by Amy S.
Social unrest has erupted in China after almost $6 billion worth of deposits froze up. Thousands of police were deployed to shut down the protest. Following the protest, hundreds of thousands of Chinese homebuyers refused to pay up to $300 billion worth of mortgages. Mortgage payments have reportedly stopped on 301 projects in 91 cities. China is experiencing a repeat of the 2008 recession but on a whole new level. An entire social revolt is growing as the CCP desperately censor the growing uneasiness. Internal government meetings have revealed substantial stress within the CCP and the signs are showing that it’s only going to get worse. China’s social unrest has revealed a multitude of flaws within the country, and the implications will ultimately affect the rest of the world.
Over 400,000 Chinese citizens witnessed their bank deposits freeze recently. When depositors went to the ATM to withdraw their money, their withdrawals were simply declined. Panic ensued after people couldn’t even withdraw their own money. The bank freeze was a result of a massive fraudulent scheme that played out for over a decade. Protests about the bank freeze have gone viral on Chinese social platforms despite repeated attempts from the CCP to censor them. While the bank freeze only occurred within five different banks, hundreds of other Chinese banks are at risk according to the Chinese government. After the bank protests went viral, the social unrest spread to almost every part of the country. A recent internal government property meeting leaked several major concerns. 300 million square footage of property construction has been halted. Local governments can no longer withstand the pain. A 200 to 300 billion yuan property fund has been rumored to not be enough. Property sales are down 20%.
Construction starts are down 30%. Perhaps the worst of them all is China’s recent mortgage revolt. Because Chinese homebuyers are not paying their mortgages, financial regulators have created a proposal to allow citizens to pause their mortgage payments. The amount of unpaid mortgage payments equals to 2 trillion yuan or $300 billion. The problem with both the mortgage boycott and the bank freeze is that a domino effect is about to occur. Five banks went bankrupt, which will spread into 20 banks, then 100, and eventually, the entire banking system.
This is because like almost every country’s financial infrastructure, the Chinese banking system relies on fractional reserves. When someone deposits $1,000 in the bank, the bank does not hold onto that $1,000. The bank will instead keep $100 as reserves and loan out $900 so that they can receive income through interest. The lender of that $900 will then spend $900 on products and services. Because one man’s spending is another man’s income, someone else will receive that $900 as income and deposit it into the bank. The bank will now loan out $810 and keep $90 in reserves. The lender of that $810 will then spend $810. Someone will receive $810 as income and deposit it into the bank.
This will cause the bank to loan out $729 and keep $81 in reserves. This cycle will keep going on over and over again, causing the bank to be leveraged by up to 10 times. This is called the monetary multiplier effect, because the lending is multiplied over and over again. In the example that we looked at, the money supply started at $1,000 and eventually increased to $10,000. $9,000 was created out of thin air purely from the multiplier effect. When citizens all try to withdraw their money at once, they will quickly realize that the banks don’t actually have the money they deposited.
This is because the banks simply created money out of thin air. Economists worldwide know that China’s recent social unrest is a signal of a complete disintegration of the Chinese economy. The mortgage boycott did not come out of nowhere. It took years of mismanagement and greed to build up all of the frustration that came in the form of a boycott. Because housing prices kept going up year after year, Chinese citizens were eager to purchase any property on the market. Similar to the build up of the US’s 2008 recession, citizens could not even imagine that housing prices would ever crash. As a result of increasing housing prices, people would save up for years just to get their hands on real estate.
An estimated 70-80% of Chinese household assets are tied to real estate. Imagine saving up for decades just to finally purchase a single property. This type of behavior was incentivized by Chinese culture, where newer generations would prioritize purchasing a home. Such a huge buying frenzy fueled up the booming property market that continued on for decades.
The World Has Gone Mad & The System is Broken – Ray Dalio The entire global financial world has indeed gone mad and is in totally uncharted waters. The personal debt, dollar, and government debt bubbles have yet to burst, but we are definitely getting closer each, and every day, the central banks of the world continue to print more “fake” money instead of tackling the problem head-on with spending cuts and raising taxes. Negative interest rates, $23,000,000,000,000 US national debt, crypto currencies, on and on. Anybody who thinks they know exactly how this will play out is either lying or has something to sell you.
Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, his net worth, equals to $18.7 billion. Only a few days ago he stated that the world just got mad and the system is broken. Ray Dalio wrote on his LinkedIn timetable: Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically, investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up.
