China’s reliance on nonproductive debt for growth has been obvious for years. But let’s go over why that is so. 
Embedded in the Way China Works
Erosion of Role of Bankruptcy Is Critical for Growth
This happens in the US too, but not the same degree or in the same ways.
For example, the Fed recently papered over US treasury note losses of banks by swapping them for dollars at par. But the Fed has not lifted a finger on commercial real estate losses.
The amusing thing is how many people believe the yuan or a BRICS-based currency (call it a BRICK) will replace the dollar as the world’s reserve currency when it meets zero conditions necessary.
What Would it Take for the “Brick” to Succeed?
- The Brick would need to float freely. The yuan doesn’t.
- A functioning Brick-based bond market.
- A significant desire by individuals to trade in Bricks and accept Bricks rather than local currencies or the dollar.
- Willingness of China to stop export mercantilism.
- Trust
China meets none of the conditions. For discussion, please see What Would it Take for a BRIC-Based Currency to Succeed?
Meanwhile, China has an imploding property bubble, capital controls. a yuan that does not float, and is overly dependent on insolvent and corrupt State Owned Enterprises (SOEs) for growth. And China’s demographics are horrible.
Instead of supporting consumption, it has again turned to exports for growth. That strategy is not good for either China or the US. But here we are.
we look into China like it was US or any other country. This is not correct. They have long term plan in place. From my view I see 3 stages here:
so that push for export is actually push for world dominance and control. China doesn’t care that much about its citizens so no need to focus on local consumption
This all bode bad for American companies as they will struggle in this environment in next few years. They are abiding to regulations plus they will not have support from any goverment to overrule any tariffs or sanctions. china in the same time is pushing roadblock out with political approach and local loans to support/corrupt governments in different parts of world.
We in America might be left in our local bubble where we will put all those blocks and tariffs but rest of world will slowly be migrating to china centric world.
A couple days ago I posted a long comment about the dollar v a Brick reserve is not the only way to organize world trade. When I edited that comment for typos it vanished into a spam filter. Oh well.
Everyone talks about China’s reliance on nonproductive debt for growth but is there data to quantify this?
You mean like massive industrial over-capacity, product dumping on global markets, entire cities worth of residential construction sitting unoccupied, debt-defaults by major property developers, ever-greening of nonpayable loans to well-connected state-owned enterprises, arbitrary and capricious shutdowns of major tech companies, and other things like that?
Russian oil fields are old. They suck it deep below earth and deep below the ocean floor. Putin barter weapons with Iran, N. Korea and Turkey. That stuff is gone within days/weeks. Russia bartered oil with China and India. The Hooties deflate the RMB. US export from China is down. Youth unemployment in China is 25%. High tech savants are among them.
Youth unemployment in China is 25% as the youth went to university to become white collar workers but at lot of the jobs remain blue collar factory work.
During the 80’s president Reagan borrowed money to support the economy at high interest rates, bc the cost of interest was 50% of tax receipts. Between 1981 and 1989 GDP increased from $3T to $5.5T, while inflation declined. A few years later the saving banks collapsed. Banks are in trouble when rates rise or fall too fast. We are in trouble when our belly fat rises too fast, above 5kg, after a prolonged diet.
Sean Combs has 7 mortgages on 2 homes totaling about $138M in loans. What kind of banking system would allow this?
Mar Largo is $18M, Sean Comb palaces are $180M.
When you owe the bank a million, it’s your problem. When you owe the bank $138 million, it’s the bank’s problem.
Your Number 5 is “trust.”
TRUST is the key factor MOTIVATING/CAUSING questions to arise about the replacement of the DOLLAR as the Hegemonic “RESERVE” currency.
Allow me to say that The USA deserves questions about its trustworthiness in a world where we have been BARELY TOLERATED as the Global Hegemon.
We are enforcing our Hegemony with FORCE and POWER and FEAR. That is a chemistry that leads to hatred and distrust and it is quite obvious that there will be a boil over into a total collapse.
In the meantime, America has WOKE-NESS driving people’s minds into being distracted from the THEFT and LYING and CORRUPTION of the RULING CLASSES.
The RULING CLASSES are in PERFECT COORDINATION in the ruination of what was once the PROMISE of a Great Civilized Society – – sadly in disrepair leading to collapse.
Otherwise, I am quite happy to be here.
great points.
demand destruction is not being identified as a problem, yet. and those who see it, have no words to or actions to counter the destruction. instead we contonue to live comfortably until there is no more…..
Mish? what are some solutions to this dark push towards destroying the American fabric?
Trust… like trust us … it’s Safe … and Effective.
