and threatened by the blue gang with the guns like I feel every time I am in the states.

Amerika has become the worst police atate on the planet. Janis Joplin had it right after all, "Freedom is just another word for nothin left to lose."

I hope that patriots begin to assassioinate criminal business people liuke those who own and run the Amerikan for profit prisons and shareholders of weapons producers....Who is that fuck who raised the prices of old working medicines by thousands of percent?.......he needs a dirt nap forever! It's time to turn on these lying thieving pieces of shit! Let the Chienese work out their own problems.

reader2010's picture

The US is so fucked up for average Joes.

Why it costs $14,000 to treat a snakebite with $14 medicine

 

http://www.santafenewmexican.com/news/why-it-costs-to-treat-a-snakebite-...

Dudeskis's picture

I lived in Changchun for 2 years and did just what you said.  My impression was there were serious issues with the educational system, communities had zero cohesion, and if something didn't happen to your immediate family you didn't care.  The college students were more idealistic and optimistic but that may be because they are all over the world.  And the corruption my God the corruption.  In the US we have corruption at the higher levels as well but in China the government flaunts street level corruption.

Tarjan's picture

I live in China and Roddy is spot on about the life here.

As for the article, I will not dispute the problem with WMPs, but to say, "About half of China’s investment in the past ten years has been wasted on “ghost cities, [8]” white elephant transportation facilities..." is wrong with respect to transportation facilities.

Chengdu, a metropolitan area of 17.5 million, is building a huge subway system (with a new station going in a five minute walk from my home, I will use the subway rather than drive into the city). Name one subway system anywhere in the world that repays the capital input - I know of none. Subways, like US highways, are a means to facilitate the movement of people and they are a sound government investment if the price of oil goes to US 100 or more.

 ~ 

Justin Case's picture

It's difficult to find very many reasons to label China as communist these days. The ruling party in China still calls itself communist. The international media still likes to refer to China as communist. But where is communism still manifested in China today? Where are the basic Communist values of sharing and equality evident in Chinese society now? They cannot be found. Quite simply, China is no longer a communist country.

It's time to update yoar fictional mindset and resist fake news narratives of demonizing labels of countries the administrations cannot conquer.

Lynn Trainor's picture

But China has so much gold, that's bound to help, right?

Justin Case's picture

The SDR will be the new currency and gold will play a role. China is not run by idiots. The population of China dwarfs that of merica and they manage to keep thing moving ahead without creating a shit storm. You have to look at the transformation of China In the last 30 years. It's truly amazing where they started from and where they are today. With OBOR project, China will continue to grow by investing in the economies and people, while merica is bent on empire building, conquering resource countries and installing puppet gov'ts. Merica is going down hill while China is rising. That is leadership, prosperity for the masses.

peterk's picture

Problem wih this article is that NO ONE has TOLD the "world" that you cant simply continue to go into debt

and print money.....

thats like tellig my relatives to STOP  going into  debt to buy the new car, investment property,  holiday

designer clothes.

They will look at you like you bat S^%T crazy.

 

This article assumes  people are reasonable , intellectual, considerate and financially wary.

Wrong.

 

beijing expat's picture

The way I see it, China has fully modernised itself with world class infrastructure and they did it by passing out a bunch of colourful bits of paper. Not a bad deal.

Justin Case's picture

I think China has done some very intelligent maneuvering particularly since the 2008 crisis. They figured out US fractional reserve scheme was toast but they played along anyway. They even levered up as much or more than we did since then. However, with this increase in credit they have built infrastructure in the form of roads, bridges, cities, plant and equipment …all for and with future uses. The West on the other hand has thrown a “standard of living party” and neglected infrastructure to the point of dilapidation. Yes China’s financial system will implode with all the rest, they may even lead it! But, they will be left with new infrastructure and “money” (meric's gold) to get started again. President Xi has even said this to his people and to the world. He said the short term would be difficult but the long term beneficial. I think he is telling the truth!

