So When Will China’s Debt Bubble Finally Blow Up?

The upside is fake stability. The downside is too ugly to contemplate.

Corporate debt in China has soared to $18 trillion, or 169% of GDP, the largest pile of corporate debt in the world, according to the worried Bank for International Settlements. The OECD has warned about it earlier this year. The New York Fed warned about this debt boom in February and that it could lead to a “financial crisis,” but that authorities have many tools to control it.

The IMF regularly warns about China’s corporate debt, broken-record-like, and did so again a few days ago, lambasting the authorities for their reluctance to tamp down on the growth of debt. The “current trajectory,” it said, “could eventually lead to a sharp adjustment.”

The Chinese authorities – the government and the central bank, supported by the state-owned megabanks – have allowed some bonds to default, rather than bail them out, to make some kind of theoretical point, and they have been working furiously on a balancing act, tamping down on the credit growth that fuels the economy and simultaneously stimulating the economy with more credit to keep the debt bubble from imploding. A misstep could create a global mess.

“Everyone knows there’s a credit problem in China, but I find that people often forget about the scale; it’s important in global terms,” Charlene Chu told the Financial Times. Back in 2011, when she was still a China banking analyst at Fitch Ratings, she went out on a limb with her radical estimates that there was much more debt than disclosed by the central bank, particularly in the shadow banking system, that banks were concealing risky loans in off-balance-sheet vehicles, and that this soaring opaque debt could have nasty consequences. Her outlandish views at the time have since then become the consensus.

And this pile of debt is in much worse shape than officially acknowledged, she says in her latest report, cited by the FT. She’s now with Autonomous Research. She figured that by the end of 2017, bad debt in China could hit 51 trillion yuan, or $7.6 trillion.

Or about 68% of GDP! It would take the bad-debt ratio to an astronomical 34% of all loans, and way above the 5.3% that the authorities are proffering.

And the authorities – the government, the central bank, supported by the state-owned banks – are now pulling all levers to keep this under control.

“What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,” she said. “The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.”




By orchestrating this superficial appearance of stability of the bad-debt problem, the authorities have over the years allowed and encouraged this problem to get much worse.

Chu’s methodology, as the FT pointed out, is not without critics:

In particular, her estimate of Rmb51tn in bad debt is based on average credit losses across 11 other economies that previously experienced rapid debt increases comparable to China, including Japan in 1985-97 and the US in 2000-07.

But Chen Long, China economist at Gavekal Dragonomics in Beijing, said this methodology implicitly assumes that an economic crash will eventually occur in China.

But if that economic crash doesn’t occur, and if the economy continues to grow, credit will perform better, and loans won’t go bad to that extent, he argues.

The government understands this too. Hence the mantra that growth must be maintained no matter what the costs. But since that growth is debt-fueled, and since it is now taking more and more debt to obtain diminishing growth rates, the math gets a little tricky.

So an acute crisis does not appear imminent, Chu told the FT. The authorities – combination of central bank and government – control the state-owned megabanks and can tell them to lend more even to zombie companies, many of them state-owned, to refinance nonperforming debts, to lend to smaller banks that rely on interbank funding, and to support the debt bubble in other ways. This keeps the money flowing. It has kept a credit crisis from toppling the system. And as long as the megabanks have the total support of the authorities, they won’t topple either.

So where does that leave China short sellers, like Kyle Bass, who bet very publicly against the monstrous credit bubble in China and against the yuan?

Publicly shorting China, hoping for an implosion, is like daring the Chinese authorities – the government, the central bank, the state-owned megabanks, and their whole apparatus – to come out and crush you. And they do that just to make a point. The yuan, after declining relentlessly from the beginning of 2014 through the end of 2016, is up over 3% against the dollar so far this year.

And so far, the authorities still have this credit bubble under control. They have special tools since they control not only the monetary printing press but also the lenders and the borrowers. This is why Chu conceded that, since her bold pronouncements years ago, she has “gotten a greater appreciation” for “how everything is so orchestrated by the authorities.” The upside is the current fake stability. The downside is too ugly to contemplate.

China’s efforts to keep the debt bubble under control already impacted in the US, where the last big enthusiastic buyer, China, is leaving the party. Read…  This Hits the Wheezing Commercial Real Estate Bubble at Worst Possible Time




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  160 comments for “So When Will China’s Debt Bubble Finally Blow Up?

  1. TJ Martin
    Aug 17, 2017 at 10:05 am

    My best guess knowing the realities of China .. their government as well as their overall agenda ( to become the new number one on the world’s stage )

    Never ! Or at the very least not in the forceable future No matter how much of a Potemkin Village their economic situation may be .. with the overreaching powers the Chinese government has … along with their willingness …nay desire to watch everyone else fall by the wayside … methinks their Bubble as well sustained as it is by government intervention is destined to go on for a very very long time .

  2. Hkan
    Aug 17, 2017 at 10:18 am

    Key issue >control<.

    To handle a crise forget all about democracy. The western democracy (if u can call it democracy) wont be able to handle upcoming crises the way China will.

    Gives a hint of how western world crise will be manipulated.

    Interesting as alwyas to read Wolf.

    • Nicko2
      Aug 17, 2017 at 12:48 pm

      China’s long term systemic problems:

      – lack of fresh water
      – lack of young population – ‘grey before getting rich’
      – lack of viable agricultural land (majority of soil is contaminated with pollution)
      – lack of oil reserves

      • Vespa P200E
        Aug 17, 2017 at 2:33 pm

        What’s worse is terrible male to female ratio thanks to 1 child policy which also resulted in generation of spoiled kids.

        Article from April 2009 stated that selective abortion in favor of males has left China with 32 million more boys than girls, creating an imbalance that will endure for decades. It’s the population of the Netherlands and Chile, combined. Official figure is 120:100 but may be as high as 128:100. Worldwide average is 106:100.

        Just imagine 32 mil horny Chinese men marginalized and unable to find wives, and many women resorting to lucrative prostitution (already happening). Powder keg indeed.

        And history tells us that nations with such male imbalance resorts to wars to trim the male population and gain land & wealth as well. We shall see how these mama’s boys will fare in real war…

        • Mike
          Aug 17, 2017 at 8:05 pm

          I suspect that the gender population imbalance can be rebalanced by immigration at least as to the higher economic percentiles of the Chinese population. Many countries are poorer than China and would probably allow such immigration of women to China.

          Promoting that kind of immigration may occur to the government of China as the huge population of surplus males starts to mature. However, given the desperate poverty of many males, e.g., peasants working in city factories, the Chinese government may elect to allow these males to die naturally, without any opportunities to have children.

          As to the huge debts, the key question is to whom are they owed? I believe that answer is mostly to other Chinese persons. What can those creditors do if they are unpaid? Not much if the debtors become insolvent and the government provides no aid.

          As long as the Chinese communists retain control of the army and enough popular support to avoid nationwide mass demonstrations, the collapse that will follow will punish those savers and investors that own the creditors or invested in the companies about to become insolvent. It will result in great misery.

          However, China has a long history of having misery dumped on it from above by its leaders: e.g., Mao. Enough said.

          So long as they control the means of production, even as to a huge number of items in US markets, and can “invest” to grow food in foreign countries, like African countries, Chinese military forces are likely to suppress any dissent caused by the enormous losses that will surely follow. See https://www.brookings.edu/blog/africa-in-focus/2015/11/05/what-do-we-know-about-the-chinese-land-grab-in-africa/

          The idea of some commentators that Africa (or other poor countries) will not export food because too many Africans (or other poor in other countries) need it is ludicrous: in Ireland and in India during famines some producers preferred the profits from exports to feeding their poor neighbors. See, for example, http://ighm.org/exports-in-famine-times/.

          Those wealthy exporters did not care about the starvation of their local poor persons. The famine will just be transferred to Africa and other food producers that will be compelled by Chinese control (and bribes to their local politicians) to ship their food out to China.

          Of course, China makes enough money from exports to import most of the food they need. Its problem is the present, more expensive tastes of Chinese consumers.

          However, to the extent that consumers there are purchasing more meat and higher priced protein sources, the Chinese government can raise the prices of those foods to discourage too great an importation of those more expensive items, e.g., by the informal trade barriers that they are so good at maintaining against U.S. producers. Beans and other protein sources will then replace meat in many Chinese diets.

          It is sad to say this, but if there some protests, the Chinese military (made up of peasants unsympathetic to many city dwellers, apparently) can suppress many, many Tianamenn-like demonstrations. Thus, what we will see eventually, with the collapse, is millions of people losing trillions of dollars’s worth of value (meaning in yuan/remimbi, etc.) Many people, particularly in the rural areas, may starve as the Chinese economy has a partial collapse and thus, jobs dramatically decrease.

          (Some U.S. investors owning Chinese factories might also lose some money, but they will still be able to produce and export their goods, maybe even at lower labor and other costs due to the mass unemployment.)

          However, the status quo will be maintained. Only if the U.S. and other food producers refused to sell China food might its corrupt cronyism based government collapse. However, given what Japan did when the U.S. tried a similar strategy before WWII (e.g., the attack on Pearl Harbor), it might be wise for our leaders to consider that an armed conflict with other great powers can too easily lead to nuclear war.

          With Donald Trump in charge, we can only hope that it will never get that far. If we had another, mor able president, not Trump of course, he might encourage the growth of a bubble in China. In that way, without any dangers of war, if high enough percentage of wealthy Chinese lost enough money in a gigantic bubble, there might be enough dissatisfaction to topple the Chinese communist government. I cannot figure out any way that the U.S. will lose from this Chinese bubble, so I encourage it to grow.

        • mike
          Aug 18, 2017 at 7:17 am

          The imbalance of males to females is nothing new in China. It existed long before one child policy. Massive ecological damage isn’t new either. When the Chinese started trading with the Spanish through the Phillipines, they got a hold of crops that could grow on rocky hills for the first time and planted them everwhere resulting in deforestation, massive erosion and frequent flooding of the areas they were farming before. They survived.

        • roddy6667
          Aug 18, 2017 at 10:39 pm

          The male/female ratio will be fixed by 2030. Also, the number of couples having a second child is causing a baby boom, which will correct the numbers sooner than that.
          You are quoting an article from 2009??? WTF??? that was an eternity ago.
          32 million sounds like a lot, but it is about 2% of the population. It may be a big deal in your mind, but in China it is way down the list of things people worry about.

    • Vespa P200E
      Aug 17, 2017 at 2:29 pm

      I was in Shenzhen bordering HK 3 weeks ago. Lot of building still going on everywhere still and aura of wealth for anyone who owns flat or 2. Prices were much higher than last time I was there in Dec 2008. Heck legit massage place I’ve been going since 1st time to SZ 17 yrs ago raised price by 50%+.

      I along with many old timers have been dead wrong on China crash for last 5 years but things can get bad like it did in 2008 and worse last time China mopped up NPL back in mid 90’s where per Wiki “Like many of the countries directly affected by the 1997 Asian Financial Crisis, Chinese bank NPLs grew substantially (with some estimates reaching as high as 42% of the big four banks’ loan balance). This forced Chinese authorities to establish asset management companies (AMCs) in order to purchase NPLs and affect a bank recapitalization.”

      This is an old article from 4 yrs ago
      http://thediplomat.com/2013/06/the-hidden-costs-of-chinas-bad-loans/

      • kam
        Aug 18, 2017 at 10:11 am

        Mike:
        ” in Ireland … during famines some producers preferred the profits from exports to feeding their poor neighbors.”

        Your grasp of history is pretty thin. During the Irish famines Ireland was occupied by the British, who “preferred” to export food (and cattle) to England instead of feeding the Irish.”

        • Mike
          Aug 19, 2017 at 2:43 pm

          You are absolutely right. I did not want to go into other issues when I said that brief comment about greedy food experters, but the British also did the same thing in India during WWII, reportedly. I am sure that they did the same in other countries: SOP.

          I have read about the role of essentially blind prejudice, selfishness, and callousness of the British in allowing innocent women and children to starve to death in many countries, particularly Ireland. I think that racism/ethnic cleansing may have played a part in the Irish famine that may have in large part been negligent or intentional (by racist authorities) genocide.

          I understand the IRA’s anger. (However, I am still amazed that these groups, from the IRA to current terrorists choose foolishly to target innocent or lower level people: bankers and politicians allowed strategies harmed these people, not the ordinary British or other citizen, who remains essentially powerless. By doing this, they step down into the moral cesspool of those they opposed.)

          Reading about that history is why I changed my opinion, a naive one that I held and many hold now, that the British empire did some good to its colonies. In fact, it was a great, blood sucking parasite (like banks such as Goldman Sachs) that destroyed the lives or dramatically harmed millions upon millions of people, like the banksters.

