Another Global Financial Crisis, with China at the Epicenter?

Anytime an economic slowdown and a housing downturn appear in the scenery, there are questions about the next global financial crisis. That’s a bitter aftertaste from the last global financial crisis. But China is somewhat special (12 minutes).

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  75 comments for “THE WOLF STREET REPORT

  1. mick says:

    “Death by China”

  2. Trinacria says:

    Thank you Wolf. One question: how can we avoid another serious downturn when “they”/”we” never really fixed the problems of 10 years ago? Also, with the sovereign debt just keeps growing prolifically, along with unfunded liabilities in all the Western industrialized countries along with Japan and China….so does debt no longer matter at the government level? Also, consumer, student, auto and corporate debt levels are very, very high. Finally, the sheer artificial duration of what does not seem to be – at least to me- a true recovery (true like in the 1980’s when I got out of college) leads me to believe that the next down leg will be severe. What am I not factoring into this equation?

    • Max Power says:

      I think your description might not be that accurate. There are definitely differences between now and the last crisis. That crisis chiefly involved banks and and households. These two sectors today are actually in relatively better shape.

      The culprits this time are corporates and governments which have leveraged to the hilt thanks to the largess of central banks. So, this time yes, we have problems, but they are not the same problems of a decade ago, and as such, the upcoming crisis will likely look and feel different than last time.

      • sunny129 says:

        The current 3rd largesr ‘everything’ bubble is different from the previous boom-bust cycles. Underneath all is the same excess DEBT.

        But now it is global wise, since DEBT has bee adopted by both private and public sectors as a ‘panacea’ for all the financial problems, out there, in addition to ‘kicking the can down’

        How long this( debt induced pseudo growth) will go on, is any one’s guess! WE are in uncharted waters!

        • GSX says:

          Sunny 129 is correct. Nothing has changed. The cause is the same. Nothing is different. Different affects for different market segments thats all. Anyone thinking its different is blind.

  3. Auld Kodjer says:

    Wolf, I suspect your Social Credit Score has just been downgraded.

  4. Neal Woods says:

    Quite right, Wolf. All these governments are wise to the threat of financial crises and will do “whatever it takes” and then whatever else they please to head them off.

    The bigger danger to the average person is these governments absolutely not giving a damn about them. They can live financially insecure, a few paychecks from the street, mired in unpayable debts that leave the finer things in life like starting a family out of reach, staring into a future that doesn’t need them. They’re not systemically important enough to matter, these citizens, these entire populations.

    • 2banana says:

      A Financial Crisis is a financial event.

      Even more importantly, it is also a political event.

      Through out history – Financial Crises have led to change of governments, governments falling, revolutions and wars.

    • RD Blakeslee says:

      The ultimate result not “not giving a damn” is a shrinking middle class:

      “Now in all states there are three elements: One class is very rich, another very poor and a third in a mean. democracies are safer and more permanent than oligarchies (rule by and for the rich) because they have a middle class which is more numerous and has a greater share in the government; for where is no middle class and the poor greatly exceed in number, troubles arise and the state comes to an end.” – Aristotle, quoted from “The Politics” (interpreted from the Greek language, Knoles and Snyder, “Readings in Western Civilization”, J.B. Lippincott 1951.

      That was written about two thousand, four hundred years ago. It has proven to be universally true, throughout history, ever since.

      • Maximus Minimus says:

        2400 years ago misdeeds had consequences, and citizens who couldn’t pay their debts were sold into slavery.
        To the subject of revolting. All Greek states were mono-cultural democracies, except perhaps Sparta, that had a semi-slave cast of non-Greek zealots. Guess how the society took sides when misery came calling?

        • Javert Chip says:

          I know we throw the term “Greek democracy” around pretty frequently, but the reality is only roughly the top 10% of rich men were eligible to “vote”.

          No one today would call that a “democracy”.

