Two Likely Outcomes in China; Stagnation or Collapse

Facts are better than dreams,’ said Churchill.


But dreams are much more appealing. And far more dangerous.

Dreams were much on display in Iowa last night. The caucuses opened at 7pm. Then voters were allowed the fantasy that they were actually making a difference.

Trump supporters dreamed of making America great again…and basking in its reflected glory.

Sanders supporters dreamed of making America fair again…and spending other people’s money.

Clinton supporters dreamed of having their woman in the White House…

Cruz supporters dreamed of NOT having Trump, Clinton, or Sanders in the White House…

And of course, the hayseed cronies of the corn state dreamed of forcing people to buy more of their ethanol.

As of this morning, Cruz has won the contest on the Republican side. Clinton and Sanders are in a ‘virtual tie’ for the Democrats.

Wings of debt

Yesterday, the Dow fell early in the session. It spent the rest of the day recovering the losses.

Worrying investors is news that the US manufacturing sector is in its fourth month of recession.

If you don’t make ‘em, you don’t need to ship ‘em. So rail freight traffic in the US is also down — about 25% from its peak in 2010. And you don’t need trucks to move them, either. Volvo says its heavy truck orders are running 30% below their 2014 level.

The source of the slowdown is that demand is falling around the world. The orders just aren’t coming in. And nowhere is the pain felt more keenly than in the economy most dependent on satisfying those orders: China.

China makes; the world takes.

If the world taketh not, China finds itself with excess capacity. Then the world’s leading exporter gets quiet. The furnaces cool. The factories slow. And creditors’ palms grow moist.

‘Big China steel producers suffer $9.8 billion in losses,’ says a headline in the Financial Times.

Chinese heavy industry produces half the world’s steel. Last year, it went into recession for the first time in 35 years.

Naturally, container freight from Chinese ports is falling, too; the shipping index is now 40% below its 2012 level.

Too bad they invested so much money to satisfy the world’s needs. Suddenly, the world doesn’t seem to need so much.

Here at the Diary, we are always suspicious of ‘facts.’ The only ones we trust are those we make up ourselves. The rest — especially if they come from economists — turn out to not be facts at all. Instead, they are just guesses, wishes, or lies.

Still, as near as we can tell, the facts support the idea that China is slowing down, along with the rest of the world.

And why shouldn’t it?

After such a breathtaking sprint of growth, surely, China is tired. Surely, it deserves a breather.

Alas, you can stop and rest when you have your feet on the ground. But when you are flying through the air on wings of debt, you can’t afford even to slow down. Or you will crash.

Stagnation or collapse

This leads former banker and financial author Satyajit Das to anticipate ‘the mother of all crashes’ in China.

There are only two likely outcomes in China, he said: stagnation or collapse.

And colleague Tom Dyson, in the 23 January issue of the Diary, predicted a massive wave of Chinese bankruptcies.

A nightmare, in other words.

But dreamy people can hope. Maybe this time really is different. Maybe the Dow will go back to 18,000…and just keep going.

Maybe the combined assault of Draghi in Europe, Kuroda in Japan, and Yellen in the US will be enough to beat back a correction…and even triumph, finally and conclusively, over the credit cycle.

What a dream!

Dow 25,000? Sure, why not?

The road to greatness

And why shouldn’t the American people choose a candidate who will put the US back on the road to greatness?

Or, at the very least, the road to somewhere someone might actually want to go.

And why shouldn’t the sober citizens of Iowa get to point the direction? After all, the US government is supposed to be a government of, by, and for the people. And some of its people live in Iowa.

But wait. There are facts, and there are dreams.

The voters dream that someone somewhere actually gives a damn what they think. PhD economists imagine that they know better than God or markets.

Should we wake them up?

The plain people of Iowa think they can control the Deep State elite.

And the Deep State elite think they can control the markets.

Our prediction: Both will be proven wrong.


Bill Bonner,

For Markets and Money, Australia

From the Archives…

Debt Funded Growth Has a Finite Life…Even for China

Vern Gowdie | Jan 30, 2016

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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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