          That is why FDR, for whom I have developed ever increasing respect as I have learned more and more over the years, did not seem interested in helping the now supposedly “holy” Winston Churchill preserve the parasitic British empire. As a former Republican, it would surprise my prior friends that I now think FDR (despite some issues was one of our best presidents) and Teddy was lamentably a racist despite his fight against monopolies.

        • Chris
          Aug 20, 2017 at 4:21 am

          During the Irish famines, Ireland was not occupied by the British, Ireland was British, as in the United Kingdom of Great Britain and Ireland (until 1920). An important difference, or was Puerto Rico “occupied” by the United States? The cause of the famine was the failure of the staple potato crop and the reasons (phytopthera, lack of rotation) were not well understood by Irish farmers, or anyone else at the time. The response of the government to the famine was certainly inadequate, tragically, but that was the nineteenth century and they did not have the means nowadays available to deal quickly with such an emergency. Your grasp of history is thin, if I may say so, as someone of Anglo Irish descent and a Celtic Irish surname, as are a great number of us in Britain nowadays and I have cousins in America, who emigrated from Ireland, not because of famines, but for economic reasons. Balance, when interpreting history, is everything, but so often lacking, as Mike, below, demonstrates.

  3. 2banana
    Aug 17, 2017 at 10:33 am

    Does she even realize China is still a communist governmental system?

    The same system that crushed those at Tienman Square and slaughtered 40 million in the great leap forward?

    They will not even break a sweat keeping a massive credit bubble going

    *********

    she has “gotten a greater appreciation” for “how everything is so orchestrated by the authorities.” The upside is the current fake stability. The downside is too ugly to contemplate.

    • robt
      Aug 17, 2017 at 3:15 pm

      It’s not the same system. That ended with Mao, and Nixon’s trip to China.
      If it was the same system it would be like N Korea, or maybe Cuba.
      China is a hybrid of communist administrative culture and hyper-capitalism. There is no fake stability – it’s straight-up growth, where people buy 2 or 3 or 4 apartments just because they think they can sell them for more later. They don’t even finish out the apartments – they leave them raw space, because if anyone actually moved in there they’d have to refinish to their own taste, thus raw space is worth more than finished. And they just keep building forests of huge apartment buildings because they can, and the funding is available, not with any hope of anyone actually living there. And it will end badly, at least for a while, just because that’s the way exponential growth always ends.
      Conflating the old China and the new is like the mistake of Western propaganda conflating the USSR and Russia.

      • Lune
        Aug 17, 2017 at 5:01 pm

        Just curious if you know- why don’t they finish the apartment and rent it? It seems that would be a much better use of their investment than to keep it unfinished hoping for a slight price bump when they sell a few years later.

        • mikey
          Aug 18, 2017 at 7:28 am

          Maybe because you can’t buy land in China but if you buy a building on it, you can own that (technically a lease on the land). A lot of them are purchased by parents for their children, especially sons. The son usually cannot get married to a desirable partner unless he owns a place to live. Also, there is no property tax so there is no cost to holding it. The appreciation has not been slight. My gf bought something ten years ago and it went up times ten.

        • roddy6667
          Aug 19, 2017 at 5:22 am

          So many people own second and third homes that the rental market is very soft. I can find a nice 2 BR place, furnished, for about $200USD a month. With no property tax and very little overhead, it is hardly worth the hassle to rent it out.

    • d
      Aug 18, 2017 at 2:28 am

      “Does she even realize China is still a communist governmental system?”

      ????????

      China under Mao became “Communist” For convenience, Just as it entered the war in Korea. To continue the state of war situation in china, and so allowed Mao to imprison or eliminate most who opposed him, or he simply didn’t want around. Eg Drug addicts and dealers simply ceased to exist.

      ( the suppliers and manufactures were allowed to continue and Still DO as long as their products are only exported and the CCP clans get a huge chunk of the profits. Much Golden triangle opium, was and still, is converted into heroine, in factories inside china, where nobody can touch them.)

      Now the CCP owns everything or can at the stroke of a pen, if it wants to, and the CCP.

      Is nothing but a group of Mafia clans.

      China just like Russia is a mafia state.

      Russia has the FSB clans, which control the fake democracy, and are slow stealing back the assets that move outside their control into the hands of a few NON FSB gangsters. in the post soviet collapse period.

      Both groups own more in their respective countries, and have more power than kings and their lord’s ever did.

      For a short while Russia attempted to be communist, china has only ever had communism for the masses.

      Read “animal farm” again and see if you can understand it. It is written as it is. As he was not allowed to publish the history he wanted to at the time. As it could have started another war.

      Communism.

      Is for the MASSES.

      • kam
        Aug 18, 2017 at 10:17 am

        Totalitarianism has many names.

      • Ambrose Bierce
        Aug 18, 2017 at 11:21 am

        The Maoists were fighting the nationalists of Chiang Ki-Shek before W2 had ended. Then as things started to open up there was a cultural revolution. Now of course the relations between China and the US are pretty good. There may be more capitalism in China than in the US and while its generally true that you can still go to the gulag for criticizing the government, that the leaders serve at the pleasure of the people, in the aggregate. While in the US we are at the mercy of the Rural voters, the electoral college and a politically stacked SCOTUS, the majority does not have control of the government. If you divide California into three states and give each one two senators, the Deep State liberal agenda could reassert itself. The Chinese have a wider range of ethnic and racial types, including 200M Muslims, and it’s not at all certain how they keep the lid on. One policy China uses which is antithetical to Americas thirst for information, is to limit media access. How will they ever create a consumer class without a mass media? So the end game remains elusive, though in the early days of the Republic the agrarian constituents rarely saw their elected officials and had little access to news. They have a long way to go.

        • d
          Aug 18, 2017 at 7:12 pm

          “The Maoists were fighting the nationalists of Chiang Ki-Shek before W2 had ended.”

          The Maoists were fighting the nationalists of Chiang Ki-Shek (who were also Fascist supported by America) before WW II Started..

        • roddy6667
          Aug 18, 2017 at 10:47 pm

          China already has a middle class which consumes massive quantities of goods which they see advertised everywhere. Why do you believe that they don’t exist or that there is no mass media? I live in China. Advertising is everywhere and everybody buys consumer goods in mass quantities. Who told you otherwise and why do you believe them?

        • Mike
          Aug 26, 2017 at 8:06 am

          The communists are no longer negligently allowing or causing the death of, apparently, millions as before. However, while it controls it’s army, popular support or not, only a very strong army could get that cronyism based government out. We cannot, due to nuclear weapons.

        • d
          Aug 27, 2017 at 3:47 am

          “The communists are no longer negligently allowing or causing the death of, apparently, millions as before.”

          The numbers of Obvious mainlanders floating down the pearl river, into HK ,with their hands tied behind their backs and Bullet holes in their heads, has dropped considerably (No longer several per day). But is still a regular Occurrence.

          So I would say Millions a year, as before.

    • kam
      Aug 20, 2017 at 11:14 am

      Chris:
      Of course, that depends on which end of the looking glass you are viewing history.
      Ireland was British in the same way that Poland and France were German. Through invasion and conquest.
      You may not think Ireland was occupied by the British, but it was and most of Ireland’s best land was occupied by the British elite. Growing grains and cattle to feed England.
      My ancestors were from North Ireland, Protestant apparently, but I prefer looking at truth, not emotion.

      • Chris
        Aug 20, 2017 at 11:30 am

        We have something in common, in our Protestant Irish roots, but your comparison of the Mainland : Ireland relationship with that between Germany and Poland is false. Have you never heard of the British Isles? Poland and Germany were never that close, with deep historical and cultural differences. Personally, I am a (Catholic) Unionist, in the sense that I would have preferred the British Isles to have remained united. I am not too blinkered to understand why it turned out differently. There were atrocities committed and it was a tragedy, but that does not give you the right to use IRA language and talk about “occupation”. The peoples of Ireland, Scotland, Wales and England are closely connected by blood and through history and always will be. We are closer now than we were a hundred years ago.

        • Mike
          Aug 26, 2017 at 7:57 am

          While I am not Irish, as a grown man, I had to hold back tears as I read about the suffering of innocent women, childrem, and men during that famine. Yes, potatos were unexpectedly destroyed, but it takes a special kind of evil to ship food out to make money, when you know that thousands little children are starving around you.

          Reconciliation is a wonderful thing. Blaming all British people for what Britain’s greedy rich did is irrational. However, the many decent British people would now recognize that starving Innocents to make a profit is wrong and should not be minimized.

        • Chris
          Aug 26, 2017 at 10:28 am

          Don’t forget “shipping” was sailing ships and the seas around Ireland are treacherous. Communication was by letter, or courier, also travelling by sea. No News by way of radio. Road transport relied on horses. How many of the “rich making a profit” (isn’t that essential for any business?) in England even knew what was happening across the water? Sure, there were some guilty men, in Dublin and London, but most people would not have been in the know until it was too late.

  4. memento mori
    Aug 17, 2017 at 10:47 am

    China will become the tyrant of the world, probably in our lifetime.
    This is pure power play on their side, they only believe and respect power, nothing else matters.
    The purpose of chinese society is to ammass power for the leaders by all means, hard work, theft, cheating, anything goes, no morals.
    Eventually the plebs might benefit from it, but it is not the main purpose of Chinese party, could be ony a byproduct.
    Western society is built on ideals of freedom, equality of opportunity and pursuit of individual happiness. Those ideals have been perverted by the blind pursuit of equality of outcome instead and we are slowly losing our liberty little by little as a unintended consequence.

    While we are probably towards the end of the cycle below, China is at the beginning, it has a long way to go up but Chinese were known for being good servents to the empror throughout history, not freedom fighters, bondage can last a long time, more power to the Party.

    From bondage to spiritual faith,
    From spiritual faith to great courage,
    From courage to liberty,
    From liberty to abundance,
    From abundance to selfishness,
    From selfishness to complacency,
    From complacency to apathy,
    From apathy to dependency,
    From dependency back again to bondage

    • Nicko2
      Aug 17, 2017 at 12:49 pm

      Maybe….but India has better long term growth prospects, and they’re a democracy.

      • Vespa P200E
        Aug 17, 2017 at 3:00 pm

        Have you ever been to India?

        Their democracy is convoluted and corrupt system at best with lot of lower caste illiterate folks (top 1% prefer it that way) easily swayed by the media. Having been in India on business – it’s awful place to visit and truly pits of the world…

      • TJ Martin
        Aug 17, 2017 at 3:54 pm

        Errr … Democracy ? Ahhh … not hardly … more like a carved in stone caste system trying to pretend its some sort of democracy or another to the world around it

    • milking institute
      Aug 17, 2017 at 3:01 pm

      Having dealt with Chinese clients in the past i can only concur with your thoughts. my general impression: very little respect for the country they are investing in (the US) it’s almost as they feel they have conquered this place already. i have decided not to get involved anymore after seeing too many contractors i know walking away from projects after hearing” we no pay you,we no like!” business is good so i will not put up with disrespectful and abusive people. not really sure how they get work done anymore as their reputation is notorious around here in So Cal.

      • Vespa P200E
        Aug 18, 2017 at 2:12 pm

        I hear the Indians also resort to ” we no pay you,we no like!” . Something I learned in last 30 yrs in working world is to be leery when dealing with middle easterners including Israelis and Indians.

        As for Chinese – easy dealing with those not from the mainland or lived in US for a while.

    • robt
      Aug 17, 2017 at 3:28 pm

      You may mean “Western society WAS built …”.
      After living off the capital for 50+ years there’s nothing left, as the next dip will quickly reveal. If half the country expects entitlements and welfare and the other half can’t provide them, it could get very messy very quick.

    • michael w Earussi
      Aug 17, 2017 at 4:53 pm

      Your criticisms can also apply to virtually every civilization that has ever existed, including the U.S.

      Do you think the rulers of any country actually care about the welfare of their own citizens? They only care about staying in power–at all costs. That’s why we have a trashed planet today, short term thinking based on wanting more power and money dominates their every decision.

      With these kind of leaders it’s amazing the Human Race has survived this long.

      • memento mori
        Aug 17, 2017 at 7:14 pm

        Dont agree, read the constitution and you will see what I mean. Western society is the exception all over the history of civilizations as it is based on respect for the individual, humans and property rights. It was not founded to service the king, the empror or the ceazar, but the people. Maybe it will remain an exception as we sink in the tyrany of darkness, but lets hope not.