The reason that this money that is being sold on investors isn’t driving growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. This dynamic is creating a “pushing on a string” dynamic that had happened many times before in history (though not in our lifetimes) and was thoroughly explained in my book Principles for Navigating Big Debt Crises. As a result of this dynamic, the prices of financial assets have gone way up, and the future expected returns had gone way down while economic growth and inflation remain sluggish.
Those significant price rises and the resulting low expected returns are not just right for bonds; they are equally valid for equities, private equity, and venture capital, though these assets’ low expected returns are not as apparent as they are for bond investments because these equity-like investments don’t have stated profits the way bonds do. As a result, their expected returns are left to investors’ imaginations. Because investors have so much money to invest and because of past success stories of stocks of revolutionary technology companies doing so well, more companies than at any time since the dot-com bubble don’t have to make profits or even have clear paths to making profits to sell their stock because they can instead sell their dreams to those investors who are flush with money and borrowing power.
There is now so much money wanting to buy these dreams that in some cases venture capital investors are pushing money onto startups that don’t want more money because they already have more than enough; but the investors are threatening to harm these companies by providing enormous support to their startup competitors if they don’t take the money.
This pushing of money onto investors is understandable because these investment managers, especially venture capital and private equity investment managers, now have large piles of committed and uninvested cash that they need to invest in order to meet their promises to their clients and collect their fees. At the same time, massive government deficits exist and will almost certainly increase substantially, which will require vast amounts of more debt to be sold by governments—costs that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long. Where will the money come from to buy these bonds and fund these deficits? It will almost certainly come from central banks, which will buy the debt that is produced with freshly printed money.
This whole dynamic in which sound finance is being thrown out the window will continue and probably accelerate, especially in the reserve currency countries and their currencies—i.e., in the US, Europe, and Japan, and in the dollar, euro, and yen. At the same time, pension and healthcare liability payments will increasingly becoming due, while many of those who are obligated to pay them don’t have enough money to meet their obligations. Right now, many pension funds that have investments that are intended to meet their pension obligations use assumed returns that are agreed to with their regulators.
They are typically much higher (around 7%) than the market returns that are built into the pricing and that are likely to be produced. As a result, many of those who have an obligation to deliver the money to pay these pensions are unlikely to have enough money to meet their requirements. Those who are recipients of these benefits and expecting these commitments to be adhered to are typically teachers and other government employees who are also being squeezed by budget cuts.
They are unlikely to accept having their benefits cut quietly. While pension obligations at least have some funding, most healthcare obligations are funded on a pay-as-you-go basis, and because of the shifting demographics in which fewer earners are having to support a larger population of baby boomers needing healthcare, there isn’t enough money to fund these obligations either.
Since there isn’t enough money to fund these pension and healthcare obligations, there will likely be an ugly battle to determine how much of the gap will be bridged by
1) cutting benefits,
2) raising taxes, and
3) printing money (which would have to be done at the federal level and pass to those at the state level who need it).
This will exacerbate the wealth gap battle. While none of these three paths are good, printing money is the most natural path because it is the most hidden way of creating a wealth transfer, and it tends to make asset prices rise. After all, debt and other financial obligations that are denominated in the amount of money owed only require the debtors to deliver money; because there are no limitations made on the amounts of money that can be printed or the value of that money, it is the most natural path.
The significant risk of this path is that it threatens the viability of the three major world reserve currencies as a viable store holds of wealth. At the same time, if policymakers can’t monetize these obligations, then the rich/poor battle over how much expenses should be cut and how much taxes should be raised will be much worse. As a result, wealthy capitalists will increasingly move to places in which the wealth gaps and conflicts are less severe, and government officials in those losing these big taxpayers will frequently try to find ways to trap them. At the same time, as money is virtually free for those who have money and creditworthiness, it is almost unavailable to those who don’t have money and solvency, which contributes to the rising wealth, opportunity, and political gaps.
Also contributing to these gaps are the technological advances that investors and the entrepreneurs that I previously mentioned are excited by in the ways I described, and that also replace workers with machines. Because the “trickle-down” process of having money at the top trickle down to workers and others by improving their earnings and creditworthiness is not working, the system of making capitalism work well for most people is broken. This set of circumstances is unsustainable and certainly can no longer be pushed as it has been sold since 2008. That is why I believe that the world is approaching a significant paradigm shift.
