Is China’s Day of Reckoning Coming?

Is China’s Day of Reckoning Coming? by Tom Luongo – Gold, Goats and Guns

Lost in all of the geopolitical noise are some basic concepts of economics.  It’s no secret that China’s economy has been built by their openly mercantilist economic policies.

Mercantilism is, oddly enough, President Trump’s dominant economic philosophy.  It involves protection of domestic producers through high barriers to foreign investment and a cheap currency created through counterfeiting (we call this ‘inflation’) to boost exports of domestic products.

The problem with mercantilism is that it ultimately, like all artificial controls on the market, destroys more capital than it accumulates.  Protected domestic producers already priced out of the global market and now protected from competition, have no reason to innovate and drive down costs.   The government transfers wealth by stealing it through inflation from the taxpayer and subsidizing these producers through inflation.

Chinese mercantilism was allowed to go on for years because the U.S. was more than willing to subsidize their policies through equally, if not, cheaper money.  We used the demand for the U.S. dollar to liquefy global trade to continually print and spend, driving up domestic prices for domestic products while sending trillions overseas to bring back rapidly depreciating consumer goods from overseas.

We are now left with a mountain of sovereign and personal debt and an equally large pile of unusable, valueless crap.  In the process China ‘got rich’ off of this scheme by keeping its economy mostly closed to internal investment and deploying its insane foreign exchange reserves to encourage an equally-toxic debt mountain.

The Great Wall

They used a significant part of those funds to build out an infrastructure it sorely needed to run a modern economy serving more than a billion and a half people.

They also used a lot of that ‘wealth’ to fund a bunch of wholly uneconomic projects whose reality is being uncovered now that we’ve reached the limit of this entire Ponzi Scheme.

Today’s article at Zerohedge has a typically-apocalyptic tone concerning the new wave of Chinese corporate defaults starting and the potential for this trickle of defaults leaking through the mercantilist dam to blow the whole thing apart.

2018-07-13Deleveraging is Policy In China Now

The shadow banking system is simply the system of financial transactions that happen outside of the banking system’s oversight facilities.  And whenever China makes a substantive change to its monetary policy to burst another part of the shadow banking bubble these bouts of deleveraging (see chart above) occur.

Continue Reading / Tom Luongo>>>

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Rory Hall, The Daily Coin and Gospel News Network. Beginning in 1987 Rory has written over 1,400 articles and produced more than 500 videos on topics ranging from the precious metals market, economic and monetary policies, preparedness as well as geopolitical events. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver, Gold Seek, SGTReport, and a great many more. Rory was a producer and daily contributor at SGTReport between 2012 and 2014. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Dr. Warren Coates and Peter Schiff, to name but a few. Don't forget to visit The Daily Coin and Gospel News Network to enjoy some of the best economic, precious metals, geopolitical and preparedness news from around the world.