        • kitten lopez
          Aug 18, 2017 at 10:13 am

          “Western society is the exception all over the history of civilizations as it is based on respect for the individual, humans and property rights. It was not founded to service the king, the empror or the ceazar, but the people.”

          ….you’re white and (what’s left of the) middle class, right? you’ve GOT to be if you can type that without the sarc tag, my dear man. look around…

        • d
          Aug 18, 2017 at 6:50 pm

          “….you’re white and (what’s left of the) middle class, right? you’ve GOT to be if you can type that without the sarc tag, my dear man. look around”

          This dosent say nice things about you.

          Having said that if he believes western society was ever about doing anything for the common people of the lower orders, he is Deluded.

      • d
        Aug 18, 2017 at 4:19 am

        “With these kind of leaders it’s amazing the Human Race has survived this long.”

        You seem to have leaders and people in power very confused.

        Take Winston Churchill.

        HE was a leader. Who believed in accountability hence his resignation after gallipoli.

        He spent most of his life political Ostracized.

        He was brought back in 1940 as he was desperately needed he did the job and in the 1945 election was removed.

        The right again brought him back in his dotage, to trade on his name, as he was all they had at the time. As a concession they had to allow him to be prime minister again.

  5. nick kelly
    Aug 17, 2017 at 10:50 am

    I was glad to be almost the first to comment because I wanted to predict that many comments would be along the lines of: the US or EU is worse, don’t worry about China etc.
    But I didn’t quite make it.

    As REAL China expert Ann Stephenson- Yang has said: ‘we are amazed how many analysts subscribe to the idea of Chinese Exceptionalism’.

    Or as I put it on Wolf Street, in an thought ‘borrowed’ by the CBC’s Patrick Brown, China’s discovery of credit is like Mickey Mouse discovering magic in Fantasia. He commands the broom to fetch water from the well. It won’t stop, then splits into many brooms and ends up flooding the house.

    The political stability already has fault lines. The acceptance of the CCP one of the last nominal Communist dictatorships, rests solely on the economic growth achieved by abandoning Marxism, and Maoism. The low hanging fruit was a foot deep.

    But the CCP has morphed into a quasi, French aristocracy, pre- revolution.
    The 8.5 million members and their families consume 80 % of China’s health care budget. Why does over 90% of the population put up with the scraps that are left?
    Because while it’s lousy, it’s better than it was before, so there is hope for the future.

    A severe recession in China will raise the possibility of regime change, because only the promise of prosperity keeps the CCP dictatorship in place.

    • Petunia
      Aug 17, 2017 at 1:45 pm

      Wolf doesn’t like politics discussed here, but I’m going to call and raise you by throwing in religion. The Protestant Ethic in America went a long way to curbing excesses of all kinds, especially in business. Prudence was valued above profit and it served the nation well. While the Protestant Ethic is at least a distant memory in America, the Chinese never had any such restraints. These are the people who sold all their silver for opium.

      • wkevinw
        Aug 17, 2017 at 2:20 pm

        I don’t agree with the lack of profit motive. There was more ethical behavior most likely, but “profit”/ financial gain was always number one.

        What has changed is the enormous wealth potential in a short period. A study of CEO salaries is very instructive.

        In 1965, the CEOs had a salary 20x the average worker; nice living. In 2000, at the height of the ratio, this number was 383!!!!!!!!. So, if you can somehow, step on, step over, lie, cheat, sell-out or otherwise climb the corporate ladder, or equivalent occupational ladder, you can get VERY rich, VERY quickly. This is unprecedented in the past couple of hundred years, if ever.

        It drives the banksters, all the financializers, the entrepreneurs (who now will gladly take subsidies if they have a socially/politically “desirable” business model), corporate ladder climbers, fake celebrities, athletes, crooked politicians, etc.

        CEOs compare their compensation to others, and as soon as there is a precedent, the spiral continues upward.

        That’s one source of the bad behavior of the upper income people nowadays compared to times past.

      • robt
        Aug 17, 2017 at 3:55 pm

        Just do a quick check on the Opium Wars, and who sold it to them (One notable was Warren Delano, Franklin Roosevelt’s grandfather, who made a fortune trading opium to China), and why the wars took place.
        Historically, that’s why China has ingrained hard feelings toward the West.

      • Ambrose Bierce
        Aug 17, 2017 at 3:59 pm

        China has 200M Muslims about 1/10 of them are Sunni and they are allowed to worship, to one degree or another which is not always the case for Christian and Buddhists.

      • TJ Martin
        Aug 17, 2017 at 4:00 pm

        Not exactly true Petunia . If you read the history it was the British that forced opium on the Chinese whereas many if not all forms of Buddhism [ the real … not the Americanized homogenized version ] has many built in restraints to stem hyper capitalism that much like our Protestant ethic of 200 years ago has been subverted and perverted into its current form or lack thereof

      • kitten lopez
        Aug 18, 2017 at 10:07 am

        “The Protestant Ethic in America went a long way to curbing excesses of all kinds, especially in business.”

        EVERYONE should go to school in the bronx. you blow my brains out every time, Miss Petunia.

    • Paddy Jim Baggot MD
      Aug 17, 2017 at 6:44 pm

      that was insightful

    • JZ
      Aug 17, 2017 at 9:06 pm

      I agree that China does NOT have debt problem. If any problem, it is political/regime change.
      One party system is easy to analyze.
      1. Internal debt is Not a problem since it is one party, one owes oneself money. Can be postponed for ever or paper printing through it.
      2. External debt is an issue and they have 3 or 4 trillions of reserves.
      3. Due to above 2, they do not have debt problem.
      4. Lennin said, for regime change, there are 2 necessary conditions.
      First, the ruled are no longer satisfied with status quo.
      Second, the existing tools for the ruling class no longer works.

      US in 2016met the first consition, but the democratic election as a ruling tool defused the anger and the regime goes on. Voters thought they did something, while at the same time, the ruling is still ruling. So the 2nd condition was NOT met.

      For China, if you ask their citizens, even the first condition is NOT even met. You might think how could that be possible. Remember what pisses the west citizens off can be easily tolerated by Chinese citizens since there are much worse alternatives in Chinese history.

      So debt is not a problem, and. one of the two regime conditions exist.

  6. Jonathan Vause
    Aug 17, 2017 at 10:55 am

    ‘But … if the economy continues to grow, credit will perform better, and loans won’t go bad to that extent, he argues. … But since that growth is debt-fueled, and since it is now taking more and more debt to obtain diminishing growth rates, the math gets a little tricky.’

    funniest thing I’ve read for ages :-) of course the real problem is that, bcz everyone knows that the central government effectively has their back, capital continues to go on being misallocated on an epic scale, so the likelihood of increases in real-value-generating activities continually decreases, especially once the low-hanging catch-up growth fruit have already been picked. in a macabre/voyeristic kind of way it’s fascinating to see how much longer and further they can keep it going

  7. George McDuffee
    Aug 17, 2017 at 11:08 am

    While nothing is ever as good, or as bad, as first reported, the [potential] financial/fiscal problems in the largely controlled economy of the PRC appear to indicate a systemic stability problem with the current debt based, indeed even money based, economies of the “developed” countries.

    I have no idea what could replace the current systems, and it may well be that debt based “free market” capitalism is the “least bad” alternative, but we collectively need to prepare for major recessions every decade or so, and a total credit implosion every century, much as we make provision to limit the damage from flooding, such as the construction and maintenance of levees, diversion canals, and pumping stations in flood prone areas. Indeed, by zoning and building permits we frequently prohibit the construction of buildings in particularly flood prone areas, and have emergency plans and contingency laws in place for when flooding does occur.

    • Memento mori
      Aug 17, 2017 at 1:10 pm

      Understanding the exponential function is key, put the CB mandated 2% inflation on a chart and the answers will appear clear as to why we have those credit events. Math is the only thing that comes closer to what we call truth, evth else is a matter of opinion

  8. JungleJim
    Aug 17, 2017 at 11:18 am

    I wonder if the brouhaha with India is partly to distract attention from the debt problems.

    The land (which is claimed by both China and India) is fairly high up in the Himalayas and almost uninhabited. Nuclear saber rattling over it is silly unless the saber rattling is meant to be a distraction from something else.

    • Lune
      Aug 17, 2017 at 5:09 pm

      Strictly speaking, that land isn’t claimed by India. It’s claimed by Bhutan. However, India and Bhutan have a very close relationship, with Bhutan essentially being an Indian protectorate (think Monaco and France). So India entered the conflict at the request of Bhutan.

      I’ll grant you though, much of this is a fig leaf, and the real issue is China and India and their poorly demarcated border along the Himalayas, worsened by rising nationalism in both countries.

      • Michael Fiorillo
        Aug 21, 2017 at 7:18 pm

        I’ve read absolutely nothing about the current dispute between the two countries, so may be way off base, but intuition tells me that hydrology and water flows, and disputes following therefrom have got to have a place somewhere in this conflict.

        Like glaciers almost everywhere else, those in the Himalayas are receding, which along with dam construction and habitat degradation on the major rivers that cross state borders – the Indus, Ganges, Brahmaputra, Mekong, Irawaddy, et.al – are creating stresses in and among countries that make up that immense watershed.

        • d
          Aug 23, 2017 at 5:28 am

          Military and political aid to pakistan by china along with OBOR projects on land india claims and does not want developed are an agitator to the old issues in this area including water.

          China and pakistan are planning more dams in Pakistan so india plans top dam and diver flows in its control that feed those dams.

          Another factor is chinese aggression in the western Philippine sea which threatens Vietnamese Indian developments in Vietnam’s waters china is stealing.

  9. Rob
    Aug 17, 2017 at 11:32 am

    China has a distributional problem, not a debt bubble. The distribution of income and spending is distorted also the ownership of assets, liabilities and savings.

    That is completely different to countries like the US and UK living beyond their means for decades at a time, or countries locked into the EU losing their manufacturing bases to Germany.

    I always love how some parochial hedge fund manager in London/ New York/ Texas explains how the PBoC/ ECB dont know what they are doing and then goes and loses hundreds of millions betting against them, suckering their stupid institutional investors in the process.

    • mean chicken
      Aug 17, 2017 at 12:35 pm

      Which begs the question of whom the IMF works for…

      “The IMF regularly warns about China’s corporate debt,”

      • Rob
        Aug 18, 2017 at 11:45 am

        Because the distributional problem relies on debt to support final demand and without it it would trigger a crash in final demand and a recession. However the root is the imbalances and that leads as a consequence to debt.

    • Lady Godiva
      Aug 17, 2017 at 1:31 pm

      Well said! :)

    • kam
      Aug 18, 2017 at 10:40 am

      So, if as often claimed, China has a 25% savings rate, then why does the PBOC need to conjure up debt? Surely there are enough savings to sustain growth.

      Or, ahem, everything is fake.

      And for those that claim debt is never a problem. That is true where debt supports a yield in the expenditure, but when debt goes to current consumption or debt goes to non-income producing or declining value assets, or even assets the appear to increase in value over the short run, then debt becomes a real problem.

      Even so-called internal debt. Unless the debt you owe is to yourself, there will be unhappiness somewhere when you don’t repay what is due.

  10. hoop
    Aug 17, 2017 at 12:01 pm

    They can do the same trick as Japan, USA, EU, GB do lower interest rates and refinance. Further they can let the Currency devalue. QE 1 + 2 + 3 + 4 + 5 + 6 + 7 etc. Japan started this was now 3 decades ago. In 2008 the USA joined them and now the EU, GB are also full in. Canada, Australia, New Zealand etc can follow. So all reserve currencies can continue this came for a long time. Its like the rabbit who have to jump all the time 1/2 the length to reach the finish line In how many jumps he reaches the finish line ? The burden of the losses will be doing so moved to non reserve currency countries like Venezuela, Brasil, Russia etc. Who all will get hyper inflation before it finnaly all blows up. But that is a problem for tmrrw :-)

  11. mean chicken
    Aug 17, 2017 at 12:19 pm

    “authorities have many tools to control it.”

    And this is the root of the problem, on so many levels and countries. Of course in (or perhaps motivation for) the process, those same authorities are front-running the whole shebang (prove me wrong!).

  12. Thunderstruck
    Aug 17, 2017 at 12:33 pm

    I often wonder if Kyle Bass has a both public position *and* a hidden position when it comes to investing in China. They’re right when they say he seems to get beaten up quite a bit with his short recommendations on Chinese investments, but I wonder why he persists…. Could it be that when he talks short on one side, he may have also have hedged in some long positions too?

