The Biggest Bubble of All

Ordos City, China – SCMP, Simon Song

I have often written about what gambling casinos world financial markets have become, as speculation becomes more and more rampant.  The stock market in the USA is certainly such a case.  But the biggest problem out there in not in the USA or Europe.  The biggest bubble of all is in China.  More money is at risk of evaporating overnight in China than anywhere else.  So here is what is going on that will impact each and every one of us here.

China has grown economically by leaps and bounds since the 1980’s.  The country moved from being desperately poor and backward to having a booming economy as the West collectively outsourced its manufacturing to Chinese factories.  China built more and more factories, and housing and other infrastructure with this income.  But in recent years, they have built past the demand.  They have built more housing and more stores and more of everything than people currently want to buy.  For years now, there are reports of ghost cities and ghost shopping malls in China.

What is going on is that their companies only know how to operate in an environment of rapid expansion.  So now they continue to build things they cannot sell.  And they have burned through their available credit to do so.  But they don’t want to stop being as “profitable” as they had been in the past.  So they continue to borrow money.

The root of the problem is how these overleveraged Chinese companies are borrowing the money.  They can no longer get funds directly from banks, as they are no longer credit worthy.  Plus, the banks don’t want to admit that what they have loaned them in the past is now a bad loan.  So the banks want to enable these companies to get money, as they can use part of the new funds to pay back something on the prior loans, so the bank loans will look like they are still good.

So the banks set up a system of selling an “investment” to common people who are unhappy with the paltry returns they can get from regular savings accounts.  These “investments” are called Wealth Management Products or WMPs for short.  The Chinese banks are telling people putting money into WMPs that they are guaranteed returns of 10-20% per year.  They don’t tell them where the money is actually going.  Not that the investors care.  They think that both the bank and the Chinese government are backing the WMPs, and therefore they are Risk Free.

The reality is that WMPs are a new fangled version of the Ponzi scheme.  The money is going to companies that have no way of paying it back.  The few people taking money out of WMPs is covered by the amount of money coming in.  And once more people want their money back than can be covered by new investors, the whole thing collapses.  The big problem is that currently there is nearly $20 TRILLION invested in Chinese WMPs.  And very soon, more people are going to want their money back than anyone can cover.

I recently alluded to the fact that when things go wrong, the Chinese Communist government will blame everyone but themselves.  This is when an Economic disaster will change into a World Wide Military disaster, as the world goes to war over who is to blame.

What to Do

There is nothing that we can do to fix the Chinese banking and investment systems.  Our own governments can do nothing to fix it.  The Chinese have created this problem on their own.  The West’s sole responsibility in all of this is that we probably showed them how to do it.

The point is that an Economic and then a Military disaster ARE going to happen.  We don’t know exactly when, but like the Titanic after it hit the iceberg, the ship IS going to go down.

So again, the time to prepare is now.  Get your life jackets, make a plan for the ship sinking, and how you and your family are going to survive.  If you don’t, you’ll be jumping into the ice water like just about everyone else.

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