Every once in a while, I mention something that Michael Shedlock has written about. Sometimes I say you should be reading his blog if you want to stay up on global economic news. Today is an example of both.
Mish crushes it with this explanation of why China’s economy is screwed.
China’s stock markets are crashing. You can’t lose 7% a day for very many days before it’s a bad problem. This is symptomatic of a very bad problem over there. That they have spent half-a-trillion dollars supporting the Yuan against other currencies this last year, is also a bad sign.
I’ve been waiting for a late-2015/mid-2016 global recession or outright depression. This is as good a trigger as any. Chinese markets could rebound, sure. But there’s no underlying strength in their economy – even less than in the USA’s economy (which is a house of cards, by the way). There’s nothing really holding up the system besides faith in the system and bluster from the politicians. I’ve thought previous USA stock market dips were the beginning of the next downturn of the Great Recession and been wrong. We’ll see, I guess.
…and there are lots of really good ones. Expect to hear lots of “unexpectedly” on the radio and TV news reports tomorrow explaining that China’s economy just stopped.
…okay it’s not an “all stop” exactly, but what caught my eye is a -41% change in crude oil imports to China. Also troubling is the -50% drop in iron imports and -62% in coal. You keep those numbers up for long, pretty soon people start saying “hey, whatever happened to that one country that used to make half of all manufactured goods in the world?”. The iron and oil are turned into stuff, and the coal is what they use to fire the power plants to make the stuff. People are buying less stuff from China all over the world (except for the USA), and selling stuff to people all over the world is basically the only thing China does for real GDP growth*
I’m joining with Mish on taking the “under” on the future GDP estimates for China’s economy. And when that set of less-by-half numbers hits Australia (which depends on Chinese imports of coal and iron ore) you must remember to put “unexpectedly” in the articles about Australia’s economy collapsing fairly quickly, combined with their housing bubble bursting. China also takes these commodities from Europe, which is also already suffering economically. The world’s economy, then, is poised for a collapse in 2015 or early 2016 . . . unexpectedly, or right on schedule, depending on which economists you listen to. No, China isn’t a trigger. It’s part of the same collapse from the USA’s 2007-2009 housing bubble bursting. The whole house of cards is going to come down some more, possibly even harder. NONE of the systemic problems afflicting the world’s economic systems have been fixed, but a lot more money has been blown into bubbles in the last 7 years.
I think what we are seeing here is the dead cat bounce finally coming in for its second landing.
*government-mandated spending on cities that stand unoccupied, paid for with loans in their own currency, actually are a net negative – but they are reported as +GDP numbers so it looks like the country is doing well. It’s not, and hasn’t been for a while.
~ or, What’s the Worst That Could Happen? ~
China, seeing their investments in Iraqi oil fields evaporating as ISIS steals their refineries one by one, has gotten a clue. They are making noises about helping to fight IS in Iraq. I think it wouldn’t hurt China’s feelings to regain their Syrian oil fields from IS also, but that comes later.
For now, we only have one of our main *ahem* competitors talking about intervention in the same place we are for-sure 100% NOT until after the next election putting boots on the ground. Stand by for “oopsies” friendly fire incidents from either side. Worst case is World War III from the response to that.
Then again, maybe China just uses the war they are about to join, as practice for when they forcibly convert China to the proper Mainland way of Doing Things. To which the rest of the civilized world might respond in kind, and we get WWIII from that too.
Or maybe they want to get some better exercise for their military than suppressing islamic minorities in china. Or maybe they want a chance to field-prove their newest Chengdu fighter.
Or maybe they just want their oil infrastructure back?
In addition to shadow bankers disappearing/committing suicide/going bankrupt/leaving the country, China’s economy is in the middle of another body blow.
Say you’re a Chinese businessman “needing” a loan. Go to the bank! No, not the shadow banks, a legit REAL bank. They have been ordered by the Communist national government to lend, regardless of your credit-worthiness. All they want is collateral. Tell them about your warehouse full of steel, and they’ll give you a loan.
