CHINA – THE TRADE WAR RISKS A CHINA SUPER CRASH IN 2019
My regular readers will find this a summary review of last year being first on the details. Now the news is filled with our Summer blogs on the China risk factors.
We noted that China’s model is now unsustainable due to debt financing. China growth has dropped over 25 years 1% a year for over fifteen years from 25% GNP growth at 6% growth in 2018 and that graph is pure down for decades and plunging off the board doing the tracking. Do investors understand the risk and the downward spiral? The China decline into massive debt that makes 6% growth by borrowing 300% more than you earn – how many years going on year 11 can China or anyone fuel pretend growth only on debt you can not pay back – not ever. Think on that economic truth for a bit and think when do the capital markets stop buying China bad debts ? 2019? 2020? How long can they keep it up while lowering six times since last year bank reserves to stimulate insane lending required to keep China afloat at all.
THE RISK IN CHINA IS THE LARGEST RISK FOR INVESTING IN THE WORLD TODAY.
In the last quarter the trade war caught China by surprise. Our Blog forecasting of the China Stock market crash and bond market crash became prophetic. The worst is yet to come we believe.
Auto sales had grown for ten years. In Dec auto sales at their largest sale month did not grow, the growth had already stopped by the real math for this larger employer went in one year from real and every year growth to 3% decline. One can’t stress how large the consumer pull back is today in China. The consumers are stopping on a dime inside a nation that has flawed communist economic models that can not endure.
China has fueled sustainable growth with DEBT which itself is not a sustainable economic model. Nations and families must borrow within their means. No family and no nation can lead the world like China in borrowing over 300% of its current GNP total production income account – spending on debt 300 x’s what you earn – and remain in operation.
Over the past trade war months China has again and again said to its bank – hey you guys can all relax – loan like crazy and we’ll require the sums you keep in the reserves for bad loan and rainy days be less and less. They have lowered their bank reserves six times from 2018 into Jan 2019 – six times wiping out safety nets. A SUPER CRASH Is now likely in China. Delay in trade dealing is compressing trade emblance.
We warned that the trade war with state controlled media brain washing one billion minds without open internet access – to believe the USA is an unfair protectionist nation. China operates in the following way:
- The nation and the corporations are one unit. In China competition to win markets for its home companies is a state economic war level operation globally.
- Stealing all nation IP wealth to start from their best and improve form there to lead by theft of technology and IP world wide is seen as victory of state economic warfare globally. All nations and companies have been victims of China theft unlike anything known in the world due to digital tools China leads within for criminal activity.
- China is becoming isolated as trillions run out of China – as we told you – not to return ever.
- Further China consumers now are for national pride buying made in china and cease buying American made goods in numbers never seen before perhaps not to return for decades.
- American consumers will follow ceasing to buy labels made in China and the consumer in the end controls the trade war.
American wins as Consumers wish to buy more made in China. China loses as its largest customer no longer funds its debt SUPER BUBBLE nation. As China stops buying our bonds and dollars the world is no longer buying China currency and bonds and their markets are now rising into instability.
If the TRADE WAR does not heal well and fast – the loss to China will create a SUPER DEBT BUBBLE CRASH – a Real Estate super crash – and really recovery for China may be a century. The world will be so scared by the debt defaulting cascade all between multi nation bank syndicates that a tipping point from China alone into a new GREATEST OF ALL DEPRESSIONS can and may well occur – the trade deal to end the trade war is survival for China.
However the advisers in China as in the USA fail to realize we are now in a new never seen before economy – a new AI driven fully leveraged economy controlled by 440 trillion in capital flows by AI within less than 10,000 super money pools controlling over 95 % of those flows and primarily outside any modern regulatory frame work. It would require a G 100 new frame work with AI monitoring AI in real time to re regulate effectively. Today the core system is at risk.
- The Fed fails to appreciate old tools applied to the new economy harm versus help and de-stablize.
- Nations competing without modern trade agreements to preclude unwanted trade imbalance and to protect IP nation to nation – de-stablize when applying old models into an entirely new economy they fail to realize is here now – totally here right now. All old rules no longer work.
- Without System trade reforms the stability of the world order falls into the abyss.
The risk of the abyss is high today and will remain high due to trade wars. Without trade wars the abyss would be FOR SURE and SOONER than later. Now we may work out of the abyss but it all remains dicey. Too many fail to appreciate the issue between nations is core systemic stability and cooperation based frame works must be applied to stabilize.
Systemic stabilization is the first priority of 2019 national state leadership – to the core system and their own. Destabilizing policies of every nation in it for themselves – none for one and one against all – will no longer work to stabilize and preserve system economics.
The speed is the need to trade agreements. The longer consumers buy into NOT BUY AMERICAN and NOT BUY CHINESE which is right now rising like a huge unseen economic tidal wave – only forward accounting will tell you how bad it is.
So China is:
- In free fall
- Enormous crashes in stock and bond markets
- Value classes in deflation
- GNP falling with a fun out of china on capital – investments – plants moving – jobs moving their neighbors all winning.
- Their war policy for the China Sea that 400 years of law – and the World Court unanimously voting the China claim to own a new line of sea lands greater than China has in land itself – is ILLEGAL. Like the USA claiming 2000 square miles of the PACIFIC AND ATLANTIC OCEANS were part of the American land mass – I mean really.
- China spending 300% more than it makes by debt – a super debt bubble that is no longer sustainable
- A mistake in China policy creates SUPER CRASH and tens of millions without work. Could be fast .