        • TruckMan says:

          To the main point: Whilst I agree that the communists can rearrange things however they choose, the facts remain than when orders dry up and foreign currency decreases, the nation heads towards internal collapse, exacerbated by the increasing inefficiencies of communism. So we would expect to see, as with the Soviet Union, a decrease in external influence and control followed by a drastic change in internal power structure. So, there will not be a classic financial crisis, but the internal collapse is liable to be highly damaging to the current flow of global goods and resources, and I think this is highly likely to trigger a financial crisis elsewhere. I think we should look to the collapse of Belt & Road projects as indicators that China is shortly to collapse internally.
          The question, as ever, is when.

          To Classical Greece:
          All male citizens in Athens were eligible to vote. Foreign workers and children can’t vote now. Ancient Athens was a sexist democracy. The vote was extended to all male citizens for the same reasons the vote was expanded in the West after WW1, wars of survival requiring all to fight or contribute to the war effort.
          And that’s helots in Sparta, not zealots, and the indications are they were native inhabitants of Greece, just not Spartans.

        • Thor's Hammer says:

          Jalvert Chip

          Interesting point about whether Greek minority governance systems during their golden age should be called Democracies.

          What does that say about contemporary USA, where numerous studies have shown that there is little correspondence between government policies favored by the lower 95% and a high correlation with those favored by the upper-upper class?
          Where elections resemble elaborate circuses and reality shows rather than contests to determine the direction of society? Where elections are riddled with hanging chads, transparently hacked Diebolds, and decided by a politically appointed Supreme Court? Is not the more correct term fascism as classically defined by Mussolini, or perhaps sham democracy?

          And what does it say about the degradation of the term when a hostile American President and the unified “free press” call the unilateral US appointment of an un-elected and un-constitutional president in Venezuela “restoration of Democracy”? And attempt to enforce it by sponsoring false flag events like burning “aid” convoys, coup and assassination attempts and economic warfare?

        • Auld Kodjer says:

          Truckman, you taught me something today. Thank you.

          “Helots: a class of serfs with a status between free men and slaves”.

          Such a perfect noun to describe my modern life.

          Plus ça change, plus c’est la même chose.

      • Ed says:

        RD Blakeslee – This is very apparent whenever I leave the house. There are rich people and poor people in cities and middle class people travel long distances to get to work. If I travel more than 2 miles in any direction from my house, it goes from rich to poor with nothing in between. The rich and poor in major cities are now next door neighbors in some cases. The “middle class” live 1.5 hours+ from their jobs and spend every minute outside of work commuting.

    • JD says:


      Chilling and true. One need only look at the relatively scant coverage of the Gilets Jaunes protests in Paris – now in their 17th week – to see that the Machine doesn’t care.

      People need to deleverage and hunker down, and very few seem to be.

  5. iindie says:

    China’s economic downturn will certainly have global reach despite the thin grained control over the market sentiment that the goverment has in place .

    Remember that Real Estate represents a store of wealth in China (more than gold). , any downturn in our liquid markets has very forceful impact on the domestic market since some of the assests in Vancouver are used as collateral to finance other projects on the mainland … No one knows at this point the level of leverage and rehypotecation presently in place and how many WMP (Wealth Management Products) use those assests as part of their valuations.

    The level of rehypotecation and we start to see an emerging trend about the issue where i live. Some projects in Real Estate have started to unwind , exposing levels of rehypotecation and leverage similar to 2008 (the same unit has been filed 5 times as a collateral to another acquisition). A few court cases start making their way here and there exposing the cracks in the dam and they are spreading quickly accross the other markets.

    Canada among others has very loose standards when it comes to tracking such fraudulent rehypotecation in terms of multiple applications across banks and quasi banks … not even to mention China’s shadow banking system that the government will have to keep propped up one way or the other since those package the WMP for the public sector banks and selling those to retail investors !

    Australia has exactly the same issue as well , hot money poured fast and lose into the system , we are not facing something that will be easily contained / zoned off.

    How did that amount of money escape the capital controls in China ??? One word , cryptocurrencies , They escape China’s capital control on a massive scale.