Let’s revisit this since so many people seem to have forgotten
https://video.twimg.com/ext_tw_video/1476341018408538112/pu/vid/480×270/t6mPnh8Hnm_POJ8Y.mp4?tag=12
A classic CCP Ministry of Propaganda essay with standard cliches. The anonymous all knowing individual who has dealt in some ambiguous tech industry and knows all self labeled Chinese advantages while simultaneously acknowledging all American disadvantages.
Trust is relative. Who would you rather trust a dictatorship with a non transparent government with heavy handed authoritarianism where the rule of law is whatever the CCP says that day or the alternative which is the USA? There is no alternative right now.
Endless growth is the mentality of a cancer cell.
EXACTLY!!!
And yet we celebrate those who mount the podium and ring the bell then pop Champagne corks — because they have worked out how to plunder the planet much faster than others.
And we refer to ourselves as intelligent hahaha
Oh btw – what other species sprays poison on it’s food so those dumb insects and other organisms won’t eat it….. then itself eats the poisoned food?
Remind me….
Jack Lew ousted Andrew Jackson from the deflating $20 dollar bill with Harriet Tubman.
Lincoln on the $5 survived. He was almost replaced by civil rights leaders. Jefferson also survived Jack Lew. Jack Lew is US ambassador in Tel Aviv. He was Citi ceo before it collapsed. The insane Israeli “free the hostages” mob want Bibi out. The insane “free Palestine” mob wants to oust Easter in St Patrick cathedral on 5th Ave and 50 street NYC and replace it with the Ramadan.
It is self evident that the dollar will eventually be replaced and that Biden is accelerating this process. As Adam once said, “There is a great deal of ruin in a nation.” Some people think that if it doesn’t happen next week it will never happen, but is is clear that the US is in a downward slide. One hopes it can be turned around but not until the clown show in DC gets replaced with competent, and serious leaders. And, this won’t happen until there is a sizeable disaster. Perhaps the next economic down turn will be such an impetus?
clown show it is!
i have always liked what COVID shut downs has showed us
our economy,and definitely our govt. can use some severe pruning.
watch Argentina in the next two or three years…..
as we watch twitter also survive.
thanks COVID. we can survive off of 40%. those who are part of the 60% that stayed home, remain on payroll and did nothing? you may be on the chopping block….. if not on the block, naturally very soon durong the collapse you will not have a job
And don’t forget the pruning that the Covid ‘vaccines’ are doing … millions pruned….
Ed Dowd has documented the massive spike in disabilities (vax injuries) in working age people
No wonder it’s never been so easy to find a job hahaha
Do you guys ever give it a rest? Pls go back to your Facebook Russian propaganda channels.
They are the same person. You can see that by their use of the same sentence structure and vocabulairy.
“It is self evident that the dollar will eventually be replaced”
No it isn’t, because no one can answer the key question: By what?
A follow up question would be “What are the similarities between the US/UK economies leading up to the great depression and the US/Chinese economies presently?” I’m trying to figure out if new manufacturing economies are more or less likely to have a crash than old manufacturing economies.
you are not alone.
though, perhaps part of our discussions could be…. what on earth can make enough jobs, excess profits to support the large number of people retiring? 2018 is just the beginning. we have at least an accelerating rate of the same…. for the next five maybe eight years. more immigration to make up the short fall? perhaps yes…..
Uh no.
China is kicking our ass.
I work with tech companies all over the world. No one can focus here. Product development plans that take weeks to reach common ground on in the US take an hour in China and your prototype is delivered a week later. A week versus 6 months to a year. Rapid prototyping is standard procedure in China.
If you believe the future is education and is technologically driven.
Then it’s over for the US! China invests in the future.
“2025 Chinese universities will produce more than 77,000 STEM PhD graduates per year compared to approximately less than 40,000 in the United States.”
Speaking from experience, tech PHD’s in the US are “prima donnas” and mediocre.
“In 2022, around 3.6 million students were enrolled in master’s and doctor’s degree programs at colleges and universities in China.”
https://www.scmp.com/tech/start-ups/article/2106494/where-chinas-silicon-valley
China’s is building 17 Silicon Valleys populated by ALL of the multi-national corporations. Facilities include worker housing, parks and entertainment; funding sources, product development expertise, manufacturing facilities and marketing assistance are all in one place. Hong Kong, Shanghai, Beijing, Xian, Chengdu, Singapore, etc.
One example:
“China is planning to build a 13.8 billion yuan ($2.1 billion) technology park dedicated to developing artificial intelligence (AI), state-backed news agency Xinhua reported Wednesday.
The campus will be constructed within five years and situated in the suburban Mentougou district in western Beijing. It will cover 54.87 hectares, Xinhua said.”
“The technology park will be home to around 400 businesses and is expected to create an annual output value of about 50 billion yuan.”
Imagine thinking? Endless wars, terrorizing the populace and appropriating the productive class’s assets for transfer payment to the MIC and voting cast is, “future sustainable?”