    • mean chicken
      Aug 17, 2017 at 12:41 pm

      Hard to say but some of those big guys actually do their best to get others on the wrong side of the trade. Wish we could have more articles on their habits…

      • Thunderstruck
        Aug 17, 2017 at 1:27 pm

        “Wish we could have more articles on their habits…”

        So true. That could be most insightful.

        Not all of us are like Goldman Sachs and have a well-staffed prop trading group to front run our clients with……

  13. marco
    Aug 17, 2017 at 12:52 pm

    “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities,” she said. “The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.”

    Boy …. this perfectly describes the Fed and our fake “recovery” .

    • cdr
      Aug 17, 2017 at 2:06 pm

      Yes, you have it! The world ends in bloody horror if anything goes against the momentum created by the current crowd who is trying to steal everything not nailed down. The things nailed down are delegated to flunkies to steal for the group in charge. (currently the ‘Globalists’ who use the politicians, FOMC, media, others for the tedious stuff)

  14. Lady Godiva
    Aug 17, 2017 at 12:57 pm

    China’s managing its debt- in fact, 2107 is the year they begin phasing out the Dollar as the world’s reserve currency. 4 key milestones over the last 5 months confirm this:

    1. China is back to being the #1 holder of US Treasury bonds
    2. China just opened its $9 trillion bond market to foreigners
    3. China now holds $3+ trillion in foreign currency reserves
    4. Chinese investors are cleaning out Asia’s Dollar bonds

    Implications of buying US Treasuries:

    While China’s been the top US Treasury bondholder in the past, in 2016, it sold its Treasury holdings, thus flooding the market with Dollars—this stopped the free fall of the Yuan against the Dollar. In parallel, China stopped capital outflows & has been shifting into an economy that’s built on investment (going beyond its reliance on trade).

    So why would China once again invest in US debt?

    Simple—As the US’s largest creditor, the US will now have to play by China’s rules. And because China’s own economic fundamentals are under control, the US can’t checkmate its way out… If China dumps those Treasuries, the Dollar and the US economy will nose-dive.

    The FED is in absolutely no position to take on more US debt. If Trump’s smart, he’ll cooperate with China in helping the FED reduce its current $4.5 trillion balance sheet. This would prevent a debt bubble from bursting within the US. Without China, the FED doesn’t have a candidate willing to buy the US securities/bonds it holds—the current positive financial outlook in mainstream media is due to corporations, Wall Street & the FED passing the debt between one another like a hot potato; but, the FED can’t let the debt land on Wall Street/corporations because the entire US economy would collapse.

    China’s happy to help—it has no interest in an unstable US economy (Eastern economic philosophies of countries like Russia/China are much different than the US’s… for the East, mutual gain is a mutual win—when everyone’s doing well, everyone has the chance to do better. As China/Russia will take on the leadership roles of global growth, their supremacy isn’t threatened).

    Implications of China opening its bond market to foreigners:

    People buy government bonds because governments are traditionally the guardians of any national economy, thus guaranteeing a return on investment.

    Question: Considering that the FED has been giving out free money to Wall Street/Corporations since 2008 by purchasing securities & bonds, which they can’t sell now, how attractive would a US Treasury bill/note/bond be to any investor, especially when their yield rise & prices fall?

    Now look at a Chinese government bond—given the size/capacity of the economy, the stability of the Yuan, the gold reserves held by China (remember the US doesn’t own its gold, it’s holding the gold, which belongs to the FED, a private corporation) and the $3+ trillion in foreign reserves, aren’t all these super good reasons to be confident in investing in Chinese bonds? Wouldn’t that be a much better choice when building your retirement nest egg?

    At the end of the day, when the US government is drowning in debt, and China has cushioned itself enough to absorb that debt—it’s a no-brainer…

    Implications of $3+ Trillion in foreign reserves:

    Remember those US Treasuries China just bought? In theory, that purchase causes the Dollar to rise, which means the Yuan would once again fall against the Dollar.

    Enter the foreign reserves.

    If China has both a lot of US Treasuries & US Dollars, it can sell the Dollars to offset any unacceptable level of Yuan depreciation that occurs from China buying US Treasuries.

    At the same time, China is in a position to indirectly screw with the Dollar—it can buy vast amounts of Euros (which explains why the Euro has been rocketing against the Dollar). Then again, European countries like Germany are willing to play nice with China—they’ve got more to gain economically by working with China than trying to sabotage it.

    Implications of China buying Asia’s Dollar bonds:

    To further the Yuan’s stance vis-à-vis the Dollar, China is buying Asian companies’ bonds issued in Dollars— these companies traditionally sell such Dollar bonds to US investors. But given US investors’ illiquidity (lack of cash, due to the amount of debt), it’s safer for Asian companies to sell their Dollar bonds to Chinese buyers.

    Why? If the FED raises interest rates, US investors could become illiquid. Logically, to acquire more cash, investors liquidate their securities & bonds. If those investors start dumping Asian companies’ Dollar bonds, what happens to those companies??

    They get screwed—because bonds are debt, and they can’t make good on paying back the debt when they originally used the proceeds from issuing bonds to invest in their companies.

    On the other hand, Chinese investors—who are not illiquid, will want to see a return on their Dollar bond investment, so they will hold onto those bonds until they mature.

    The value of such Chinese demand for Dollar bonds within 3 years: $1 trillion.

    One last important note—to all those who may assume Russia wouldn’t accept the Yuan’s status as an international reserve currency:

    Russia and China are on equal footing, so there’s no reason for Russia to be threatened.

    First, Russia’s is now the world’s number one gold buyer. Second, it’s oil rich. Third, it’s the political Bad Cop in its Good Cop/Bad Cop partnership with China. Again, Eastern thinking: why fight to be a single superpower, when we gain more from accommodating 2 or 3?

    How the US emerges from all of this, really depends on how Trump plays it—China is willing to extend the olive branch, and save his ass, but just like most modern US administrations, there are too many greedy/proud hawks egging the President to beat the war drums. The repercussions of that strategy will backfire though. At that point, Congress’s response to Trump will be:

    “You’re fired.”

    • Dave
      Aug 17, 2017 at 2:09 pm

      Sorry, this is not a comment. This is a diatribe. Please say something to the point or start your own website.

      • Lady Godiva
        Aug 17, 2017 at 4:16 pm

        Loooooool- then don’t respond if you don’t like it :)
        But if I do start my own website, you’ll be the first to know, Dave!

        • john nilsen
          Aug 17, 2017 at 7:08 pm

          I quite liked your perspective. I can’t say I agree with all of it but, I enjoyed the read and thank you for sharing.

        • Lady Godiva
          Aug 18, 2017 at 1:57 am

          Dear John Nilsen,

          You are most welcome! And thank you for your comment as well…

          I would love to hear your take on it :)

        • Dan Romig
          Aug 18, 2017 at 8:47 am

          “The Fed is in absolutely no position to take on more US debt.”

          I agree with you on this point Lady Godiva, but that’s what the CBO projects to happen in the next nine or so years, as our debt goes from $20T to $30T. At the current 2% GDP growth, that would take the GDP to just under $23T.

          Only if interest rates are kept artificially low as they have been for so long, can this debt cost be kept under control IMO.

      • interesting
        Aug 17, 2017 at 8:33 pm

        Spot on Dave. These “China is god” diatribes all read the same way…..every time.

        And the glaring omission is that $3 trillion in reserves used to be $4 trillion……somehow the author left that part out, interesting indeed.

      • MarkinSF
        Aug 18, 2017 at 12:55 am

        Are you now the moderator of this board? I would consider this a comment as opposed to a diatribe. And she was directly to the point and an interesting read. Your comment is just rude.

    • nick kelly
      Aug 17, 2017 at 3:06 pm

      ‘China has lost its crown as the United States’ biggest overseas creditor. That title now belongs to Japan.
      Beijing has been dumping U.S. government debt to prop up its currency. China uses the dollars it gets from selling U.S. Treasuries to buy the yuan, which has sunk to an 8-year low as the world’s second largest economy slows.
      China’s huge holdings of U.S. debt fell to $1.12 trillion at the end of October, their lowest level in more than six years, according to U.S. Treasury Department data. Japan held $1.13 trillion.’

      Source CNN. That’s last year. This year China is ramping up efforts to stop dollar outflow and increase dollar inflow. They’ve cracked down on Macau and have told Anbang to sell US real estate and bring money home. They smell a cash crunch can’t be papered over with yuan.
      (3% of world’s trade is in yuan, usually from captive clients like Pakistan that need infrastructure loans that China provides, provided China builds it.)

      China has a trillion of US debt. So what? In the first year of QE the US Fed stuck on more debt than that all by itself.

      The biggest problem for US trade deficit has been high dollar. It would help (not much) if the US just electronically credited China with one trillion. But that assumes no one else wants to buy this relatively small amount of US debt. Maybe Japan would take the lot, for no net change to anything, except to fodder for stories about Chinese plots.

      Or if China is the only buyer, next question for China: would you like to buy something with your dollars?

      • nick kelly
        Aug 17, 2017 at 3:31 pm

        Last should read: ‘if US is only buyer’ (and credits China 1 $T)

    • MarkinSF
      Aug 18, 2017 at 12:32 am

      2107? Do you mean 2017?

      • Lady Godiva
        Aug 18, 2017 at 2:03 am

        looooooooooool! You’d think after writing all that, I’d get the bloody year right!

        And thank you for your gallant reply in defense to it being a “diatribe”… greatly appreciated :)

    • d
      Aug 18, 2017 at 2:45 am

      “Simple—As the US’s largest creditor, the US will now have to play by China’s rules. And because China’s own economic fundamentals are under control, the US can’t checkmate its way out… If China dumps those Treasuries, the Dollar and the US economy will nose-dive.”

      ????????

      When I owe the bank 1 million I have a problem when I owe the bank ten million the bank has a problem.

      So who has the problem when A is holding trillions of B’s Treasury’s.

      And B can do what it has done before, and declare all the Treasury’s held by A at x date and after VOID, avoiding a default among other things

      WHICH THE US HAS DONE BEFORE.

      You might notice any time there is real tension between china/russia and the US large quantities of US Treasury’s formally held by R and C end up being held by private entities in Belgium and Holland.

      As both R and C know the US can and has Voided Treasury’s before.

      • Lady Godiva
        Aug 18, 2017 at 9:31 am

        “And B can do what it has done before, and declare all the Treasury’s held by A at x date and after VOID, avoiding a default among other things ”

        The US can’t afford to void those Treasuries– this is why points 2-4 are super important: it’s not the same game it was a few years back. China holding treasuries is not the single reason, it is part of a strategy that has multiple tools.

        • Aug 18, 2017 at 10:10 am

          Lady Godiva, It took out those three links because I don’t allow shortened URLs. Please use the full URLs in the comments so readers know where they’re going. You can re-post those links in full length. Thanks.

        • d
          Aug 18, 2017 at 6:07 pm


          The US can’t afford to void those Treasuries–”

          BS

          In the wright circumstances it can and will and most of the west will support it.

          You need to learn what you are talking about, and when it is that Countries that do and are not in default, Void Mass treasury or equivalent notes.

          The US has never defaulted.

          It has voided a lot of treasury’s and nobody apart from the holders has ever really complained.

      • Lady Godiva
        Aug 18, 2017 at 3:15 pm

        Here’s a link I wanted to add for you to check out, Kam– to better illustrate what I was saying:
        “China’s Indestructible Trillionaire Gov’t”: https://www.forbes.com/sites/kenrapoza/2017/08/08/chinas-trillionaire-government-nearly-indestructible/#3a6c7eb37d75

        Cheers ;)

    • kam
      Aug 18, 2017 at 10:56 am

      Lady Godiva

      Brave talk for a naked lady on a horse.

      1. Let all powerful China stop pegging the “Mighty” renminbi to the U.S. dollar. Then we shall see.
      2. China has had a long free ride on confiscated or stolen American technology.
      3. Let me know how much foreign money rushes in to buy up Chinese debt. A trickle, not a flood.
      4. For all the talk of China backing the renminbi with gold, let me know when I can buy physical gold with renmindbi and take the gold out of China. Nixon stopped DeGaulle and China will follow suit.
      5. A loss of $1 Trillion in reverses over a 1 year period does not bode well for a country. If China buys U.S. treasuries it is only because the U.S. has allowed China unfettered access to the U.S. market from Chinese bribes to American politicians. The Clinton bribe conduit is thru Canada.
      6. China would do well to reflect on the fact that they have had the one time lottery win. Their new found wealth can disappear as quickly as it was stolen.