The American Financial System is no longer able to offer much, if anything, to the sheep. The creature from Jekyll Island. We, the people, have been gamed since 1913. Fiat currency and the fed are there to steal from the people. It’s rigged, and beyond mad. As George Carlin said, “…it’s a big club, and you ain’t in it.” Only someone like Ray Dalio has the guts to say the truth openly, that the Reserve currencies are being depreciated by the overprinting and unaffordable (un-funded) government spending plans. Game of Monopoly has better restraint than these central banks and governments! The Ponzi debt scheme (quantitive easing) and inflation will eventually lead to loss of trust in the financial reserve currencies. When countries stop exclusively using it to do trade, as the BRIC countries already have, and other people find alternate currencies like Bitcoin, history may repeat itself, leading to the collapse of the system as it stands, leading to some newer “reserve currency.” The ECB, along with other central banks, are seriously fearing their survival and want to prevent these independent digital currencies because THEY can’t manipulate them. After we decoupled from the Gold reserve in the ’70s, the so-called reserve currency group countries have been printing money and spending recklessly.
Why? Why not? We have a perverse electoral system that allows politicians to spend on services and tax cuts, not from savings from the current generations, but instead from the future generations who can’t vote or aren’t even born yet. Surely that is the enslavement of the children and unborn, I hear you say! Well, yes, it is, but most people don’t know or maybe don’t want to know. These future generations don’t get a choice on whether they want to take on the debt to pay for these services. By the time they are old enough to vote, they too will be promised services from their children’s future. In short, we are living in a world where very few people are mature enough to take on responsibility for these things, be it on a personal, national, or global level. Telling the truth and solving the root causes of the problems just doesn’t win the votes. Imagine you could buy things for free without having actually to pay for it in a real tangible manner! That is what the reserve currency countries have been doin
g for a while now, printing trillions centrally, passing this currency off to the government as debt; which the financial institutions buy from the government as Bonds, against which they can now leverage and borrow vast amounts of money to flush the markets.
1) The government can now provide services which it can’t really afford.
2) The Banks can lend money in a leveraged manner to everyone to spend.
3) The government can call this GDP growth (but its just a more significant debt).
4) The debts get pushed into the future for someone else to pay (just like the environmental debts).
5) Currency is printed even more rampantly to create inflation to reduce the past debt, And the cycle goes on and on and on. So who looses? In the short run, no one (that was in the ’70s and ’80s), in the midterm the middle class (2007 to 2011), in the long term everyone (at the next crash) as it will wipe wealth and create opportunity gaps, causing mistrust of the financial systems and governments. In the late 1930s, politicians used that fear and pain to incite racial haterade and division.
This is reflected in our current global far-right politics and the rise of nationism and undercurrent racism. Currently, there are three options:
1) Pay down the debt; people and governments spend less and live within their means. As if, not likely.
2) Print more money and devalue the currency until someone calls the pyramid debt scam a scam. Not likely, as too many people are on the gravy train. Any item worth less tomorrow than today is not a preserve of wealth, and currencies are just that, they become worthless over time due to this fake money printing.
3) The children of middle and lower class earning families (ie, us) will be used to leverage debt further into the future, and if any country calls for the abolishment of central currencies, political and military might will be used to ower throw them.
This is most likely, The reserve currency nations bully the non-reserve currency into insolvency or force them to sell their national resources, like oil, when they print their way out of debt (quantitive easing), but when they do its entirely correct? Only a unicorn and lots of fairy dust can solve this problem, but I guess we the ordinary people will have to work our way out of our debts, while those who are in elite echelons will print the governments’ debts away and take a fat cut for this creative (“or what others may call fraudulent”) solution.
Renowned experts who warned of the now-present, slow-motion financial collapse. With currencies being rapidly devalued by their respective governments, the global economy in a slow-down, and tensions over resources heating up around the world, it’s time to start considering the endgame. If we all talk about the end game and a scenario of total collapse, I can see the governments telling everybody that your money is now worthless and the bonds you own are now worthless. You all have to take a haircut. The controlled media tells us that it is a symptom of corporate greed and an accidental occurrence. The truth is that recently released central bank cartel documents show that the entire global financial melt-down in a purposefully engineered consolidation. The following is a transcript of an interview with award-winning investigative journalist Greg Palast in which Palast blows the IMF World Bank program of slavery wide open.
