Wednesday, July 5, 2017

China's Hidden Debt Bubble - Mike Konrad

by Mike Konrad

Can it be that "there is an ominous underreported tidal wave about to occur"?

Most people think the United States is the nation most heavily in debt. But if one looks at per capita values, the USA is far from the worst. The worst now looks like it may be China.

According to the World Atlas, the United States does not even make the top 10. What is truly scary is Japan, which has an incomprehensible 248% debt to GDP ratio.
Some other notable high debt to GDP ratios include that of the US at 105.8%, Jamaica at 124.3%, Cape Verde at 119.3% and Bhutan at 115.7% (because of its reliance on Indian financial assistance). Troubled European nations such as Cyprus, Ireland, Belgium, Spain, and Portugal also have troubling ratios. -- Nomad Capitalist
According to Market Realist, Greece, Italy, Portugal, France, and Spain are in worse shape than America, with the UK and Belgium not far behind. Another chart shows that the USA is not the worst in household debt to GDP.

Now, such data can change radically, and rapidly, per week. The point here is not to say that the USA is not doing so badly. One could think of this as individuals without a parachute in free fall from a height in the stratosphere, with the highest one shouting to the lower one, “I am in better shape than you.”

Nor is this to scold anyone. Rather, there is an ominous underreported tidal wave about to occur.

Chinese debt surpasses GDP by 300%.
Global Debt Hits A New Record High Of $217 Trillion; 327% Of GDP – Zero Hedge, June 29, 2017
Anyone who has surveyed the Chinese scene knows that China has been building massive empty urban areas with no one in them. There was massive and reckless speculation, which is now starting to collapse. To get a sense of the enormity of this, one need only see how much concrete was used.

China used more cement between 2011 and 2013 than the U.S. used in the entire 20th Century.
The statistic seems incredible, but according to government and industry sources, it appears accurate. -- Washington Post, 2015
China has “hidden” debt.

Rising defaults in China are unearthing hidden debt at companies across the country.
Small firms that can’t get loans by themselves have been winning banks over by getting other companies to guarantee their borrowings. The companies making those pledges exclude them from their balance sheets, leaving creditors in the dark. Borrowers often extend the guarantees for each other, raising the risk that failures could ricochet, at a time when increasing borrowing costs have already added to strains. -- Bloomberg
This is the Chinese version of the Fannie Mae Crisis. Only, this seems to be driven by crony capitalism rather than bank corruption. Does it matter?

The world economy is poised for a disaster of unparalleled proportions.
Why The Next Recession Will Morph Into A Decades Long Depressionary Event... Or Worse
But the absence of a growing consumer base isn't just a US issue...this is a global problem. The annual growth of the 0-64yr/old population of the combined OECD nations (most the EU, US, Canada, Mexico, Chile, Japan, S. Korea, Australia / New Zealand) plus China, Brazil, and Russia show the growth that has driven nearly all economic growth has come to an end... and begins declining from here on. – Zero Hedge
Those without a sense of history, think that depressions are short interruptions. Depressions can last decades or even centuries. It would not be until 19th century Europe that the average standard of living would start to equal Rome in its heyday. This may be what we are looking at.

Moreover, two new features have arisen which were never seen before in history. In the past, during such debacles, there were places to flee. Until the Great Depression of 1929, it was common practice to return to a relative's farm and wait it out. What made the Great Depression so bad was that America was mostly urban by 1929 and many people had no relative to lodge with. But urbanization was not worldwide in 1929. It is now.
The pace of urbanization has been remarkably swift. In 1950, only 30 percent of the world’s people lived in cities. That has grown to 54 percent in 2014 -- NY Times
If a worldwide downturn occurs, over half the world's population may have no place to wait it out.

The second new feature is small families. Until the 20th century, it was common practice to have large families to provide for one's old age. Youngsters were what kept the economies growing and booming. That is gone. Europe is having a population collapse. America is being kept afloat, but only with immigration. China's one-child policy is blossoming to horrific consequences. Even India is leveling off. It seems that the only places where population is growing are in Islam, Africa, and Israel. Israel is also blessed with a relatively low debt to GDP ratio; making it one of the few nations with a growing population and low debt.

Now in 1929, some nations were affected differently. France was not as severely hit by the Great Depression, though it lasted a bit longer there. Argentina, which had an export economy, was thoroughly destroyed by the Great Depression, when countries closed their markets to Argentina grain. In reality, a good portion of the political and economic disasters that have plagued Argentina over the past century have stemmed from that Great Depression, where Argentina's military and political leaders have used every ridiculous trick in the book to regain the glory that was once theirs before 1929, when it had the 4th highest GDP per capita on the planet.

This time, there will be no place to flee -- not internally, not externally -- anywhere on the planet. The only exception may be that Jews may have an escape to Israel. What it now looks like is that it may be Chinese, not American nor European, debt which will take down the house of cards.

Anyone who has studied history knows that debt at these levels usually ends with war and revolution. The debt of from the French and Indian War had Britain taxing America, which lead to the American Revolution. The debt from supporting the American Revolution bankrupted France, which led to the world shattering French Revolution. German debt after WWI contributed to the rise of Hitler, and so on. The coming debacle will not be limited to a national crisis, nor a civilizational crisis, but will provoke an absolutely total worldwide crisis.

One can foresee major governmental and cultural changes. In a drive to collect taxes, governments may go cashless so they can track all transactions, which will lead to a total abridgment of privacy and liberty. Count on it, health care will be pulled from the sickly and the poor. Who can afford it?

I do not think national governments will collapse – technology has given them a degree of totalitarian options; but societies and civilizations will radically change. A dark age may be coming.

What is interesting is that this collapse may not be able to be laid at anyone's feet – as it was formerly thought the U.S. would be to blame. The whole shebang may collapse overnight, with everyone at fault.

Mike Konrad is the pen name of an American who wishes he had availed himself more fully of the opportunity to learn Spanish in high school, lo those many decades ago. He writes on the Arabs of South America at He also just started a website about small computers at


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