      • Lady Godiva
        Aug 18, 2017 at 4:12 pm

        “Brave talk for a naked lady on a horse.”
        Original quip, Billy BUSH…

        “1. Let all powerful China stop pegging the “Mighty” renminbi to the U.S. dollar. Then we shall see.”

        The peg will end- because just as China is implementing currency swaps with many nations now, based on the level of trade, it will not continue to give the US special status.

        “2. China has had a long free ride on confiscated or stolen American technology.”

        Technology developed and invented by predominantly imported intelligence… Chinese included, Billy.

        “3. Let me know how much foreign money rushes in to buy up Chinese debt. A trickle, not a flood.”

        “One Day We Will All Own Chinese Bonds” https://www.forbes.com/sites/kenrapoza/2017/08/10/one-day-we-will-all-own-chinese-bonds/#1748d5cf2d9f

        “4. For all the talk of China backing the renminbi with gold, let me know when I can buy physical gold with renmindbi and take the gold out of China. Nixon stopped DeGaulle and China will follow suit.”

        Backing the Yuan with gold isn’t really about you being able to go and buy it as much as it is to enable the Yuan to become an international reserve currency. Having leverage over the gold market also gives China a lot of leverage over other currencies.

        “5. A loss of $1 Trillion in reverses over a 1 year period does not bode well for a country. If China buys U.S. treasuries it is only because the U.S. has allowed China unfettered access to the U.S. market from Chinese bribes to American politicians. The Clinton bribe conduit is thru Canada.”

        Huh??

        “6. China would do well to reflect on the fact that they have had the one time lottery win. Their new found wealth can disappear as quickly as it was stolen.”

        Again– and really, not taking a piss out of you or being facetious, but huh?

        • kam
          Aug 20, 2017 at 11:24 am

          “it (China) will not continue to give the U.S. (dollar?) special status.

          Huh… Silly me. So all along the Chinese have pegged the pipsqueak yuan to the USD, as a favor to the U.S.
          Thank you China- for propping up the USD all these years.

      • d
        Aug 18, 2017 at 7:08 pm

        In you reply to “China’s managing its debt- in fact, 2107 is the year they begin phasing out the Dollar as the world’s reserve currency.”

        You left out something from you list of extreme importance. That should have been first.

        The replacement for the dollar will not be dictated by any nation that issue a currency.

        It will be chosen buy the other nations that decide to hold that currency as the new major reserve.

        The use of CNY toilet paper in trade is on the rise.

        However VERY VERY little of it (Last timeI Discussed this Late last year?( the % was lees than 1 % of global reserves were held in CNY Toilet paper) is being held by nations CB’S that matter. Whereas those nations CB’Scant get enough US $, CHF and still Sterling and YEN. The YEN is still Asia’s default reserve currency.

        The Jjapanese did not (When it nearly did) and do not, want the yen to replace the US $. This is why they have been continually debasing YEN publicly.

        Further CNY is not and never will be gold back what the CCP is doing is PHYSICALLY printing clandestinely CNY and swapping it for Gold.

        Effectively obtaining Gold with toilet paper. Which is good business, if you can get away with it.

        • Lady Godiva
          Aug 19, 2017 at 4:31 am

          I’m not sure why you are under the impression the China are debasing its currency, when it’s been going up against the Dollar. The dip it took before won’t happen again because of the reasons in my original post regarding this article. But, if you are interested for another reason the Yuan isn’t toilet paper and its internationalization is happening… this might be a good read:

          “China’s $500 Billion Lifeline Swaps Cash for World-Wide Clout”
          https://www.bloomberg.com/news/articles/2017-06-06/china-s-500-billion-lifeline-swaps-cash-for-world-wide-clout

          If I’m not mistaken, the FED swap lines are ponzi scams done to prop up the facade of theft, lies and compounding debt which is a train wreck in the making. When China can shell out half a trillion Dollars just to “make a point” that they’re global and not going anywhere, it is a serious contender to the US and the Dollar. What say you, d? :)

        • d
          Aug 20, 2017 at 4:30 am

          “I’m not sure why you are under the impression’

          Lady are you a pro CCC troll or simply deluded.

          I am not under an impression, I know.

          I have dealings with people involved in the finances and development of some of the OBOR projects and other business in CCP china.

          SO why do they all own properties outside CCP china, have dual nationality, or at least PR in Other countries, and keep their wives and children outside CCP china????

          Those peopel can be very frank after a few drink’s at sunday lunch.

          1 The CCP and PBOC DO NOT KNOW how much debt there is in china.

          2 The PBOC/CCP have been clandestinely printing physical cash for decades, again they do not know how much Physical cash, there is in circulation.

          Eg when a corrupt general can be arrested and 3 TRUCK LOADS OF 100 CNY NOTES (6 WHEELER BOX BODY TRUCKS, NOT VANS.) are recovered from his house, and nobody missed it in the system. The system, has no idea what is going on in it.

          These people who make fiance arrangements in the 100’s of billions of $ range. I am very priveleged to even be allowed to talk with them. “The CCP statistic presented are lie’s, if the PBOC and statistics Beura could come up with what they would call a truthful number. For the cash in circulation, and debts in china, the accuracy would still only be at the most 50%.

          One of that mans current projects is in roading in Mongolia/ inner Mongolia. The road is hundreds of miles long and even in china multi-lane roads still COST millions of $ per mile to build.

          China is a huge place, with a huge population, it is very easy to make HUGE money there, if you have the correct contacts, and pay them accordingly.

          I could do with a few million for my retirement fund however the dangers outweigh the potential gains. Look at how the Packer/Crown group just got shaken down by a CCP financial hit squad.

          However just like Africa, thing’s can, and do change, very quickly. So It is also a very dangerous place. Which is why so many chinese people I know, who have made money there will not return to make more.

          Several of them are being told to return wealth to china or they will be listed as corrupt and extradited. They have never taken anything, or done anything illegal in their lives in CCP china. There is no rule of law in china. Only the rule of the CCP which is adjusted to the political and financial needs of the CCP and its corrupt officals.

          The CCP/PBOC will eventually loose control of all the financial glass balls they are juggling.

          Eventually is like “How long is apiece of string”.

          What the west needs to watch is its exposure to CNY in the SDR the greater the % the chinese can force the CNY to in the SDR the longer they can keep the game rolling and the more the west will be hurt when china falls over.

          TIP

          These same chinese who manage and finance the OBOR and other chinese deals. Who keep their wives and children outside CCP china.

          LOVE the security of US FED and the US $ as unlike you, they understand both and the fact that the US is a country where the State can default . Yet the currency remain stable and strong due to THE FED.

          These people also understand chian will do what india did with large denomination bills except that in china they will succeed where india failed and make sure billion’s of $ worth of it are never exchanged for the new notes.

          As to china can shell out half a T $ any time as they are strong. So by inference the US is week.

          Half a T $ isnt much these days, the global FOREX market turns over more than that. DAILY.

          The SDR is a joke has been since china forced CNY to be included in it..

          The real measure is that the global CB’S hold less than 1% of their reserves in CNY.

          Objectively (Pro CCP anti US people,are never truly objective) the global holding by Major CB’S (HOLDING, NOT USE) is the measure of CNY.

          With the variable that as cny is a trading currency most CB’S to have a little overnight sometimes even though it is a HUGE risk

          So CNY is still a plague infect flea compared to, CHF let alone, sterling or Australian $.

          Both you and the CCP/PBOC forget, you can only dictate what happens, to the western CB’S, to a certain level.

          The CCP/PBOC can dictate to country’s like Argentina, Venezuela, Ecuador, and Various African nations, that trade contracts be settled in CNY Hence the existence of more CNY currency swaps.

          They can not dictate that Western CB’S Hold CNY and the 1% Global number says they don’t.

          And CNY needs to go up further against the $ ,It has been held artificially low for decades, to Advantage china. Just like all the other trade rules have been manipulated by CCP china to advantage CCP china.

          Just like the ridiculous chinese WTO claim that 13 years has passed, china is now automatically a market economy. They wer given 13 years to become one, not to be automatically granted the status of 1 after 13 years. When in fact they are less of a market economy now than they were 13 years ago. (!3 may be the wrong #)

          CCP china is not even remotely close to being market economy.

          The greatest threat to the planet today is not Nuclear weapons. Held by iran, Pakistan, (Both very much aligned with CCP china) and CCP china’s lapdog, the DPRK.

          It is CCP china and the Globalised Vampire Corporates spawned by their alliance with CCP china. When that alliance brakes, or when CCP china financially implodes the fallout will be global, and could be catastrophic for everybody .

          china has caused such in history, more than once before, and will again.

          As to you anti fed comments ,most of which are baseless HUGE CHINESE POT, calling very small American kettle black.

          If the FED is a Ponzi, CCP china, it the mother of all Ponzis.

    • Shawn
      Aug 24, 2017 at 10:31 am

      I fail to see why so many Chinaphiles, (yes that is a word, see ZH from 2013, http://www.zerohedge.com/news/2013-09-21/chinas-ghost-cities-are-multiplying) gloss over this country’s so many systemic problems. As is the case with this US, I believe it is these systemic issues with the Chinese economy that goes hand in hand with what is happening in the financial sector.

      • d
        Aug 25, 2017 at 5:10 am

        Sino-Phile would actually be the correct term I think.

        As in Sino-Soviet alliance and Sino-Nippon war

        franca/franka should be Franco (as in Franco-German steel alliance) but many would now confuse it with, General “Franco”.

  15. JR
    Aug 17, 2017 at 1:12 pm

    BIS 2016: “Persistent private capital outflows from China since June 2014 have led to two different narratives. One tells a story of investors selling mainland assets en masse; the other of Chinese firms paying down their dollar debt. Our analysis favours the second view, but also points to what both narratives miss – the shrinkage of offshore renminbi deposits.” This supports my guess is that the Renminbi will be one of the first victims of the Currency Wars. Once China’s “hard currency” reserves are under the Rickard’s limit things will break. As for internal finance, the Wealth Management Products are showing signs that they are NOT getting rolled over. As Rickard’s tweets it: “Here’s the China WMP graph. Once a Ponzi shrinks in size it collapses quickly. Bernie Madoff can explain where this goes. Game over in China”. Good luck out there and stay frosty.

    • kam
      Aug 18, 2017 at 11:28 am

      JR? As in the real JR from ZH?

  16. Memento mori
    Aug 17, 2017 at 1:19 pm

    When you look at how CB function, (print money to buy government bonds then return the interest on the bonds to the treasury or extinguish the money when bonds are paid off) I always wondered why can’t the CB simply forgive the government debt it owes?

    • Kent
      Aug 17, 2017 at 2:17 pm

      The federal government doesn’t have to sell bonds in the first place. It could always just print the money. At its core, the Federal Reserve System is a ruse to hide that basic fact from the population. Because if the population understood that the government could just buy whatever it wanted, or create enough jobs to hire all the unemployed, why wouldn’t people just vote that for themselves? Why would some poor slob trundle off to a stocking job at Walmart for minimum wage when he could be getting paid $15/hour to check food for dangerous bacteria? Where would this leave the owners of Walmart?

      That sir, is the road to socialism.

      • nick kelly
        Aug 17, 2017 at 3:44 pm

        UK tried it under Labor up until 1973. Pound collapsed and UK had to get emergency IMF loan, biggest in IMF history requiring IMF to borrow from US and West Germany.
        IMF dealt out some tough love to UK, had to cut social spending and sell stake in BP oil.
        But the Guardian’s site is full of comments that if the BOE just printed more everyone could live happily ever after.

  17. prepalaw
    Aug 17, 2017 at 1:26 pm

    Wolf,

    the only thing that matters to a sovereign nation is how much they owe the outside world.

    From: https://en.wikipedia.org/wiki/List_of_countries_by_external_debt

    External debt as % of GDP

    China = 13%
    USA = 97%
    Japan = 74%
    etc.

    China could do a currency and debt reform. Mark down all debts to zero; shoot 10,000 people (bankers, provincial managers, CEOs of state corporations, etc.) They could spare the foreign investor and reorganize his debt. China’s finances are reformed.

    The USA? Japan? Stiff all those foreign investors. Both nations collapse.

    It is my feel that the gross indebtedness of a nation is not the measuring stick of financial sickness.

    • Aug 17, 2017 at 3:57 pm

      One entity’s debt is some other entity’s asset (wealth). When the debt blows up, the asset blows up, no matter who owns this asset. If these Chinese assets are all owned by Chinese entities, then they will see all their wealth go up in smoke. And that matters big time – in every aspect of economic and political life in China.