The EU has instituted the confiscation of bank accounts, which can be expected to become an international form of governmental theft. Food Shortages Riots. These will likely happen spontaneously due to the above conditions, but if not, governments will create them to justify their desire for greater control of the masses. Martial Law. The US has already prepared for this, with the passing of the 2012 National Defense Authorization Act (NDAA)
Long-term food supplies, barterable goods, monetary goods, self defense armaments and having a well thought out preparedness plan The United States and Germany are prepared to engineer a coup in Greece to keep the country operating as a strategic asset on NATO’s vulnerable southeast European flank. Greek Military is an Operation Gladio Asset The wild breakout in German yields is rocking global debt markets, and giving investors an early glimpse of the uneasy future for bonds in a world of higher interest rates.
Economic analyst GERALD CELENTE about the recent bank run in China on P2P lenders as countless people hit the streets. Chinese household debt has climbed 40% in the past year alone. To top off that problem, one of the most at risk financial sectors has reached its inevitable end.
Nothing is going to be the same after this. On Friday, the United States hit China with 34 billion dollars in tariffs, and China immediately responded with similar tariffs. If it stopped there, this trade war between the United States and China would not be catastrophic for the global economy. But it isn’t going to stop there. Donald Trump is already talking about hitting China with an additional 500 billion dollars in tariffs, which would essentially cover pretty much everything that China exports to the U.S. in a typical year. The Chinese have accused Trump of starting “the biggest trade war in economic history”, and they are pledging to fight for as long as it takes.
As I discussed yesterday, the only way that one side is going to “win” this trade war is if the other side completely backs down, and that simply is not going to happen. So there is going to be economic pain, and that pain is likely to intensify for as long as this trade war persists. U.S. businesses that will be affected by foreign tariffs are already cutting back production and laying off workers, and CNN is reporting that 1,300 products have suddenly become more expensive for U.S. consumers. There will be nowhere that anyone can hide from this trade war, and it will ultimately affect every single man, woman and child in the entire country.
Most Americans are not paying any attention to these ongoing developments, but the Chinese sure are.
The world’s leading superpowers are locking horns. Over the past 16 months America and China have been trading blows through tariffs on goods. The impact is being felt on industries worldwide. But what is the story behind the America-China trade war?
So the trade war, what have you guys been looking at? The US doesn’t like that China is growing so fast and set to overtake America as the biggest economy in the world if it hasn’t already by certain measures. Basically China and the US are caught in this race of imposing tariffs on each other so the US slaps a high tariff on certain products then China retaliates.
It’s multiple industries across multiple markets, it’s huge. And I think right now would be a really good time to look at what’s happened how it could impact the world from now on.
At The Economist, we’ve been covering the trade war extensively Soumaya Keynes is our trade and globalisation editor based in Washington, DC.
How did this whole trade war kick off? How did this whole trade war start? For a long time there have been frustrations that past American administrations had with the Chinese. On the 2016 presidential campaign trail you started to see some really tough rhetoric.
China’s economic rise has been dramatic. In 1978 China’s GDP at market prices was just 6% of America’s. Last year it had grown to 66%. When considering local spending power China has already overtaken America. This unprecedented growth began with President Deng Xiaoping. He started opening up China’s economy to the world in 1978 and the country quickly became “the world’s factory”. Over the next decade, exports as a share of GDP tripled and by 1988 15% of China’s exports went to America. The World Trade Organisation opened its doors to China in 2001. And it was America that ushered it in.
After joining the WTO, China became an economic superpower. But people had expected the country to also become more like a Western capitalist economy. That didn’t happen. America now claims that China achieved its growth by not playing fair. Are those claims justified?
The Trump administration has been using tariffs or taxes on imported goods to try to force the Chinese to change their ways. In July 2018 America imposed tariffs of 25% on $34bn worth of Chinese products. That almost doubled the average tariff rate on Chinese imports from 3.8% to 6.7%. And it’s American firms that have to pay that tax. But with every increase from America, came an increase from China. Since the start of the trade war China has more than doubled its average tariff rate. America’s has tripled. The fight has become overtly political because China’s tariffs are hitting President Trump’s voter base. Many counties where Trump won in the 2016 election were here in the Great Plains and these are the counties most affected by China’s tariffs.