    As soon as China decided to crack down on cryptocurrencies the delay in transaction for the rest of the world dropped back to its level pre 2012 level. There was a massive elephant in the room using the cryptocurrency to escape capital controls . The change in protocol was mere window dressing (though it ended up speeding clearing dramaticly as well).

    So where that leaves us ? It leads us in a loop where either ZIRP is maintained at all cost “Wathever it takes” since the smallest uptick back into real interest rates compared to price inflation will lead to massive contagion.

    To the argument “China controls it all internally” i would reply that yes , they control a lot of ends but they only do it at the cost of their external currency reserves and those are melting quickly , any issue in repayment of external debt will trigger massive swings and can very well start an external detonation that will ripple quickly inward, then around the globe.

    What would start such a cycle still is unclear but i would venture a guess that the change in T-Bills holdings from China might be of the advanced signs , compound this quiet move with potential explosion of debt that the Green New Debacle will generate and you will have a loss of confidence in the USD and underlying financial instruments.

    Wolf , I suspect that what is about to unfold in China will not stay there but will quickly ripple around the globe. We are not looking at a 2008 scenario but something much more akin to Enron but this time with with a major economic power at the center of the issue.

    • Wolf Richter says:

      “We are not looking at a 2008 scenario but something much more akin to Enron but this time with with a major economic power at the center of the issue.”

      I can go with that.

      • Trinacria says:

        So, with a major economic power at the center of the issue – does that mean storm ? – wouldn’t that be much worse than Bear or Lehman at the center in 2008?

      • Rinaldo says:

        I suggest to imagine it more like 50 Enrons, at the same time.

      • John Fries says:

        I disagree,
        Perception is reality, the Chinese don’t trust their stock market, fifty perecent decline, just before the little run
        up, in two years, Chinese don’t trust the Chinese bond
        market, for obvious reasons, you pointed out.
        Now, you’ve got real estate, pereceotion.
        Between fifty to sixty four million empty units, maybe even higher, no real estate taxes, low rent, but yet they can’t find the asses for the empty seats, not enough
        They’ve built, growth, a box way to big for the assess.
        China 25 perecent vacancy rate, verses 2 perecent US.
        Compounded by the automobile box, built, still building for 40 million cars, Seven months of decline in auto sales, the last five months, double digits.
        Automobiles have lead the US economy into recession, except for the last one, housing.
        Car salesperson the only number the government has no control over.
        And that can easily blow up the Chinese real estate bubble, if that happens, all bets are off.

    • Paulo says:

      There won’t be a Green New Deal, rather, there will be an attempt to hold on to BAU at any cost until some major cities flood or the EBT cards won’t buy silence any longer.

      People always talk in a big Green voice until they realize it means a giant step down in their standard of living. Then, changes are up to some other group and another group has to pay for it all.

      Of course the ‘Leaders’ still have to travel around by jet, (like Bernie). But hey, “No soup for you”.

      • Neal Woods says:

        If Bernie couldn’t fly in planes, he couldn’t help effect a lessening of plane travel.

        If AOC couldn’t enjoy A/C, she couldn’t expect to lead us away from a need to run them in November.

        What you mention is only a contradiction on a superficial analysis. It’s like you think everything that contributes to global warming all happens on the same scale. As if any well-intentioned politician could doom the atmosphere by living as all the rest of us currently do. Give these things an extra ten seconds of thought.

        • Paulo says:

          My point is that real change is personal and NOT superficial. To extend your point, it is okay for environmentalists to attend conferences across the World while posturing that everyone needs to cut back, because what they preach is for the greater good. I have relatives who are anti-pipeline and anti FF use but like to go birding in Costa Rica and Ecuador, plus have a boat for outings, etc etc.

          leadership is leadership and requires a do as I do and not as I say example. You can lead from behind. As long as political leaders fly at will and vacation in Florida and Hawaii not much is going to change. However, if all of us lead and eschew that lifestyle then the service and offerings will no longer exist.