America is a disgusting SLUM filled with illiterate or brainwashed droids.
Its over for us – all that remains is WAR
Oh good lord. Get a grip.
China is poised on imploding
there are some interesting points here to further discuss. productivity in two fronts in america are failing miserably and obviously could lead to a slow shoft away from the US dollar 1. education, research and development 2. servicing debt in America
china may have a heap of other hurdles to contend with. though we must cone to some agreeance. america is likely going to lose the long game, attrition alone is americas worse enemy
Mish, it is quite possible that Anglo-Saxon capitalism is giving way to Confucian capitalism. Increasingly, the world is looking to China for answers, not the U.S., EU, BIS or the IMF.
In China, a “productive” investment is one which leads to social harmony, not just profit for the few. Harmony brings high social ROI which leads to long run economic ROI.
By contrast, look at the U.S., UK, France and Germany and you see the same thing: widespread discontent. In the U.S., we seem headed for civil war. Is this an “efficient” economy? Maybe for the top 0.1%
We have under-estimated China for decades. Maybe we can learn from them. First, we need to overcome our arrogance.
One doesn’t “see” widespread discontent in China because one is not permitted to “see” it and on average those who might express it don’t feel that doing so would be good for their future.
If you think millions scraping by and seeing their financial security collapse like a poorly-constructed building, a demographic bomb larger than other ‘developed’ nations, and authoritative subjugation (to put it politely) of various segments of the domestic population are conducive to social harmony then your social credit rating must be at the top of the scale! There really isn’t much in present-day Chinese leadership that alligns with lessons attributed to Confucious.
I’ve been doing business in Hong Kong and China for over 2 decades…. we have survived two dotcom busts… the GFC….
What is happening now is unprecedented… if we recall The Big Short… and how Burry and others knew what was coming yet it took multiple years to actually play out…
It’s the same with China… only a thousand times worse….
China is here https://miro.medium.com/v2/resize:fit:1200/1*SUJ4JmUy47IwNnL6aBPt8Q.png
And they will take the global economy down when they crash…
Of course the US will be the last man standing thanks to one trillion in debt every 100 days….
This is the most important — and depressing thing … anyone will ever read.
Why? Because it is the truth. And most people do not want the truth — when it does not involve a Hollywood ending.
Been bucket listings like mad since reading this years ago….
SEE PAGE 59 – THE PERFECTSTORM : The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. Butt he critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Storm-LR.pdf
My view is Tech Centric. That’s all I know.
I did not down vote you BTW.
That said?
I can’t imagine the US commercial real estate refunding debacle is any worse than what China is facing. I won’t even get into the 8% – 12% mortgages that soon no one will qualify for, unless of course they don’t need one. Real estate may yet lock up like it did in 1990, literally overnight.
The question would seem to be?
Who implodes first?
Who recovers the fastest?
The difference is; China is preparing for a technological future while America prepares for war.
I’m visiting WA. Military Jets filled with murderers fly near my house next to a National park all day long. Meanwhile the local high school track is bubbling up and rotten and useless. Underfunded Olympic National Park is closed more than it’s open. Homeless people beg in front of the stores. Giant addiction treatment centers are being built by the Tribes for the caucasians?
https://www.washingtonpost.com/graphics/2020/national/investigations/native-american-opioid-treatment-center/
The future here is bleak which is why Gen Z have become ardent nihilists – why bother when there is no future. The boomer’s have the temerity to assail them for giving them the finger. RCMP in Canada says no one under 30 in Canada will be able to buy a house and they expect a violent backlash in the future. Distortions in the economy are the same here as there due to financialization of the economy.
China has a rough spot to traverse but there is light shining at the end of a tech development tunnel.
17 Silicon Valley’s in China
vs
Silicon Slopes and Austin.
China is moving from MFG to technological development
The US is moving from technological development to War
US is financially and morally bankrupt.
1 trillion in debt every 100 days.
Unfunded liabilities are astronomical.
Bad times are coming.
Prove me wrong.
China is expanding their military – one Boeing plane may be buzzing your house while folks in Taiwan are being buzzed by squadrons. To me it looks like China is preparing for war and their ally Russia is at war.
China was advancing quickly in the tech area for most of the last decade. The government encouraged this tech advance and the result was some great companies like Ali Baba, Ten Cent, etc. The people who worked for these companies were getting rich and even famous. This further encouraged the young to aspire to move into this area. The future for Chinese tech looked bright indeed.
Then some of the tech leaders began speaking openly about how change was happening and change was good.
That resulted in the government clamping down hard on tech as it appeared as a new threat to the current regime.
Chinese tech is no longer the growth area that it was before. There is far less incentive for the young to aspire to an industry where the inspirational leaders suddenly disappear from the public stage for months at a time, or sometimes disappear permanently.