      What you perhaps mean to say is that the central bank can monetize this debt (buy it with freshly created money and forget about it). And yes, it could, and yes it will when push comes to shove. But these kinds of things impact the currency if you do it on a large enough a scale. A currency collapse is what countries fear the most, not a debt crisis. Debt crises can be handled. A currency crisis (a lot of inflation that causes the currency to lose much of its value very quickly) is much trickier. And when that process starts, it’s very difficult to contain (see Venezuela).

      • Kent
        Aug 17, 2017 at 4:07 pm

        @Wolf,

        Consider that monetizing bad bank debts is exchanging a receivable for cash at par. The receivable has no actual value and the CB can write it off because it has an infinite balance sheet. But the key is we now have a bunch of cash in the banking system.

        As long as the banks don’t rush to trade that cash for foreign exchange, or use it to purchase commodities then there shouldn’t be any chance for a currency collapse. I believe the Chinese authorities have the necessary power to control those processes.

        • kam
          Aug 18, 2017 at 11:06 am

          “the only thing that matters to a sovereign nation is how much they owe the outside world.”

          Debt and fiat currency are a construct, a function of belief. And no government is going to pull back the curtain and say, ahah, fooled all of you into thinking we were ever going to repay you (will something of value).

          Direct monetization works only if it is parallelled to economic growth or potential economic growth. But monetization historically has been used to shrink unpayable debt.

      • michael w Earussi
        Aug 17, 2017 at 5:15 pm

        As long as China (or any country, even the U.S.) has enough of something that others want to buy, their currency will never fully collapse. This only becomes a real problem with nations like Greece who have very little that others want.

        China has a lot of stuff (even if it’s low quality junk) that others want so their currency will always be worth something to someone.

        Conversely, Venezuela has very little besides oil that others want. So when their oil exports collapse so does their economy and currency.

      • d
        Aug 18, 2017 at 3:05 am

        What throws chu and other like her time and time again is that the CCP can instruct any “Bank” to turn X debt into equity, at X rate then lend to the entity again,and again, and again. And it does

        They also instruct for how long the “Bank” must hold the “Equity” before attempting to sell it. Many times the bank can not vote this “Equity” share

        Many of the Billionaires recently quietly detained by the CCP then released are still Billionaires.

        However they now have BILLIONS “Invested” in State owned, entities that are in effect worthless, and can not sell or vote those shares for decades.

        In china when Billionaires die, if they are not connected CCP members, their child/children frequently inherit, very little, of any real worth.

        As these Methods are just another form of confiscation and money printing, eventually it will implode.

        China can stave off that eventuality, a lot longer than kyle bass and CO can stay solvent, or Mizz Chu can stretch her credibility.

        She has the same problem as Meredith Whitney and myself, the correct analysis is worthless, with out an accurate. WHEN.

      • prepalaw
        Aug 18, 2017 at 5:32 am

        Wolf,

        I mean the former. In post-WWII Germany, the authorities issued a currency reform in 1948. Währungsreform. Reichsmark were exchanged for D-Mark at a ratio of 100 to 6.5. If you owned Reichmark you were screwed. That is what happened to most people.

        However, if you were a foreigner living in Germany, you could exchange your Reichsmark at 1 to 1. Those people became instant millionaires. I know this because my deceased client’s mother lived in Germany as a Belgium citizen. He was a black marketeer. He gave his cash to his mother who exchanged it legally at 1:1. At the age of 20, he became an instant millionaire. He built his fortune on that event.

        That is a currency reform. Your existing life insurance policies were devalued at 15:1. So were your mortgages. Your paper assets and liabilities were reformed. Hard asset values were merely adjusted in price. Your cash hoard was devalued, unless you had an “ace in the hole” ( mom).

        You can read many stories about the secrecy involved in printing the new currency and airfreighting it over to Germany. Today, there will be no logistical problems. All electronic asset ledgers will be “reformed” with a key stroke.

        This is possibly why there is such a strong attack on physical cash today. Get everyone into electronic assets. Then, impoverish them with one key stroke. Except of course for the well-connected. They will be advised in advance how to reposition their assets.

        • nick kelly
          Aug 18, 2017 at 3:48 pm

          Very interesting but you know quite a few odd things happen after a World War, especially if you lost. It’s not biz as usual.

          Moving forward to reunification, my wealthy German real estate client almost had a coronary when he heard East German Marks were going to exchange at par with DM.
          “I could have picked that newsprint up for peanuts a month ago!”

    • Lee
      Aug 17, 2017 at 4:46 pm

      One sided data that only shows debt.

      Japan is a net creditor nation with a whole bunch of foreign assets that are much greater than its foreign debt.

      I don’t have the latest figures, but Japanese international assets are probably around 70% HIGHER than their debts.

      And with respect to Japan most of that foreign debt is corporate rather than public debt where the problem lies so there is very little foreign influence in that area.

  18. cdr
    Aug 17, 2017 at 1:33 pm

    Fortunately for the world, China has thousands of years of history as a civilization that has been controlled by royalty. The current political system is today’s royalty. Mandarins, who will steal everything they can, have been a part of the system since the beginning.

    China will not explode or collapse financially. Control from the top will prevent it at all costs. Mandarins will give back (by force) some of what they stole and are laundering in the US today. This is a substantially closed system, and the world can be thankful for it. “whatever it takes” is a good thing when the Chinese say it in this context.

  19. Kent
    Aug 17, 2017 at 2:06 pm

    China will be fine as long as they have excess labor. And they have more than enough of that. Westerners think of things in terms of money. We shouldn’t. We should think in terms of resources. Specifically labor resources. That’s what the Chinese leadership does.

    The financial system in China allows hundreds of thousands of bankers to create money out of thin air to help millions of Chinese businesses produce new products. Yes it creates malinvestment, but that is better than a handful of apparatchiks deciding where to invest resources. It’s a system that has turned China into the largest economy in the world based on purchasing power parity in just 30 years.

    And just as debt can be created out of this air, it can be just as easily retired with no pain because the government can and will monetize it. The government will step in and slap a few people around when obvious fraud is happening, but that’s about it.

    China needs to put another 500 million peasants to work. That’ll happen in the next 30 years or so. At that point they’ll be able to produce everything in the world everybody could afford 2 or 3 times over. That’s when the day of reckoning comes.

    And let’s hope they figure it out. Because at that point we won’t even know how to make anything anymore.

    • cdr
      Aug 17, 2017 at 2:15 pm

      I never thought of that approach. Thanks. For a closed system it would work brilliantly. Allowing the US or some idiotic neocon group to force freedom on the people would be a world disaster. I imagine, from a Chinese perspective, we look dangerous to their stable society which they prefer is left alone.

      • Kent
        Aug 17, 2017 at 2:22 pm

        “Freedom” gave the American people the right to choose between Donald Trump and Hillary Clinton. I would never wish for the good Chinese people to have to endure that kind of freedom.

        • nick kelly
          Aug 17, 2017 at 4:54 pm

          But you want the freedom to comment as you wish, something they don’t have.

        • Kent
          Aug 17, 2017 at 7:17 pm

          And that makes a difference?

    • Lune
      Aug 17, 2017 at 5:18 pm

      Actually, China doesn’t have excess labor. It has a labor shortage. Thanks to the one-child policy, China’s working-age population hit its peak around 2015 and has started to decline. First slowly, than rapidly.

      Already, a lot of low-level manufacturing is moving out of China to places like Vietnam because the labor shortages are causing rapid wage increases and price hikes. That’s part of the reason China is desperate to move towards high-end manufacturing and services: if you wish to maintain your GDP while your working population declines, your labor productivity must go up.

      • roddy6667
        Aug 20, 2017 at 9:01 am

        China has over 100 million farmers who operate at a subsistence level. They would gladly trade this grinding poverty for a manufacturing job. Certain low-level manufacturing jobs like garments did go to cheaper countries. These jobs always go to the newest developing nations. Bangladesh, Cambodia, North Korea, and Vietnam now make a lot of the world’s clothing. In a few years, African countries will be doing it. Already all the Jeans companies have factories in Lesotho.

    • Camerons
      Aug 17, 2017 at 9:51 pm

      @Kent
      So many for so long have been predicting the collapse in China. In my view the size of China’s debt is large but as you implied the Chinese economy is different from the advanced capitalist economies. Most of that debt is owed by the Chinese state banks and state enterprises. The Chinese government can bail these entities out using its reserves. The state has the economic power to ensure that, unlike governments in the US and Europe during the credit crunch of 2007. Governments then were beholden to the banks and companies, not vice versa.

  20. Drango
    Aug 17, 2017 at 4:47 pm

    The fact that China had to recalculate its currency in order to hide its dollar exchange rate problem is not a good sign. In fact it’s very bad indeed. In trying to avoid getting to seven to the dollar, they’ve weighted the exchange rate toward weaker currencies. So now 6.8 is the new 7. It’s still just lipstick on a pig. They’re paying a tremendous cost to maintain the Yuan against the dollar, and doing their utmost to hide that fact. China’s financial system is toast, and nobody knows that better than the Chinese themselves.

  21. kenny
    Aug 17, 2017 at 4:56 pm

    all the factories are in china all the brands are producing in china they produce everything for cheap and export everything they produce.countries like Australia chile and brazil send them all the commodities there industry needs china send them cheaps goods.china is the number 1 producers of gold and the number 1 producers of bitcoin the fourth industrial revolution with the internet of thing. they are into the business of bike sharing with companies like ofo already in Seattle Cambridge and others cities in europe.they even have umbrella and basketball sharing and wanting to export the concept to others countries.There movie industry in competing with Hollywood with blockbusters movies.

    • memento mori
      Aug 18, 2017 at 12:18 am

      you lost me with “china is the number one producer of bitcoin…”

  22. Lee
    Aug 17, 2017 at 5:03 pm

    I really wish people would stop comparing everything in the financial sector to ‘what happened in Japan’ when the bubble blew up there. Completely different situation.

    Comments on China:

    The biggest problem comparing Japan with China is the system of government. One is a so called democratic country (Japan – well in most ways) and the other is a communist dictatorship run by a bunch of murderers.

    Control in China can be undertaken by a number of ways the most common is as soon as you run afoul of the government is arrest, torture, a sham trial, and a bullet in the head. Quite uncommon in Japan.

    These second is the rule of law with regard to commercial activities. And again, Japan is Japan, but generally a pretty good place to do business knowing that you have a system that will back you up. In China, well they don’t like you and guess what? Oooooooooops – you are gone one way or another or problems are ‘made up’ to keep you in line. Recent examples using Australian companies are Crown Casino in the gambling sector, Rio Tinto in the iron ore sector, and even in the area of baby formula, Bellamy.

    Just try and get a hold of collateral in China if your ‘partner’ (In reality the end partner for any business in China is the Chinese government) goes belly up.

    Intellectual property rights in China compared to Japan……… maybe the question should be: what property rights as far as China goes.

    And how about financial data? Japan has a pretty good system if one knows how to uncover the data. Chinese data is fake from bottom to top designed to keep the corrupt system going regardless of the truth.

    China and Japan: No comparison at all.

    • Dave
      Aug 18, 2017 at 8:07 pm

      I think the main difference between Japan and China is that Japan is a US colony, under military occupation by the US; and China is an independent sovereign nation. They are both one-party states, but the Japanese have bogus minor parties as ‘democratic’ window-dressing. These days, the media in China is slightly more open than that in Japan.
      When the US demanded that Japan ‘allow’ the yen to soar in value in 1985 (Plaza Accord), the Japanese obediently knuckled under. Arguably, this was a major factor leading to Japan’s perpetual stagnation. How do you think China would respond to a similar US diktat?

      • d
        Aug 19, 2017 at 3:18 am

        A relevant financial model is just that.

        The annalist/student must however make adjustments for variables.

        There is no ” Great firewall of Japan”. There is no detained for questioning of the wealthy, So that they stop selling and then “re-invest” where directed” in japan either

        Which shows your pro china anti Japanese/US bias, throughout your entire comment..

  23. michael w Earussi
    Aug 17, 2017 at 5:03 pm

    The Chinese are putting on an interesting show (and experiment). Personally I’m curious as to how long they can make it last before it blows up (if it does). And given that the formal discipline of Economics is only a few centuries old, who knows, maybe they have invented a new form of economics.

    • d
      Aug 18, 2017 at 3:12 am

      “The Chinese are putting on an interesting show (and experiment). Personally I’m curious as to how long they can make it last before it blows up (if it does)”

      The global poster child of civil wars is china.

      since china started using paper money the root cause of the vast majority of those civil wars (If not all ) has been excessive money printing.

      This time will be no different. Except perhaps the Chinese civil war may become nuclear, and morph into a global nuclear war.

