Meraglim Blog

China Is Going Broke, and the Chinese Government Can’t Stop It

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
As recently as 2014, China seemed like an unstoppable financial juggernaut. The GDP of China had surpassed that of the U.S. using a purchasing power parity (PPP) measure. (I don’t consider PPP the best way to measure GDP. I use a measure that still shows the U.S. as the world’s largest economy. But many publications were shouting, “China’s No. 1!” when the PPP news was revealed.) China’s hard currency and gold reserves exceeded $4 trillion, and its economy was growing at over 8% per year.
Suddenly, conditions have changed for the worse — much worse. Growth has slowed to 6.7% per year, and even that is overstated. Much of the “growth” is from wasted infrastructure investment that should be written off before the cement dried. China’s debt-to-GDP ratio (counting provincial debt and state-owned enterprises) exceeds 200%, about double the U.S. and not far behind profligate Japan.
Most worrying of all, China’s reserves have fallen by almost $1 trillion and continue to bleed at a rapid rate. These capital outflows are driven by businesses and individuals who worry about the devaluation of the yuan. Any party holding yuan balances will lose money measured in dollars, euros or gold unless they can get the money out of China. Capital outflows from China explain the booming housing markets in New York, Vancouver, Sydney, London and Melbourne. Chinese are buying luxury condos they don’t even live in just to get their money out of China and into hard assets in another currency.
We’ve seen these capital flight crises before, in the U.K. in 1992, Mexico in 1994 and Argentina in 2000. They always end with a “maxi-devaluation” designed to stop the bleeding once and for all. U.S. stocks fell 11% in August 2015 when China devalued by 3%. A new 20% devaluation by China would probably push U.S. stocks down 30% or more in a borderline panic scenario.
Crises like these can be avoided for a time but always end the same way.  Click here to see why  a currency shock from China, with ripple effects around the world, is growing closer by the day.
– Jim Rickards, Meraglim™ Chief Global Strategist

IF THE SCIENCE IS NOT ON YOUR SIDE, JUST TRY THREATS

It’s clear that good science does not support the extreme claims of the climate alarmists. Yes, there is such a thing as climate change, but it’s slow, difficult to predict and almost impossible to model because of the complexity of the process. The climate alarmists have grabbed most of the headlines for the past ten

Read More »

WHY TRUMP WILL WIN REELECTION: NOT POLLS OR PUNDITS; JUST COMMON SENSE

Political analysts use polls, betting odds, historic trends and other inputs to make their (usually wrong) political predictions. We all remember that “experts” said Hillary Clinton would win the presidency in 2016 (they gave her a 92% chance on the morning of the election), and that the UK would vote to “remain” in the EU

Read More »

HERE’S ANOTHER ELITE WITH ANOTHER PLAN TO TAX AWAY YOUR WEALTH

The elites never rest when it comes to devising new ways to take your money through taxes, inflation or outright confiscation. The latest Trojan horse the elites are riding to take your money is climate change. The climate does change over long periods of time for reasons that are not well understood except that they

Read More »

KRUGMAN SHOWS HE KNOWS LITTLE ABOUT ECONOMICS AND LESS ABOUT FINANCE

We already knew that Nobel Prize winner Paul Krugman knows almost nothing about economics. Now, we see from this article that he knows nothing about banking either. Krugman claims that the repeal of Glass-Steagall and the actions of banks in general were not the cause of the 2008 financial crisis. The conventional wisdom is that Lehman Brothers,

Read More »
Scroll to Top