Bubble, Bubble China’s Trouble…

.. fascinating and more than a bit worrisome.

Here is an interesting bit of correspondence from a blogging economist and a sculptor who lives part of every year in China.   Here is an excerpt:

I’ve been to China a lot Mish, spent many months at a time there for the last eight years. China is already in a massive overcapacity real estate bubble. They are building three apartments for everyone that is lived in. Most apartments are empty and those that are rented do not come close to paying the interest on the loan.

There are huge department stores with products loaded on the shelves and staff everywhere and no one is shopping! Staff outnumbers customers five to one. It’s surreal. They are ready, waiting for a great wave of shopping to come, but no wave is coming.

Eventually this “borrow and build” economy will be a pop heard round the world. China runs on construction, build build build, but there is no reason for that many places and spaces and big mall businesses with no consumers.

So, what do you think will happen if our biggest bank (China owns most of our foreign debt) goes belly up?  What then ye owners of almost $11,ooo,ooo,ooo,ooo.00 in debt?   What then?

If China’s bubble bursts, we can expect very bad ramifications in this country.  Some folks I know suggest that we stock up on canned goods, vegetable seeds for gardens and that we get ourselves some chickens or ducks. 

What do you think? 

al sends


6 responses to “Bubble, Bubble China’s Trouble…

  1. I think the Obamessiah will simply vaporise the debt with mind-waves.

    Seriously though, I think our new President has such charisma and support right now that unless he does some really ridiculous stuff no one will dare try and collect from us.

    But I guess I fail to see how this will really affect us. I mean, I sort of understand the theory: our banker goes under, we have no money. But America never plays by the rules. We’ll just print some extra cash for ourselves and tell China that if they ever want out of a recession, they better keep making our t-shirts and iPhones.

  2. Kaleb, if China stops sending us cash we will have to print our way out of debt. Our debt is so large now that for us to make that work will require that we buy larger wallets, ones that approach wheelbarrow size.

    al sends

  3. Al — FYI I saw somewhere that China owns 25% of our debt, that would be 2.75T. Although a Wall Street Journal article from early 2008 pegs the number at 1.2T. Perhaps the 25% is China’s portion of PUBLIC debt? (Japan comes in 2nd at 13%). Just sayin’. Either way it’s a buttload of money.

    Back when I lived paycheck to paycheck, I didn’t much worry about inflation. Now that I have significant savings, this very possible hyperinflation event scares the shiite outta me.

    You guys are doing good work, keep it up!
    From an HA reader

  4. Thanks MD…
    I was talking to someone today about the risk of Hyperinflation and how to hedge against it. It seems like food would be a good investment. Even if we don’t get high double digit inflation the worst you end up with is extra beans and corn.

    God bless MD and stop by anytime

    al sends

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