  24. Truth Always
    Aug 17, 2017 at 5:22 pm

    I don’t see why China debt should blow up at all?

    If in America, a democracy in notion with supposed transparency, the debt hasn’t blown up – why would it ever blow up in China which is a Communist dictatorship?

    Seriously, if the world trade stopped tomorrow – Americans will be stuck w/o goods while the Chinese can still keep making them (or not). Even though there is low local consumption in China what stops them from giving Yuan to producers…

    The world was America because it produced stuff others couldn’t. Outside of semi conductors (and that is closing soon) the Chinese can make everything else. America now leads only in
    1. Fake news
    2. Keeping $ as king among currencies
    3. Creating wars and conflicts around the world.
    4. Spread BS about ‘American Exceptionalism’ and preaching peace while acting otherwise covertly

    • IdahoPotato
      Aug 17, 2017 at 6:01 pm

      Micron was the last standing big semiconductor manufacturer in the U.S. After getting a boatload of concessions and subsidies from state governments (Idaho and Virginia), they moved the bulk of the manufacturing to Asia.

      • TheDona
        Aug 18, 2017 at 12:32 pm

        Micron still does most of it’s chip manufacturing in the US but it’s fab in Singapore is catching up. Smart move as almost half of Micron chips are sold to China. Micron also bought out several Japanese manufacturers. Some of their chip manufacturing will never leave the US because it is for the military. Test and assembly left the US a long time ago.

        “Last standing big manufacturer in the US”….What about Intel and TI?

        China has tried and tried to promote their chip manufacturing but all they have are thousands of very small players. Nobody important.

        US and S Korea are the largest hub of design and manufacturing. Taiwan’s huge fabs are contract manufacturers. No design work. Poor Japan fell off the map.

        It is also interesting to note S Korea has manufacturing facilities here in the US.

  25. michael Engel
    Aug 17, 2017 at 5:58 pm

    In the last decade, China benefited from some tailwind.
    1) Their saved money was in UST. When the Fed cut % rates to zero,
    China benefited. They took some profit at the peak.
    2) China was the biggest user of commodities. China became the
    largest car market.
    In 2014, China got commodities for half price and below.
    Debt own to China was paid by oil producers by shipping to
    China double the quantities,
    .3) In Oct 2014 every stock market collapsed. Money inflow went
    to China. Their stock market formed a bubble.
    With so many gifts showering on you, when everything is 50% disc
    what does China do – what they can do :
    more infrastructure, more RE, including phantom RE, cover zombie co.
    and invest in building a powerful army.

  26. Ambrose Bierce
    Aug 17, 2017 at 6:30 pm

    No one really understands credit, and the Chinese have reverse engineered the enigma. The fallacy exists that a trade war would actually work, and that China can control capital flight. Some American states might secede from the Union, while China has earned a (red) star on that flag by doing America’s dirty work. The system fails when China begins to verticalize their own economy. Until then the cross border credit arrangement was easy enough to measure. They are now embarked on their own private credit bubble, and there is no room for that in the global economy.

  27. Lune
    Aug 17, 2017 at 6:43 pm

    To the numbers in Wolf’s article, I’d add China’s capital efficiency. Prior to the GFC, it took 2-4 yuan in investment to generate 1 yuan of GDP. Now, that ratio is 13:1. The debt treadmill is running faster and faster, just to maintain that 6-8% growth that’s needed to keep the people happy.

    Rather than making the painful changes needed to improve that ratio, it’s worsening year over year as they continue to misallocate money into capital investments (now an eye-watering 45% of GDP; for comparison in the U.S. it’s 20%), while labor productivity stagnates. That’s why the Chinese govt literally *can’t* stop driving their credit bubble higher and faster, without risking GDP growth falling below acceptable limits.

    Also, WRT their currency: it’s not that great that the RMB appreciated by 3% against the dollar when the dollar itself has declined ~6% this year. And I’m suspicious of their claim that this has happened without needing to draw down their currency reserves. Their currency reserves dropping rapidly to $3T, then stopping suddenly right there and hanging perfectly at $3T every month is suspiciously similar to companies who use shady accounting to hit their estimates down to the penny each quarter. In this case, that “stability” has been managed with draconian capital controls, and likely by leaning on SOEs and even private companies to reduce their dollar holdings so as to mask ongoing capital flight.

    China is the classic case of Keynes’s old maxim: the market can remain irrational longer than you can remain solvent. Their economy is beyond all doubt irrational today. But when it will collapse is anyone’s guess.

    • Nicko2
      Aug 17, 2017 at 7:12 pm

      Saw a documentary, since 2016, China is demolishing low rent areas in the large cities to force low income farmers/laborers to a few dozen smaller, upstart cities — thus hoping to stimulate infrastructure build and credit lending. Destroy to create? Creative destruction? This seems like old hat for a Communist regime.

  28. ANON
    Aug 17, 2017 at 7:01 pm

    “So When Will China’s Debt Bubble Finally Blow Up?”

    Best guess is this year, along with everyone else’ bubble. But it probably will be something else, in another part of the globe which starts the chain reaction.

  29. jest
    Aug 17, 2017 at 7:10 pm

    The New York Fed warned about this debt boom in February and that it could lead to a “financial crisis,” …Wow, if there worried then it must be like a nuclear bomb about to go off because i read yesterday on CNBC that the fed minutes stated the Feds weren’t worried about the US stock market being a bubble!…Wha…Wha…What’s What’s that ticking sound i hear?

  30. Munchin
    Aug 17, 2017 at 10:21 pm

    Balanced article but it ended on a cliff-hanger.

    Michael Pettis has written about China growth frequently and his articles have been prescient. The below link summarizes his view that China will likely grow for many years to come, so long as it can expand credit.

    But a warning- Mr. Pettis is a dyed in the wool, unabashed, unapologetic ECONOMIST. He truly believes that ‘economic models’ = reality. That being said, his book, ‘The Volatility Machine’ is worth a read. There is a sober, reflective tone to his writing that I find lacking in his peers. He’s been bearish on China in the past.

    http://carnegieendowment.org/chinafinancialmarkets/68708

  31. Jim Graham
    Aug 18, 2017 at 1:24 am

    I suspect that IF the “bubble” in China were to burst – the US would not get more than a flea bite on our back sides… AS LONG AS THE US MARKETS ARE HOLDING ZERO CHINA DEBT…

    IF we have loaned a lot of money to Chinese companies and the loans were used to invest in China – THEN the flea bite will turn into the bite of a Great White shark. One gulp takes all…..

  32. michael Engel
    Aug 18, 2017 at 4:25 am

    The bubble in China will not burst because the US support Chinese zombie co.s.
    Zombie co.s are co.s that cannot even cover the cost of interest.
    The only way for them to survive is to lower price.
    They don’t feel any pain in losing money, because they are already zombie.
    In their sector, nobody can compete.
    In their sector nobody can make living.
    As long as they exist, they will export deflation.
    They prevent decent employment in the US & elsewhere in the world.
    They are weakening the US economy and in other countries as well.
    Zombie co.s in China create zombie consumers in the US.
    Income is trending down, debt is rising and more homeless people
    export themselves, after midnight, to spend the night in the parking lots of of MCD and other shopping centers.
    We, the US consumers, are the Chinese zombie co.s strongest tailwind.

    • Objective Function
      Aug 19, 2017 at 7:32 am

      “Zombie companies in China create zombie consumers in the US.”

      Brilliant comment! And why neither Trumpian populism, nor the Sanders variety, has a hope in hell of doing anything for American workers until that bubble goes bust and Chinese companies are forced to compete on actual cost and quality.

      • d
        Aug 20, 2017 at 4:56 am

        “has a hope in hell of doing anything for American workers until that bubble goes bust and Chinese companies are forced to compete on actual cost and quality.”

        Equally brilliant reality, those pro china deny.

        Although it is not necessary for the bubble to burst, just the playing field to be leveled.

        America must admit, two generation of Americans must pay the price of allowing china and its Globalised Vampire Corporate Allies to gain and keep what they have stolen from them.

        America and the west must ensure the new industries are based in the west and that china and all others are forced to compete fairly in/with them.

        china and others intend all new industries.

        BUILD IN THE EAST, SELL TO THE WEST, MOVE PROFIT TO THE EAST.

        The Administrations of not only America, have a responsibility to ensure that does not happen.

        • Dave
          Aug 21, 2017 at 7:43 am

          Japan for years maintained an undervalued yen and superexploited its workers (still does) to gain export advantage and, in the process, contributed to the destruction of many US industries–consumer electronics, auto, etc. What’s the difference between what Japan did and what China is doing now?

        • d
          Aug 23, 2017 at 5:21 am

          “What’s the difference between what Japan did and what China is doing now?”

          Very little as US corporates’s aided both.

          The difference on the street in both nations, is huge.

          The Japanese on the street got something from their country’s expansion, the vats majority of the wealth in china has staid within the hands of the party members.

          china is a nation where every-member of the Politburo is a billionaire, and yet it still has subsistence farmers, (who do not even own the land they farm) not allowed to move to a city, and find better work.

          Communism in china is for the masses, and always was.

          Comparing what happened to the people in japan and china during their economic expansions.

          Is like comparing a fresh Japanese cherry to a rotten chinese gooseberry.

  33. Kf6vci
    Aug 18, 2017 at 6:08 am

    Got questions, but no answers. One is about the fallout of the leaks regarding communist leaders’ offshore wealth. Will there be more disclosure? Will the extent and depth of this double standard & greed and the amounts involved said to ab over $ 3 tr lead to some public reaction?

    Do as I say, not as I do.

  34. godfree Roberts
    Aug 18, 2017 at 9:04 am

    China
    Corporate assets 552% of GDP
    Households 332%
    Foreign Exchange 39%
    Public Sector 17%
    https://www.bloomberg.com/graphics/2016-china-debt/

    Total outstanding credit at the end of last year was equal to 258 percent of economic output, up from 161 percent in 2008, according to Bloomberg Intelligence estimates.

    The debt burden is unevenly distributed. While the central government has a relatively low debt ratio, the corporate sector and local governments are more indebted.
    http://www.bloomberg.com/news/articles/2017-03-07/china-s-finance-minister-indicates-room-for-more-government-debt

    FRED: General government gross debt for China
    https://fred.stlouisfed.org/series/GGGDTACNA188N#0

    WIKI: “The International Monetary Fund, the Federal Reserve Bank of St. Louis[1] and other sources, such as the Article IV Consultation Reports,[2][note 2] state that, at the end of 2014, the “general government gross debt”-to-GDP ratio for China was 41.54 percent.[3] With China’s 2014 GDP being US$ 10,356.508 billion,[3][4] this makes the government debt of China approximately US$ 4.3 trillion.
    The foreign debt of China, by June 2015, stood at around US$ 1.68 trillion, according to data from the country’s State Administration of Foreign Exchange as quoted by the State Council.[5] The figure does not include Hong Kong, Macau or that of Taiwan.[5] Chinese foreign debt denominated in the U.S. dollar was 80 percent of the total, euros 6 percent, and Japanese yen 4 percent.[5]”
    By 2015, local government entities owed a total of about 18 million yuan (about one-third of China’s economy), mostly to state-owned banks who had made loans to the local governments “to fund risky land and property deals.”[17] The Chinese central government authorized provinces to issue at least 2.6 trillion yuan ($419 billion) in bonds in 2015 in order to stabilize the financial system.[17] However, demand for provincial bonds from the private market was weak due to inadequate yields, and in May 2015, the central government directed state-owned lenders to buy the local bonds, creating a debt swap akin to a bailout.[17]
    https://en.wikipedia.org/wiki/National_debt_of_China

    BOOMBERG: Debt rose to 247 percent of gross domestic product in 2015, from 160 percent in 2005. Bloomberg Intelligence breaks China’s total debt into four components: bank, corporate, government, and household. For tickers, run {CHBGDCOP Index } and then type {DES }. Bank debt has decreased slightly in relation to the size of the country’s economy over the past 10 years, to 19 percent of GDP in 2015. Corporate debt, meanwhile, jumped to 165 percent of GDP from 105 percent. Government debt rose to 22 percent of GDP. Household debt has increased to more than 40 percent of GDP, a rise of 23 percentage.
    While certain industries and enterprises have a lot of debt, Chinese companies’ average leverage isn’t high, according to a recent International Monetary Fund working paper. Since 2006, listed companies that aren’t state-owned have reduced median liabilities to 55 percent of common equity. At state-owned enterprises, however, median leverage has been unchanged at about 110 percent. Leverage has increased at the tail end of the distribution, driven by rising debt at companies in construction, mining, real estate, and utilities. An increasing share of debt is attributed to a few companies with high leverage ratios. China is different from other markets in an important way. Many large corporations and nearly all the major banks are state-owned.
    https://www.bloomberg.com/news/articles/2016-08-28/digging-into-china-s-growing-mountain-of-debt

  35. Gershon
    Aug 18, 2017 at 1:40 pm

    When will China’s Ant Tribes finally decide they’ve had enough and turn on the corrupt Communist Party cadres who have enriched themselves and their scions through unfettered crony capitalism? Will we once again be treated to the spectacle of screaming neo-Red Guards hauling the “capitalist roaders” into public squares for “self-criticism sessions” or worse?