As things stand now, a ceasefire in the trade war could be drawing near. The two leaders are hoping to agree on a “phase one” deal soon which could mean some tariffs being lifted The Trump administration wants China to buy more American produce and tighten up their intellectual property rules. If that phase one deal is signed will it be the beginning of the end of the trade war?
Even if there is a phase one deal there will be a lot of issues still to be resolved. But there’s more to the trade war than just tariffs. America has also imposed restrictions on some Chinese firms especially ones in the tech industry.
Dark Winter is coming. Biden said so himself. Lifeguard and the Mouthmaiden will drag America into the abyss to please their Chinese Masters. Biden and Kamala are going to cause the economy to nosedive as they also raise taxes, and new policies and regulations that take away more earnings and gas prices will go up. The politicians and the rich elite will enjoy more money while the rest of America struggles to make ends meet.
China’s debt boom, or “credit boom” in more palatable terms – whose true extent remains purposefully obscure – and what it might do to the Chinese economy and by extension to the global economy is starting to worry.
The annual growth in the People’s Bank of China’s measure of “total social financing” – which includes bank loans, off-balance-sheet financing, trust loans, and net corporate debt issuance – is now around 12% (about half of what it had been during the blistering surge after the Financial Crisis). That’s the official figure.
But with the muni bonds swapped for bank loans added into the equation, annual credit growth would be above 15%.
The blowout in credit initially came at the local-authority level, with provincial and municipal officials overseeing an explosion in the local government financing vehicles that became a poster child for China’s lack of transparency. Much of the money flowed into real estate, sparking a boom in prices, especially in the largest cities. Wary about affordability and potential social unrest, Beijing has periodically moved to rein in its property industry, only to relax again when economic-growth targets came under threat.
China’s debt problems are a story that’s going to keep running. Since 2007, the country has added $21 trillion of debt, and it hit a record high recently. Debt now stands at 237 per cent of GDP, according to Financial Times calculations.
“I thought they would be taking their foot off the accelerator with the debt but they haven’t done that. It has increased dramatically in the last six to 12 months,” says Roddy Snell of Baillie Gifford.
It will be a big problem for the country’s state-owned banks at some point. “It’s going to be very negative for the banks. Someone is going to have to pick up the tab and it will fall on the banks,” .
China is responsible for 27% of global investment and nearly 66% of global credit creation, and the world is “addicted” to Chinese money. Shvets and Seth think the “key” to the reflation trade is found in China’s stimulus, which drove real estate and industrial development. This, in turn, drove commodity prices significantly higher.
When the economic collapse and stock market crash occurs, it will happen quickly. No one will predict it. That’s because the signs of the economic collapse are difficult to see.
For example, the U.S. economic collapse and stock market crash happened on September 17, 2008. That’s the day panicked investors withdrew a record $140 billion from money market accounts. That’s where businesses keep the cash to fund day-to-day operations. If withdrawals had gone on for even a week, the entire economy would have halted.
If the economy collapses, you will not have access to credit.
Banks will close. That means high demand, and low supply, of food, gas and other necessities. If the economic collapse affects local governments and utilities, then water and electricity will no longer be available…
The Economic Doomsday is here. The second financial bubble is going to soon burst, and there’s nothing anyone can do about it. The Federal Reserve has set up the American economy for financial collapse for printing trillions of dollars back in 2008 and 2009.
The Federal Reserve’s policies of printing trillions of dollars back in ’08-09 have locked into place a serious financial crisis at some point in our future. Going so far as to intimate the financial collapse and market crash will occur at least some time in the next two years, “It’s unavoidable, and even Donald Trump can’t stop it.
Top economists predict that within the next 18-24 months, the imminent economic collapse will happen. The Federal Reserve has set up the American economy for financial collapse and market crash for printing trillions of dollars back in 2008 and 2009.
The Federal Reserve’s policies of printing trillions of dollars back in ’08-09 have locked into place a serious financial crisis….
After the dust has settled, the argument will be that the world was “on course” before the Brexit, before Trump and before populism. The argument will be that globalism was working and conservatives screwed it up with their selfish nationalist endeavors. After the final crash and perhaps numerous deaths from poverty and violence, the argument will be that the only conceivable solution must be a return to globalism in an extreme form; or total global centralization, so that such a tragedy will never happen again.”