Are we on the verge of a global economic collapse?
- Are we on the verge of a global economic collapse?
- The Real Estate Bubble
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With Interest rates skyrocketing, injecting even more money into an economy as a last ditch effort to stay afloat just a little bit longer seems like the wrong way to go. China is not only experiencing one of the worst housing bubbles in history, but their economic slowdown has already begun to impact the rest of the world and there are some serious implications for all of us that you should be made aware of. It’s not a matter of if it is, but a matter of when and that is something that needs to be addressed.
Up until recently China was on an unstoppable trajectory set to overtake anyone or anything that’s been in it’s way. That’s because over the last 30 years China has been at the forefront of production international investment and rapid productivity all because of an exchange that occurred back in 1979 which gave China diplomatic relations with the United States and the rest of the world. All of a sudden China shared a common objective with the global economy.
With that door having been opened to money for it countries from around the world to invest in Chinese infrastructure, they took advantage of low cost labor and helped bring much needed funding to areas that were previously closed off. Even though this did bring down the cost for almost every item that we use today, China’s growth has been exceptional, with all the increased trade and worldwide investment 400 million people were lifted from poverty.
In addition to that their economy is now 11 times larger today than it was in 2001, however not everything was exactly as appeared. The more China grows the more powerful it became in relation to every other nation and they maintained tight control over their businesses the more regulation they deem necessary. The question isn’t If but more of when will it all collapse?
The Real Estate Bubble
The more difficult to join forces with members of the World Trade Organization reached the Chinese that provided an illegal state subsidies to businesses who are with the products discriminating against controlling supply chains. China will enforce strict lockdowns, maintain high regulation and anything in their power to prevent population from becoming infected.
It’s already begun to already make a huge difference. Chinese stocks have experienced the worst quarter in years. Their economy has begun to lose ground as local recession fears increase. Supply chains have continued to be severely impacted by the shortage and the growth is expected to be non existent. Dictation and isolation along with the challenge compounding even further onto the real estate market.
Just as China’s economy has been rapidly expanding nothing saw increases as large as the housing market percent from 2001 to 2017. The Chinese government recognized this becoming a major issue so they imposed regulations on who is able to get along but it was too little too late. March developers took advantage of all the real estate enthusiasm by selling 3 billion units that didn’t even exist.
With the assumption that they would be worth a lot more than the future by the time they were eventually complete citizens maybe they could cities as a way to store wealth it’s excessive demands meant that there is very little oversight to ensure that all of these properties were actually being built now in a market that’s constantly going up.
This wouldn’t be an immediate issue because developers could always raise more capital by selling and more pre built units but with sales having completely collapsed and their worst property downturn on record those previous projects are now being completely abandoned, leaving buyers defenseless and forcing them to make payments on a property that isn’t even being built. Finally the third nail in the coffin.
Pumping money into the economy only prolongs the inevitable
Wall Street Journal reports that from 2014 to 18 China’s debt has inflated by 20% annually housing prices are nearly twice the levels that led to the great financial crisis of 2008. Loosening lending requirements to ensure that growth is maintained at all costs even at the expense of the global economy. In terms of what we’re dealing with today and how this could lead to potentially another ticking time bomb here’s what’s happening right now as mentioned earlier in response to slowing growth and declining property market and falling demands.
China lowered interest rates to help stimulate more growth while at the same time pumping $60 billion into the financial system as a way to incentivize lending, however they reassure everyone that the government won’t roll out massive stimulus measures or put the financial system with too much new money that wouldn’t set name for stable prices and a relatively good economic performance. Once more that doesn’t exactly pair well with the realities as it grows estimates have been revised down and zero COVID policy has taken priority leaving China with an economy that now has even more room to fall and on the verge of collapse.
They’re president was expected to maintain a third term in power, recently he came on record to say that he would rather temporarily affect a little economic developments that dress harming people’s life safety and physical health especially the elderly and children. While others worry that this is simply a scapegoat to avoid much deeper issues of economic instability. Mainly the fear of spending money.
See in any growing economy you want people to feel comfortable and opting out their finances to buy more products then more money to borrow against their assets able to reinvest into growing infrastructure. With China’s weakening outlook of potential collapse, more people are holding back. Creating a self fulfilling prophecy and the prices are falling because people are not spending enough money that distributes itself.
These are government issued coupons that give discounts for shopping at various businesses. By offering an incentive to spend more money people will in fact spend more money. So in terms of making the numbers seem better than they are it’s working proponents as you know the insulation vouchers have boosted spending by three to 10 times their face value while others argue that it only helps the people who have the extra income to spend without addressing the root cause of the issue.
China’s economy is rapidly deteriorating, now when ordinary markets such a rate cut and injection of money into the economy would be seen as a bullish signal for almost anything but in this case it’s seen as a negative sign in a failing attempt to keep the economy running. Mortgage boycotts pop up and made people a lot more reluctant to buy a home leading of course the 28.8% fewer sales then it in turn reflects the loss of confidence in the housing market. Which in turn reflects the loss of confidence in the entire economy and that is something that cannot be solved with lower interest rates.
What about their stock exchange?
On top of that oil prices have also started to fall with the expectation that China’s economy is officially started to decline, after all China consumes 15% of oil and imports more crude than any other country. So when they’re slowing down the rest of the world yes of course, what does that mean watching and how would that affect all of us in the US?
Well lower world demand, you get cheaper prices at the gas pump although there are a few key points to watch out for. The first is through the delisting of Chinese stocks in the US Stock Exchange. In just the last few days five statement companies were removed from the US stock market citing high administrative burden costs as the reason for their decision. The timing comes just months after the SEC flagged those companies for failing to meet United States auditing standards leading to the assumption that may be more corrupt businesses. If you’re in the US it’s required that all companies follow strict disclosure requirements.
If they’re gonna be publicly traded and that includes a fully verified third party audit on a regular basis to ensure accuracy and transparency. This prevents disastrous scenarios like luck and party which was accused of falsifying financials, raising money in the US and then collapse once those numbers proved to be as sustainable.
As of now 261 Chinese stocks could be on the chopping block should they choose not to comply which is the reality that we should be prepared for. The SEC responded by saying that they’re reluctant to let overseas regulators and spent local accounting firms due to national security concerns and with the clock beginning to tick down, either China needs to comply or over $1 trillion could be delisted from our US based markets.
The second where is it it could take a long time to unfold since China publishes their own numbers and maintains an extremely tight grip on their economy. There is no guarantee that they can’t just keep kicking the can further and further into the future and they have the ability to inject as much money as needed to resolve this situation at least temporarily.
In a weird way trends slowing growth and global recession could help ease demand an upward price growth meeting with less resources being consumed. Inflation could begin to subside or even decline, none of these are very broad assumptions. Moving definitive of timeline for when they could unfold but it is a very worrying sign that we’re not gonna know the full effects of what’s to come until most likely it’s too late.