    • roddy6667
      Aug 19, 2017 at 5:37 am

      You are quite misinformed. The poor have come the farthest. Nobody is hungry any more and every year the people have more and more consumer goods. The middle class is now 54% and growing. In America, the standards of living are going backwards, not China. China knows that as long as everybody is a little better off every year, there will be no unrest.
      Americans who rant about “Commies” on the other side of the planet are just trying to distract themselves from the failing economy they live in.

      • d
        Aug 20, 2017 at 4:48 am

        “Americans who rant about “Commies” on the other side of the planet are just trying to distract themselves from the failing economy they live in.”

        THANKS TO CHINAS UNFAIR TRADE PRACTICES.

        So sad that the pro china trolls are starting to turn up here in greater numbers and ruin the place for anybody who dares to voice anything not 100% pro china. Sadly this had to happen.

        I dont live in the US and am not an America

        Just an objective realist.

        Objectively there is a big problem on the planet.

        The name of it is CCP china, with its nuclear armed lap dog the DPRK.

        The size of the problem can be seen in the totally unrealistic CCP resource grab claims in the western Philippine sea and Vietnamese coast.

        Wher CCP china declared before UCLOS even started to hear the case Philipino that it would IGNORE the ruling if it was not in favour of china (as it was unable to buy off the Court/Judges which it was proved it had tried to do).

        What CCP china is doing today in trade and resource claims, mirrors the imperialist Militarist Behaviors of Germany and Japan 1890 1945. It will come to a similar end.

        True History, shows us this.

        Just like 3 generations in the DPRK, and the camps around Israel. The CCP chinese have been indoctrinated with a far from realistic version of history, This will not end well, for any of those groups. Or their supporters.

  36. Gershon
    Aug 18, 2017 at 1:44 pm

    When will the seething neo-Maoists make their move against the corrupt central planners and CCP cadres who are leading China to financial ruin?

    https://www.ft.com/content/63a5a9b2-85cd-11e6-8897-2359a58ac7a5

  37. Gershon
    Aug 18, 2017 at 7:51 pm

    Even the corporate media and its permabull financial writers are starting to fret about the dangerously high levels of debt the Chinese are taking on.

    https://www.cnbc.com/2017/08/18/chinas-new-problem-frenzy-of-consumer-lending-creates-debt-explosion.html

  38. raxadian
    Aug 18, 2017 at 10:31 pm

    My question is this why is the US not exploding under is huge debt yet people expect China a country that has almost 1/6 of the world population to do so?

    • Gershon
      Aug 19, 2017 at 7:47 am

      Trust me, our financial reckoning day is slouching ever closer. The denouement is going to be cataclysmic. The American people are going to pay a terrible price for electing fiscally profligate politicians and installing Democrat patronage-and-graft rackets in all our major cities. The Keynesian fraudsters at the Fed will only make matters worse by trying to print away all government and Wall Street debts and obligations. Weimar 2.0, here we come. Get your wheelbarrows now and avoid the rush. Of course we’ve seen this movie before and now how it ends.

      • Ambrose Bierce
        Aug 19, 2017 at 10:01 am

        said earlier no one understands credit, and one has to separate recoursing and non-recoursing, which still isn’t quite good enough, greenspan called it consumer pull-through? consumer credit expanded demand which created products, and manufacturing jobs.
        the large pools of credit are thought to be non-functioning, they serve as collateral to prop up existing loans and prevent a credit implosion. my analogy is this, i pay my teenage sons rent and he has money to buy a car. so all credit has an implied economic pull. government enjoys the rush of new tax revenues that comes with adding new credit. then of course you give it back in tax credits, so rather than pay for spending with revenue we monetize. and we monetize without inflation, which means (laws of physics have not been repealed) that we offshore inflation to China, which has to expand credit dramatically. so our excess is their problem and they dont have the guts to say no. so its really their problem. in policy terms we dont care, we sterilize the fx with bonds and help them contain capitol flight by placing TERROR warnings on cash transactions. now Trump wants to reel it in, but we passed the limits of excess some time ago, they have to implement a domestic economic policy. everything Trump champions is something no longer relevant. but China is centrally planned so if entire cities go bankrupt the government will manage them.

      • raxadian
        Aug 20, 2017 at 12:48 pm

        Wrong, the Keynesian economics time that lasted until the end of the sixties was the most economicaly stable time the US had. What we have since the seventies is anti-Keynesian economics, reduce the state to nothing and privatisation of everything even the army. The problem is that not only privatisation rises costs but the lass control of the state means big companies do whatever they want and so they become rich at the expense of ruining the rest.

        Also the fact that the gold standard was dropped also helped to create “imaginary money”, something the FED loves to do.

  39. Gershon
    Aug 19, 2017 at 8:22 am

    How many global property bubbles are going to implode when China’s financial house of cards built on fraud and insane levels of “stimulus” finally comes crashing down?

    http://www.telegraph.co.uk/business/2017/08/18/china-crack-firms-irrational-overseas-spending/

    • d
      Aug 20, 2017 at 5:19 am

      “How many global property bubbles are going to implode when China’s financial house of cards built on fraud and insane levels of “stimulus” finally comes crashing down?”

      Not many, most of the chinese money in those bubbles can not be recover by CCP china and the owners have no intention of repatriating it to CCP china.

      The flippers using finance in those market’s will be hammered, then they will stagnate.

      The chinese/Russians/MiddellEastern refuge seekers, wont mind as they have their new passports and can finance against the freehold assets at their reduced values, and move on in their business lives.

      Look how many of those Vancouver properties are owned by Hong Kongers, still running businesses in HK. They dont care any more what happens to the values, they couldnt get british passports, they have Canadian passports. They understand, these things have a price, and are willing to pay it. Still.

      I know a top flight chinese Psychologist, her and her husband dropped over 200 US $ a year in salary to move to a western country. Only 1 of them currently works, when both used to.

      They can live with that, as tonight and every night in the future, agents of the CCP, can not open their door and take them away in their nightclothes, simply as they dared to speak against the CCP.

      As educated people, get money in china, this will continue to drive these bubble’s, in places where they can “BUY” passports or residence.

      Educated chinese are still voting on the CCP with their feet, and have been for some time.

  40. Robert
    Aug 24, 2017 at 11:37 am

    a) “Corporate debt in China has soared to $18 trillion, or 169% of GDP, the largest pile of corporate debt in the world, according to the worried Bank for International Settlements.”

    How vulnerable is this debt depends on who are the bankers and who are the corporate debtors. If the bankers are China’s Govt banks and the corporations are SOEs or State Owned Enterprises, then the banks are unlikely to call in the debts, and precipitate a financial crisis.

    b) If the bankers are foreign banks like Goldman Sachs or JP Morgan then all bets are off, but they are not.

    c) True there are many vacant apartments in China but with a birth rate of 18 million babies a year, soon all the apartments will be filled up to the gunnels.

    d) In contrast the US national debt is now US$20 trillion and the unfunded debt was another US$210 trillion in 2015.

    Assuming no increase in unfunded debts, the US total debt to GDP is now US$230 trillion or 1,210% of GDP v 265% in Japan and 285% in China.

    https://www.cnsnews.com/news/article/barbara-hollingsworth/economist-tells-congress-us-may-be-worse-fiscal-shape-greece

    So which country will usher in the next Global Financial Crisis?

    • Aug 24, 2017 at 12:24 pm

      LOL… Among other things in your comparison, you added “unfunded debts” of the US, but you forgot to add the “unfunded debts” of China, with its rapidly aging population of 1.3 billion people.

  41. Pete
    Aug 24, 2017 at 1:51 pm

    Why is the author not asking this question of the greatest debtor nation in mankind, that being the Us?

    Is one to believe that any other nation that has significant debt loads worse off than the largest debtor nation in history or, is this just click-bait?

    • Aug 24, 2017 at 3:10 pm

      Read the article!! It answers your question. The summary answer is: China has a lot of tools to prevent the bubble from blowing up for now. See details in the article.

      • d
        Aug 25, 2017 at 4:44 am

        For Now and Eventually are both.

        Like pieces of string.

        How Long, is a piece of string?????????????????????.

        A broken clock is correct, twice a day (Once if it displays digital 24 hr).

        Have many ever thought that the financial broken clocks, dont want to be wright (but sadly know they will be)?????????

    • d
      Aug 25, 2017 at 4:37 am

      “Why is the author not asking this question of the greatest debtor nation in manki”

      The US Allegedly has the position you claim, as in the US you can see the debt. And you can see how much physical cash is in circulation. .

      Unlike the rotten chinese gooseberry which is very very opaque.

      I assure you as an unbiased financial observer.

      If china had the sane degree of transparency as US or Japan, the debts and types of unsecured debts there would scare the life out of you.

      That is before we consider all the worthless “Equity” in chinese state owned company’s. On the book’s of non State owned banks. At huge over valuation’s. That said banks, are restricted from selling, by the State.

      Added to the HUGE volume CNY/RMB physically printed cash in circulation but not declared.

      When a General has 3 large truckloads of CNY/RMB cash = over a billion US $ in his private house and nobody notices it Missing from the “Cash in Circulation ” there is a HUGE problem.

      Nobody can get a true picture of the real chines debt to asset ratios, as nobody. Not even the CCP and PBOC has all the Data. The CCP want it that way. So the west cant see how bad/big the CCP PBOC lies are..

      It will quiet probably be their undoing as how can you juggle all the balls. When you dont know the “True” size and number of balls you are juggling.

      Comparing a giant chinese rotten dying rat, to a sick baby US turkey, is pointless.

      That is what you are doing.

      As YOU dont have ALL the Data, or even equal data on both Economies. The CCP want and keep it that way. (That information comes from people financing OBOR projects. Who know they can get 100’s of billion’s of US $ from the PBOC printing press in CNY/RMB, if the project can advantage china (dosent have to make economic sense (Sri lankan port, and now port industrial zone), just, ADVATAGE china))

      • Robert
        Aug 25, 2017 at 1:29 pm

        If China’s financial system is allegedly “very very opaque” then on what basis are you making the allegation that ” the debts and types of unsecured debts there would scare the life out of you”?

        • d
          Aug 27, 2017 at 3:37 am

          “then on what basis are you making the allegation that ” the debts and types of unsecured debts there would scare the life out of you”?”

          As I have indicated before “THE BEST basis”

          High level INSIDER information.

          Those arranging finance for the OBOR projects, and acting as managment Consultants to the OBOR projects, have lots of it.

          I was priviliged to be allowed, a little peek.

          If you wish to ignore the facts, I saw, and was given, so be it.

          They know I am an FX Trader. They also understand FX they know like I do knowing waht NOT to do, is much more valuable ,than knowing what to do.

          Hence 3 simple pieces of advice worth their weight in gold.

          1 Do not hold CNY/RMB.

          2 Never consider CCP/PBOC data, with out first considering their political objectives.

          3 At the most, any CCP/PBOC data was only 50% accurate, before it was adjusted by political considerations, for release. (As the Data the PBOPC?CCP gets from the Regions/Provinces. Has already been adjusted to make the Regional/Provincial administrators look good and appear to be conforming to the directives from Beijing. ( support for this, recent information released that some regional information, Supplied to Beijing CCP/PBOC, was less than accurate, resulting in the disciplining, of regional administrators.))

          That is why after the CCP hacked the CIA/NSA several years ago, they first wiped out all the sources of Financial/Economic information that were flowing to the CIA/NSA as before the wipe out.

          The CIA/NSA had a better picture of the True financial and economic status of china, than the CCP/PBOC. Some of that information was deliberately being leaked to places like “Zero Hedge”. Those places had no idea that information was being deliberately leaked to them.

          You will notice those sources of information, are now, Dry.

          One must remember. The CIA?NSA gather intelligence, most of it, is much more important than, where mobile nuclear missile launchers are regularly deployed. And how many Missiles, the Opponent really. has.

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