Let me be very, very clear. Even though China is our largest economic competitor, and even though there is scary chance we may soon go to war against China -
we do NOT want the Chinese
economy to crash.
If the Chinese economy were to crash, tens of millions of Chinese demonstrators would likely take to the streets. Just imagine protests, like the pro-democracy protests in Hong Kong, taking place in every major city in China.
They would protest the economic mismanagement of the country by the Chinese Communist Party ("CCP"). They would object to the CCP's authoritarian rule. The protestors would demand freedom of speech. The lifetime rule of Xi Jinping would suddenly end, almost certainly with his execution.
You can bet that President Xi would not be a huge fan of such an outcome. Therefore, as soon as the Chinese economy started to tank and early protests started to appear, President Xi would order the invasion of Taiwan. This would unite the Chinese people against a common enemy - the United States - and make them forget their economic frustrations.
President Xi would give no formal warning. Those red Chinese jets that overfly Taiwan almost every day would suddenly continue on to real targets. The Taiwanese Air Force would be wiped out on the ground. Chinese DF-17 and DF-21 hypersonic missions would destroy U.S. airbases on Guam, as well as $150 billion worth of our F35-A's, still sitting on the ground.
Quokkas are real!
These same long-range missiles would likely destroy several, if not all, of our aircraft carriers in the South China Sea. The U.S. Navy would never fully-recover. If the Chinese were smart, Chinese submarines would surface off the coast of California and Washington State and destroy our shipyards. Our ships destroyed in the South China Sea could therefore not easily be replaced. Coincidentally a freighter passing through the Suez Canal will "accidentally" crash into one of the locks, making the Suez Canal unusable for the duration of the war.
Extremely accurate, submarine-launched, cruise missiles would fly into the windows of Northrup Grumman, Boeing, Lockheed, and Raytheon, crippling our ability to replace our tiny arsenal of conventionally-tipped missiles. We lose this war. Ten years later, China might even invade California. China wants our land.
Bottom line -
we do NOT want the Chinese economy to crash.
I admire clever, fun marketing.
Unfortunately, the Chinese economy is almost certain to crash in the next two years. Imagine if 29% of the American workforce spent five years building anvils, and we stacked these unneeded anvils in huge piles north of the Arctic Circle. This is what the Chinese have done.
The Evergrande default has revealed that the Emperor is buck naked. China has built 50 million to 63 million unsold houses - more than enough unsold apartments (condo's) to house the entire populations of England, Italy, and Holland combined!
Talk about some malinvestnments? Wow. A malinvestment is a boneheaded investment (think see-through office buildings, dot-com stocks, and subprime mortgages) that will never be repaid.
China financed all of this new construction with borrowed money, which of course the developers will never be able to repay. President Xi and the CCP will bail out the banks, which is unfortunately the exact opposite of what they should do. Xi needs to let the banks collapse. He needs to allow dozens of large banks to fail. Their presidents should go to jail. Future generations of bankers need to remember with horror the consequences of reckless lending - but he won't.
The result of the bank bailouts will be the printing of more money, and painful inflation in China will follow. But that's not the half of it.
The problem is not just with Evergrande, China's second largest residential builder. Twenty-nine percent (29%) of China's GDP is new construction. Almost certainly other large builders in China have made similar mistakes. They have been borrowing huge amounts of money to essentially build anvils for the Arctic Circle.
"China is eating our lunch economically. Their command economy is the better economic model." Uh-huh. This is certainly what we have all believed for years; but an 8% growth rate (now down to 6%) is not as impressive when a third of that so-called "growth" has been devoted to construction of anvils for the Arctic Circle.
And then one is tempted to ask, "If China's command economy was messed up enough to build 50 million to 63 million unsold apartments, what other boneheaded malinvestments have they made in other parts of the economy?" Have they built 500 million buggy whips and counted their construction as "growth?"
Since China has a command economy, can't they just print more money to cover their malinvestments? China's Producer Price Index ("PPP") increased 9.5% in the past year, and that's the official rate. A communist commissar would never lie about the PPP, would he? I wonder what kind of inflation the average Chinese citizen is really enduring on his fixed salary?
The Evergrande default has made clear to me that China is not the economic miracle that has been touted in recent years. Because the CCP will bail out Evergrande and the country's banks, the crash of the Chinese economy won't be some spectacular "Lehman Moment."
What is a Lehman moment? Simply put, it's the fear that turmoil or crisis in one large company or country could spread to others. When Lehman Brothers filed for bankruptcy, for example, it had a contagion effect on the other major financial institutions with which it had trading relationships.
I think a better definition of a Lehman moment is that moment when a bank, institution, or government suddenly realizes, "Oh, poop, we're NOT too big to fail!" Haha!
But crash it will. The CCP just can't keep creating more new money to paper over more and more boneheaded malinvestments (50 million unsold apartments - wtf?). Eventually, this money creation binge will lead to raging inflation, and the average Chinese citizen will see his quality of his life plunging for the first time in decades.
The average Chinese citizen will not be happy. He will view the decline in living standards as a breach of his contract with the CCP. He has tolerated the cruel thumb of the communists because the CCP promised to improve his life every year.
I therefore make three predictions: (1) Raging inflation will soon appear in China; (2) followed by massive, nationwide protests; (3) followed by a war against the United States. Because our missiles absolutely suck and our arsenals of missiles are small, America will lose the coming missile war.
Still think I'm an amusing whack job? Four Chinese warships sailed just 3.1 miles off the Alaskan coast ten days ago. If I owned a home near a shipyard or a missile manufacturing plant in California or Washington State, I would at least buy a remote cabin in the mountains.
Standing properties only, sorry.
