I will explain why you should care.
Xi Jinping desperately wants the Chinese money supply to grow. He needs private companies to borrow, invest, and spend. The loan proceeds that are spent - perhaps in payment to the guy that makes rear blinkers for electric cars - end up in the next bank.
The next bank keeps, say, 5% in reserve and lends out the rest - perhaps to the glass maker. The next borrower pays its own suppliers - perhaps to the trucking company. And so on, until that first loan creates twenty times as much new money. This is the multiplier effect. This is how new money is created in China, just like in the U.S.
But here is where everything falls apart. Suppose businesses are terrified of a pending war. Xi Jinping has already announced that China is attacking Taiwan in the Spring of 2027, when the tides are right.
Why would a Chinese factory owner want to be deep in debt right before a major war? Therefore, very few factory owners are borrowing right now. Everyone is hoarding cash and battening down the hatches.
Now the scary stuff.
Did you know that the multiplier effect works in reverse? If a bank takes in a loan payment but can't find a new borrower to borrow the money, twenty times as money is destroyed! Destroyed. Puff. Burned to cinders.
It has to do with the fact that the first bank to make the payment above suddenly has less deposits on hand. Remember, our original borrower withdrew money to make the payment. In order to maintain its proper banking ratios, the paying bank must reduce the size of its loan portfolio.
The easiest way to think of what happens next is that the paying bank must then call an outstanding loan. (It actually just takes in some payments and doesn't re-loan that incoming dough.) Some other borrower then has to reduce his bank balance and pay off the called loan.
The third bank suddenly finds its deposit balance lower and calls in some more loans of its own. And this continues until -
If a borrower in China makes a $100 loan payment, and the receiving bank does not immediately lend that $100 back out (perhaps because no company in China wants to borrow), a total of $2,000 - TWENTY TIMES larger - is sucked out the Chinese money supply.
This is the Reverse Multiplier Effect - the multiplier effect working in reverse. The reverse multiplier effect causes massive deflation, and its why interest rates in Switzerland, Germany, and Japan dropped below zero in 2008.
Once deflation takes hold, its hard to stop. Why buy a car or house today when prices will only be lower next year. Business activity and consumer spending dry up. Workers get laid off. Factories close. More workers get laid off.
Deflation in China will soon spread worldwide, as China imports less coal, oil, cooper, cattle, feedstock, and soybeans. Soon the whole world will be feeling the pinch. No one has any money anymore because its getting destroyed by the truckload daily in China.
Skeptical? Banks in China have resorted to calling their best borrowers and begging them to borrow. "Look, please-please borrow 30 million yen. We will put the proceeds in an account at the bank, and you don't have to use it. There will be ZERO interest and no fees. Thirty days from now, simply pay off the loan. This will keep Xi Jinping off our (butt). We will have met our lending quota."
Folks, have you started to notice that no one has any money? Money is drying up worldwide. No one has any money. U.S. banks are in a huge liquidity squeeze. U.S. banks are borrowing vast sums for the Fed.
No one has any money. Did I mention that no one has any money?