Batman11's picture

"Much of this investment was financed with debt. If the project itself is not revenue producing then the associated debt cannot be repaid, and will go into default."

Much like all the real estate booms in the West.

Now he tells us.

Western bankers are as clueless as their Chinese counterparts.

Australian and Canada should blow up next in the West.


Batman11's picture

Global stupidity.

“What is wrong with lending more money into real estate?” Australian, Canadian, Swedish and Norwegian bankers now

“What is wrong with lending more money into the Chinese stock market?” Chinese banker pre-2015

“What is wrong with lending more money into real estate?” Chinese banker pre-2104

“What is wrong with lending more money into real estate?” Spanish banker pre-2012

“What is wrong with lending more money into real estate?” Irish banker pre-2010

“What is wrong with lending more money to Greece?” European banker pre-2010

“What is wrong with a NINA (no income, no asset) mortgage?” US banker pre-2008

“What is wrong with lending more money into real estate?” US banker pre-2008

“What is wrong with lending more money into real estate?” Japanese banker pre-1989

“What is wrong with lending more money into real estate?” UK banker pre-1989

“What is wrong with lending more money into the US stock market?” US banker pre-1929

Every nations idiots are rounded up and set to work in banks.

 

Giant Meteor's picture

Good work if you can get it ..

But seriously ..

BadKiTTy's picture

I am a regular reader of ZH and have got a lot from it being my 'go to' place.  

 

Enough.  I have been reading about the EOTWAWKI for years and there is always a calamity coming "soon". 

 

I thought it could go on for years, years ago,  but I cant learn any more about the dangers.  It will happen when it does and it still could be years away.  

 

Going to get on with life now.....

Giant Meteor's picture

Good plan. But then again, getting on with life was always a good plan ...

The thing is, definitions on what exactly that entails, are apparrently as wide and varied as the various grifting schemes as they pass by 

WMP's --

Christ, even the China has a sense of humor ..

 

Batman11's picture

The power of finance is actually the power of debt, the ability to bring forward spending from the future into today.

Jam today and penury tomorrow, as they discovered in the US in the roaring 20s, which was followed by the Great Depression.

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

The US has eaten its jam today (again) and we know what follows

The UK has also been tucking into its jam today with little thought of tomorrow.

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png

Japan enjoyed the jam before 1989, it has never recovered.

Richard Koo explains:

https://www.youtube.com/watch?v=8YTyJzmiHGk

The new normal of secular stagnation is the Japanese world after 1989, when you save the banks and leave the debt in place. It is the repayments on the debt that cause the stagnation.

China is enjoying its jam today with no thought of the penury tomorrow, which is fairly typical as today’s economics doesn’t look at private debt in the economy.

Batman11's picture

The FED’s models always show things should get better but they don’t:

http://4.bp.blogspot.com/-5utH2NlaeI4/U3IIaPM7Y7I/AAAAAAAAMbA/Uh_e5okMNWw/s1600/Fed+GDP+forecasts.PNG

When you don’t include the debt that is causing the problem this is what your forecasts will look like.

The IMF’s forecasts are the same:

http://static4.businessinsider.com/image/56cd9d646e97c61d008b9408-800-600/screen%20shot%202016-02-24%20at%207.05.40%20am.png

The IMF predicted Greek GDP would have recovered by 2015 with austerity.

By 2015 it was down 27% and still falling.