China was building fake cities to spur growth. Potemkin Villages every single one of them…
What cannot continue… will end.
And it’s ending now… in a fireball
I disagree that anything is “ending in a fireball” in China. Just that the former fast growth has now slowed down, much like the US and Europe. After all, their consumption of energy continues to grow, which means economic growth.
Faster growth can still be found in India and some of the smaller Asian countries.
Were they actually advancing in tech or merely stealing tech to catch up?
There is a difference obviously. There is no question they can follow, but can they lead.
Why don’t you move to China ?
lol
moving to china, or say America
great litmous test for the economy.
now, question, will this change in ten years? or by 2030? a line up of peopke to move into the ghost cities in China? or will another economy emerge far and greater than America and China?
Could probably rent a house in a ghost city for peanuts heheheheh
I don’t recommend it… I lived in Shanghai for a year… the smog is horrifying…
Sounds like more empty buildings – isn’t this kinda the point of Mish’s article?
Mish, maybe there is a different way to see a non-dollar alternative. Have a look. I am interested in your response.
Rather than imagine a reserve currency replacement, what if (maybe as an interim step?) there were a series of bilateral, quasi-barter trade arrangements in which country X accepts country Y’s currency because it’s in their mutual interest to do so?
A couple examples. Iran and Saudi Arabia agree to take Chinese yuan for oil, and rather than hold the yuan for long, they quickly arrange to spend those yuan on Chinese manufactured goods. Maybe the contracts are simultaneously negotiated, with prices and currency exchange rates put into said contracts.
Brazil is now the world’s largest grower of soybeans. Production has tripled within the past decade, with much of the output going to China. China has been building ports and railroads in Brazil. What if all of those contracts were denominated in yuan at specified forward prices and exchange rates?
Russia sends oil to India, and takes rupees. What if those arrangements include purchases from India in which the rupees are spent for Indian exports rather than held as reserves? Russia sends oil and gas to China, and takes yuan, and turns right around and buys war materiel?
Over time, as these arrangements are seen to work out, an alternative currency regime arises, without a “Brick” but rather with other currencies floating against each other, i.e. rupee, yuan, and who knows what else? They aren’t freely traded or convertible, but their value is established by fungible contracts.
It would be complicated and opaque, and in some ways far less attractive than what it replaced. Why would it arise? Because the dollar and the euro, but especially the dollar, itself became opaque in its own way when the U.S. seized Russia’s dollars and threatened to seize other dollars. Also, as China became the global manufacturing leader, it had real goods to trade. Whats a dollar worth, anyway? An empty office building? An F-35 that works 15% of the time?
Seems to me that that a dichotomy between a dollar reserve vs. a Brick counterpart is unimaginative, rooted in Bretton Woods Forever, i.e. a reserve currency that is fungible everywhere, backed by a single world-dominating economy and military. The world that is emerging won’t be that organized. It will be marked by shifting bilateral or limited multilateral arrangements, with a sort of barter defining exchanges, using this or that non-convertible currency to keep score.
The idea of a reserve currency, even gold, is the lust for a one size fits all solution, a single explanation. What if there is not that, but the economic world becomes the casbah, a group of rug merchants with no central reference point? I might note that, within the past decade, the dollar has declined from roughly 75% of all trade to about 45%, with the decline having accelerated since the failed Ukraine sanctions.
To borrow from Buffalo Springfield, something’s happening here, even if what it is ain’t exactly clear — yet.
With zero rates US zombies have survived for 15 years. With zero rates investors sent RE and SPX to a new all time high. The US will go down first, in stepping stones. Europe and China next. Impaired businesses will go bk. Debt, entitlement and unrealized promises will disappear. With zero rates the Nikk reached a new all time high, after 35 years.
Europe and china will also be sucked in. i suspect that is the plan by top Americans. if america goes down. evwryone who piggy backed off america these last few decades will follow.
so who is left? russia, iran and india.
their poaitions in the US market are minimal. look at their us treasury holdings.
gold reserves and their ability to function with very little imports.
The entire world is insolvent
The allocation of surplus capital to its most productive use is a grave responsibility. Misallocation creates poverty. Astute allocation creates wealth.
I thought I was reading about the US and had to go back up to the title to make sure.
AND the latest scheme is to spend almost 26% of GDP by the federal government criminals and call that growth. FEDs will spend $7T on a $27T GDP economy with $4.7T in incoming tax receipts and complain “we” arent giving them enough and look upon the peopke with disdain that question this insanity.
Why do “we” allow them to do this to our children and grandchildren? How/when does it stop?
My current and future decendants are fucked because I didn’t stop this…… yet
The community organizer, who lived in the Chicago synagogue, did it for GW Bush. In 2024 he prepares the slump for Trump.