- Debt Super Crash of China may put the world into a global super depression as never known before
- The IMF and World Bank have warned us all about China fiscal error for five years over 12 times.
- No change in China policy to steal from other nations – now escalating versus declining – as debt is exploding to levels that only cause hyper inflation to follow and collapse of the currency value entirely.
China is risk.
The reason is failure to in good faith resolve the trade issues and model a sustainable new future. The US POLICY IS:
- We are done being robbed by nations we support as the largest buyer in the world for everything.
- We will tax partners as they tax us matching their taxes to us finally as a fair return of tax reciprocity.
- Reciprocity tax policy – states we will tax nations at zero if they tax us at zero or we’ll just match them.
- Gone are the – we tax you at a penny while you tax us at a dollar in trade with your protectionist national policy
- The USA is not protectionist we are now at war with protectionist nations blocking our trade to them outside tax that match what they charge us – fair finally versus total rip off
NO nation can buy more than it sells and going broke slowly remain outside bankruptcy if unchecked. Trump stopped 50 years of talk and threats from our friends and our enemies – and ACTED. That action will reset the world order in a positive way. Those at war with the USA who spends so much more buying from the nation than we sell into the nation – has a full house of cards while the opposing nation like china has two three’s a failed hand economically. While bluff and take dealer hits the trade war cost to them is rising at exponential cost levels. We estimate China in 2018 has lost:
THREE TRILLION DOLLARS AND RISING
1, One Trillion in direct capital flight out of nation now roaring into 2019 to new highs.
2. One trillion in canceled or delayed investment projects in China.
3. A third trillion in plants moving out of China or canceling going into to locate in neighbor host nations less costly to deal with lower cost long term and better protection from IP theft China always consumes more than it contributes.
Finally over the years my father brought China TOTAL QUALITY MANAGEMENT – China is now caught with rising prices of cost without ability to raise market prices due to neighbor competition. China decline in quality is now effecting:
QUALITY IS FREE FALLING AS CHINA TURNS OUT CRAP QUALITY
- Apple IPads and Mac Book Pros a first in modern times crises quality costing to Apple by its partners in China
- Tele Technology
- 5 G
- Flat screens and solar
Quality faults are soaring and those making dollar decisions are electing to move out of China as a global consensus because:
- State China firms are at economic war with any non China firm like no other nation on earth
- Corruption is rampant in China and to do business you have to bribe and pay and it all takes forever
- China partnership policy sets up legal theft of all protected Intellectual property will rip off – true for the Big Mac Iwatrch Iphone and true for anything – China just steals it all world wide – who wants that given options
- China as a big consumer market may hard land into a depression with crashing consumer capacity for years
- THE RISK in China is a matrix of decades of fiscal abuse in which as this blog reports all economic abuse must one day rebalance and China is very rapidly running out of truth time and options as economics are unforgiving. Holding margins now comes ahead of quality for companies cutting corners for customers without taking any responsibility – made in China is now testing global consumer confidence when China was always crap stuff –
Invest in China like Tim Cook did? Let them steal all your technology? Let them sell rip off’s ten to one for your goods. I feel Apple ROT in the bad bad China Bet has yet to come home to shareholders but it will. I also feel Apple rotting in China is only one decay from global bets into China from Wal Mart to automotive that are NOT going to end unwell.
A new trade policy that is real and kept – versus fake news signed but never delivered from China will fail because Trump will not allow it. A REAL Trade change would example to the world and work to provide time to China to work it all out. Without the time – China has no hope at all if you study the economics. What follows is SUPER CRASH in China and then they will go to war to distract riots in nations and secure new growth via war the last gasp and they will lose the wars. Economically and in real terms.
Economics is so cruel when the abuse must rebalance.
Finally China economics like Russia are about the size of the state of California – nothing close to the economics of the USA with its 400 million or the EU smaller than the US but 500 million total population – with its own massive debt super bubble in Italy and Spain as two of the worst.
France is right behind and all are unsustainable. Germany the lead in EU is crashing from Trade war – as the friend we rebuilt from World War II without wealth transfer to them – as they tax us a dollar while we tax them a penny – we brought the wall down and reunited Germany and keep Germany secure and safe – and they seek to suggest our trade requests are unfair. They talk about starting their own EU army and stepping away from the US – thanks for the gain but we only wish you pain.
The USA is about to tax Germany and France just like they tax us – that first approach has both nations in economic growth which has slowed surplus by 90% in ONE YEAR and is about to move the EU into red ink within SUPER DEBT BUBBLES. The UK will be fine and is crazy not to economically approve May’s deal – the policy makers have no clue what harm they do to defeat a truly historic favorable fair trade deal May has put together. The RISK to the EU with America in trade war is catastrophic to their forward debt management.
System Stability is the outcome of trade deals and applying old economic modeling to the new global economy a first of its AI kind requiring entirely new economic theory – can be FATAL TO SYSTEM STABILITY as a risk in 2019.
This then is the stuff the market is dealing with and great volatility the new normal is likely. Politicians and Central Bankers make it so much worse because they fail to realize the economy is new today and the move by AI to sound bytes is the new normal never before seen in the old economy. Less is MORE in the new economy which so needs Trumps plan for 180 day public reporting versus monthly which is insane truly for economics and long term executions.
The world is re-tooling into the new economy. Can we all get their with mutual prosperity or only after a Super Crash and period of wars?
We are all about to see coming up.
Now folks in 2019 – that is the truth of it you only see as a whole truth first…always …right here.
Berny Dohrmann – KEEPING THE TRUTH LIGHT HIGH AND BRIGHT FOR MY NEW YEAR READERS