They didn't take into account the Greek economy was saturated in debt.

alphasammae's picture

The FED and its banking cronies have continuously failed and created bubbles and bankrupted people and small businesses profiting from chaos.  China model does not operate on the FED model. China has the luxury of having many people and excess manufacturing capacity and their model is to keep their people working and subsisting rather than failing and bankrupting. The Silk Road projects (Ocean in the south and Land north of the Himalaya) will barter oil through Chinese products with Russia and with other poorer countries, will finance infrastructure in exchange for getting the tolls and maintenance of the right of ways that will bring new infrastructure to new location and stimulate trade from the Mediterranean through Syria and Turkey to Europe and through Asia etc. It is actually a very clever plan that has already billions of funding dollars to implement the plan. These projects will take the slack from the USA plans to back off from trade agreements and new protectionism. Once China Silk Road plan gets under way it will be back and enjoy 9%+ growth and the new infrastructure will create and stimulate new growth in other sectors of Asia. No bubble from this, it is long term investment through people. The bubbles are mostly Wall Street games and if Wall Street and the FED do not change their ways to invest they will once again miss the boat> Wars are not the solution.

Justin Case's picture

One Belt, One Road’s vast scale has elevated it to high-profile status given China’s financial resources. But even China’s deep pockets have limits, with the country’s total debt to GDP at 250%. Three financial institutions have been set up to support its development, which have met some resistance in the West given they provide alternatives to the World Bank, IMF and ADB. 

Silk Road Infrastructure Fund
Launched in February 2014, the China-led US$40bn Silk Road Infrastructure Fund invests in One Belt, One Road infrastructure projects. The fund is capitalised mainly by China’s forex reserves and is intended to be managed like China’s sovereign wealth fund. Jin Qi, who serves as the assistant to the PBOC governor, will be the fund’s chief executive.

Asian Infra Investment Bank
Founded in October 2014, the AIIB aspires to be a global development bank with 21 Asian member countries (China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan and Vietnam), with registered capital of US$100bn.

New Development Bank
The NDB is a BRICS multilateral development bank established on 15 July 2014, by Brazil, Russia, India, China and South Africa. The bank was seeded with US$50bn initial capital, with the intention to increase capital to US$100bn. The bank will be headquartered in Shanghai. Each country will have one vote and no country will have veto power.

VK's picture

This article makes use of GDP & GDP per capital figures yet the more relevant metric to use is GDP PPP which translates on the ground into real purchasing power. By that measure China is the world's largest economy already at $23.2 Trillion and with a GDP PPP per capita income of $15,400.
Also what exactly is it that China can't do that America can do beyond agriculture and manufacturing? China has a very large internet base and plenty of social media sites and Alibaba. Two of the countries Rickards refers to are predominantly ethnically Chinese, Singapore and Taiwan. If they can escape the 'trap' so can China. China is the largest consumer of energy in the world now, they produce more vehicles than anyone else in the world, they consume more luxury goods than anyone else in the world, largest high speed rail network is in China, these empty cities are being populated slowly. Dismissing the Chinese as copy cats misses the point, even copying requires skill, since they're the only ones who've been able to do it on such a scale that they've surpassed the West on most consumption and purchasing power metrics. Any crisis in China can be relatively easily met with given the homogenous population and state control, they're in a different civilisational cycle from the West's decline trajectory.

roddy6667's picture

China still has hundreds of millions of poor people to move out their medieval lifestyles. If you travel around China you will see uncountable shantytowns inside and outside cities. China is only in the first few years of a 20 year plan to move 300 million rural poor into cities and off the farms. It's amazing how many are still using hand tools like 10,000 years ago. I grew up on a farm, and I just shake my head at what I see labeled as farms.They need to plow up the hedge rows and make larger farms, instead of the patchwork quilt of tiny plots they now have. One man with a tractor and a few attachments can take care of 10 of these poverty-inducing pieces of land.  Moving all these people from stone hovels heated by primitive coal stoves and into mid- and high-rises heating by community heating plants is necessary to clean up the air.

This article makes it sound like all the work is done. Not hardly. They have a lot more people to drag into the 21st century and at least up to the blue collar level.

HominyTwin's picture

Such primitive agricultural methods are sustainable. An American farmer on the other hand goes into debt to buy a big ass tractor, into still more debt to buy Monsanto's GMO seeds, and even more debt to buy Monsanto's fertilizer and pest control. He pumps the aquifer dry and strips the top soil, both of which took millenia to build up, in order to make his toxic crops grow. None of that is sustainable or should be emulated anywhere.