Well let’s say your business plan wasn’t as great as you thought. You end up in default on the loan. Here comes the bank looking for their collateral warehouse-full of steel. Except you lied, and there is no steel.
Or, probably, copper and other commodities. To say this is a huge problem is an understatement. Let’s see if the Chinese government lets the banks take a hit, even on paper, or if bailouts become “necessary” to “save” the banks in China.
The question came up on the Boortz show this morning: SOMEbody is apparently going to build a base on the moon. Do you want it to be China, or do you want it to be us? The question is almost rhetorical. Of COURSE you want it to be us. Then the reaction I had: Neither! We shouldn’t be building [deleted] on the moon! Not our moon!
Of all the things where weights and balances are critical, the MOON is high on the list. Seriously? You make it too heavy and ‘here she comes!’ and if you make it too light (mining) ‘there she goes!’ WHO thinks it’s a good idea to mine the moon or add tons and tons of mass all in one spot on the surface? This is foolish talk!
Oh sure, we will make sure it’s done right. Sure, sure. International treaties to ensure mass distribution stays nominally the same. Right. Except OOPS oh well we’ll make it up next year. Then next year comes and OOPS oh well we’ll make it up next year. Then next year comes and HEY has anybody seen the Moon lately?
Leave the Moon ALONE. I like the tides. I like the night sky illumination. The female hormonal cycle we could do without, but . . . .
oh, wait a minute. Nevermind, mine the [deleted] out of the moon and make it go away!
(that was a joke. I’ll take tides and global winds with PMS over the alternative, thanks)
It’s okay Japan, you don’t have to offer annual apologies for getting us into World War II. We kicked your face in, and we DID see Absolute Victory, just like Roosevelt said we would.
Quote of the Day: “China apparently is preparing for war. What are we preparing for?” -Laura Ingraham, 07 Dec 2011, the day they told their Navy to prepare for combat.
China has an army that could easily march a few million men into Israel. Israel will (if you read it that way) be the location of a battle that will include so many casualties that blood flows as deep as a horse’s bridle for 200 miles.
But China has nothing to do with Israel! Why would China figure into the last battle just before the return of Jesus to Earth? They wouldn’t, right? It was always some sort of vague “they’ll come from the Kings of the North” type of thing. Until now.
China says they’ll protect Iran even if it starts World War Three. Iran, of course, is on Israel’s short list of “Nations to attack before they wipe us off the map.” WWIII here we come.
The maths are open for debate(check the comments!). Depending on how you run your made-up numbers, it could be about the right volume of blood to mean everyone left on Earth dying in the same place. That seems . . . perhaps high to me.
“…[I]n the event of a confrontation with the United States, China’s entire supply chain and overseas investments are helpless hostages.“
This is something I (and probably a lot of us) had not previously considered. China is becoming the manufacturer of all things for all nations, but they are not a country rich in natural resources. So they are not only a leading exporter of finished goods, they are an importer of raw material and (as in the linked story) energy. If China were to start some sh*t and get the USA involved, the USA and other nations would possibly be able to take steps to completely cripple the Chinese economy, causing domestic revolt in China, by preventing access to key resources in foreign nations where China gets their stuff to make your stuff.
So if China acts up, China loses almost automatically*? Wow.
Hat tip: Instapundit
*assuming competent response by the other players on the world stage, that is!
If you think the American and Chinese economies don’t necessarily rise and fall together, or the European and world economies, you will have a rare opportunity: your theory is about to be tested In Real World Conditions. China: headed off the cliff, just in time for the Presidential elections. Europe: Bailout deal 100% ready to rock except for the fundamental portion of the deal is unresolved.
If you think the USA’s economies can survive China, Australia, Greece, Portugal, Italy, and Spain all crashing at once while France and England are faltering, I can hope with you . . . . but I expect my long-awaited double-dip is going to be nasty. Here’s hoping the global food supply holds out. You can’t eat a CDS certificate.