A lot of smart people say, yes – China’s financial collapse is very likely.
I have addressed China’s woes several times over the last few years, including (1) China’s Banking System Collapse Is Terrifying; (2) China’s Massive Housing Bubble; and (3) Are China’s Woes Good For Mortgage and Real Estate?
I am bringing China up again though because a financial collapse really does seem imminent (likely to take place this year), and the repercussions will be felt everywhere – given the enormous size of the Chinese economy.
If an economy as tiny as Greece could bring the financial markets to a standstill, I can only imagine what would happen if China faced financial issues that all came to a head in a similar manner.
Peter Zeihan Says China Won’t Exist as a Country!
Peter Zeihan, who is a famous geopolitical analyst, has been saying for years that China’s complete collapse as a country is a near certainty within “5 to 10 years” – for many reasons including: (1) a very weak economy that the Chinese have been hiding with false data; (2) 100% top-down/one-man control with President Xi in power; (3) a lack of energy and other natural resources; (4) a lack of a blue water navy to protect their trade routes; (5) horrible demographic issues with a shrinking and quickly aging population; (6) massive debt and housing issues; and (7) an inability to cultivate or manage top-tier technology.
I HIGHLY recommend Zeihan’s YouTube channel HERE, as ALL of his observations are super interesting – no matter the country or the topic.
While Zeihan focuses on the country as a whole, a gentleman named Michael Kao focuses primarily on China’s financial woes. In a tweet yesterday in response to another tweet by famous hedge fund manager, Kyle Bass (who was also illuminating the severity of China’s problems), Mr. Kao (who has about 80,000 followers) linked to this Substack article of his: Geopolitics/Inflation/USD – Bull In A China Shop!
Why China Will Face a Financial Crisis Soon
While I recommend reading the entire article because it is both so interesting and convincing, here are a few key points: (1) China is by far the most indebted country on the planet with private debt equal to 3x GDP – something no country survives; (2) China’s banking system is a far bigger mess than ours here in the U.S. and completely opaque to boot – so nobody knows how bad it really is: and (3) China faces issues that are very similar to Silicon Valley Bank’s – but on a scale that is multitudes larger, needless to say.
What Happens if China Has a Financial Crisis?
If China does face a financial collapse, financial markets across the globe could freeze up for a while like we saw in and after 2008; the dollar will likely surge in value as capital from around the world floods into the U.S. as a safe haven; and interest rates will plummet as money surges into bonds for “safety.”
So, while Barry Habib likes to tell us that it will be falling inflation and a recession that brings interest rates down, a major financial crisis out of China or elsewhere could bring rates down much farther and faster.
And, after reading Mr. Kao’s article, I would not be surprised to see such a crisis in the near future (months, instead of years).
I might add that our friend Jeff Snider has been sounding the alarm about China for some time too, so it is not just Mr. Kao and Mr. Bass.
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