BritBob's picture

China – Argentina – the Falklands

In tune with Macri's words, Xi Jinping thanked Argentina "the support they have given us for our claim of a single China as we support theirs for the Falkland Islands."  (Telam 17 May 2017)

How can Argentina claim the Falklands when she has never legally owned them?

Falklands- Never Belonged to Argentina:(1 page)

https://www.academia.edu/31111843/Falklands_Never_Belonged_to_Argentina

 

Ah politics and reality don't sit too well.

nathan1234's picture

On a scale of 1 to 10 while China may fudge data to the level of 5, Wall Street, Fed TBTF Banks fudge data  to the level of 10.

Besides the 8000 odd Gold coated Tungsten shown as US reserves is basically tungsten.

China is not a fool. If they are in trouble and this can result in their weakening, it is important to make America weaker first. I would say the best way is for China to dump All US Treasuries and then give their Yuan a gold backing. No one will trade with the US $ and the strong Chinese yuan will ensure that everyone trades with it. The first one to dump will benefit the maximum. Those who suck up to the US and are late will loose the max.

IMHO the Korean crisis is actually a screen to attack China and neutralise it from doing so.

 

Justin Case's picture

Too many countries have unrepayable debts. The world needs to be refinanced. I believe that the bailout currency will be the SDR and gold will play a role in it's value or support. SDR can effectivly remove currency depreciation to gain trade advantages, which will therefore be the currency for international trade, but still use branded currencies locally.

Can't say for sure what the global bankers will come up with, but they have to fix the whole global financial system. It's broken.

Vuke's picture

You got it Justin....SRD's will be backed by gold so, if the US implodes first, China lends SDR's to back the dollar and vice versa.  Ditto EU and NA.

And, if all that implodes then it's back to reality and a fresh start with real gold.  One thing is assured, the paper fantasies have to end soon.

rf80412's picture

Debt is wealth to the masters of the universe.  It lets them collect rents off of money itself.

If lenders were forced to become de facto investors, who assumed risk and only made money if the enterprise made money and had no legal standing to try to squeeze blood from a turnip if the enterprise failed, things would be a lot different.

Sudden Debt's picture

There's plenty of Chinese who make more money then Americans.

The average salary for a factoryworker is about 20K per year and living costs are way lower then they are in America.

 

At least they're building shit with their money. And when it implodes, ALL THAT DEBT WILL GO AWAY!!!

And they bought all the gold in the world

SO DEBTFREE, A GOLD VAULT THAT IS FULL, ALL THE FACTORIES IN THE WORLD AND A PERFECT INFRASTRUCTURE!!!!

 

now let's move to America...

no gold.... no factories.... no infrastructure... a lazy population... and the national sport is obesity....

 

 

Giant Meteor's picture

God Damn it , haven't  finished the first cup of coffee and you're already picking on fat people !

Things are going to shit! 

indygo55's picture

I was in Walmart yesterday,,, oh,,, never mind.

DIGrif's picture

Not ALL of it....sly grin.

Trunks's picture

What are some smart ways to profit from this?

DIGrif's picture

CHRIST that sounded like an explanation of the USA's situation too.

Giant Meteor's picture

Yes, yes, we've all been treated to the great Chinese miracle ...

Kyle Bass

“You can’t grow your banking system 1,000% in 10 years and not have a loss cycle. And your currency won’t stay strong when you go to rectify that balance,” he said. The hedge-fund manager said China’s banking system has ballooned to $34.5 trillion from 2005 to 2015. By comparison, China’s gross domestic product was $10.2 trillion, according to data from the World Bank.

Any recent news on their lifesize replica of the Titanic ?

BTW, it's this bit that always makes me laugh the hardest ..

 "And your currency won’t stay strong when you go to rectify that balance,” 

Clearly, rectifying the balance, is not the object of the exercise ...

Just thought I'd point that out ..