      • iindie says:

        Well i developped at length on the Green New Disaster and however you want to look at it , it is very very unfeasable … you would need Solar + Wind + Batteries such as saltwater batteries + Nuclear Power (Uranium Chain) + Thorium to bring the USA to a viable energetic model that would sustain 12 Cents / Kw/h which is the present model. Otherwise you just have no capacity to face present demand.

        Such a model implicates a 25 cents / Kw/h which no one is ready for , if the difference is to be compensated in any form by taxation we are looking at an increase of tax receipt of at least 8T USD per year (4T to compensate extra cost + 4T of investment for building the structure) , The big issue with such a budget is that even a wealth tax or higher revenue tax will barely compensate for this type of provisionning and it will dramaticly increase cost of goods!

        That is leaving all the extra provisions of the GND such as UBI etc .

        i personnally went for solar + battery + smart grid … with a 25Kw production capacity I feed back 10Kw into the grid after feeding the battery that amount to 50Kw of storage total … my energy bill went from +400 USD/month to -200 USD/month since production is in the range of 2Mw/h per month (lowest yearly figure) with a consumption of 1.6Mw/Month (highest yearly draw). That includes A/C , Reverse Osmosis from the rainwater etc.

        Living in a place with little land driving electric makes sense (1 Tesla Roadster 1 Nissan Leaf). Cost of mobility has dropped dramaticly (Electrics require very little maintenance though the roadster devours its rear tires one new set per year minimum).

        The infrastructure when it comes to the grid is … dismal … the batteries actually provide stable power to the home and its equipment pretty much like a giant UPS. If anything the standard of living has gone up regarding the quality of life.

        TCO (Total Cost of Ownership) ranged to 100K total with installation. (50K for the panels + 40K for the batteries electrical panels and breakers + 10k for the wiring and a DC A/C for the batteries). Not exactly a deal breaker. 200K if you include the cars which have been paid in full.

        What this means , is that you CAN do it given the right conditions and structures but not in big metro areas and it takes a lot of planning to make it happen. As per latitude anything up from 20 degrees latitude north or south of the terminator and you will be fighting an uphill battle to produce the results mentioned above.

        But you are right , it IS easier to continue on the BAU model and elected officials care little about feasability especially AOC and her ilk that have little to no knowledge on the matter.

        A good thought experiment of the deployment of the Green New Disaster is to try to reduce actual power consumption by two thirds or at least try … /hint … moderate the A/C , Tvs , and replace all light bulbs by LEDs for starters , pool pumps are true energy hogs , fortunately they can run on Direct Current with solar panels (I dropped draw by 20 percent doing all of the above).

        As per the Air Conditionning if your units are 5 year plus it is worth looking at more efficient units since their power draw decreased by 20 percent (lowest gain of efficiency) best bang for the buck being 16 SEER units , 5 years ago you were looking at 12 SEER maximum for best bang units.

        On a per individual scale there is much more that can be done than through the proposed bill , but yes it takes effort and a bit of ingenuity.

        • xear says:

          Achieving harnessable nuclear fusion is the likely way forward. After that all energy problems are solved. I wish our leaders understood that instead of using fossil fuels to explore mars at great cost.

          Once we have free energy we can go anywhere.

        • Paulo says:


          We had almost ‘free’ energy with FF for the last 100 years. It is still cheaper than bottled water and folks are still buying SUVs.

          Cutting back is the key. Our electricity is renewable Hydro, but we use just a fraction of what is our friends use. HW, E Range, electric backup heat and our bill runs about $60/month. This also includes a shop and power tools.

          Right now I hear the ‘fridge running, but there isn’t a light on in the house due to passive solar and lots of good windows. Good windows and super insulation is a big reason for our low energy use.


        • DawnsEarlyLight says:


          What about the life expectancy and replacement costs of your solar panels and batteries? 10 years? Have you figured in these costs in you consumption/cost model?

          You are definitely correct on the new SEER A/C systems, a world of difference.

        • Two parts of NGD that have appeal, one it addresses energy as the core of any economy, and two it provides the means to fund these things from the bottom up, rather than top down as they did in 2008. But anything which imposes “change” to the fundamental market policy in the US is a threat. China has their own NGD in place, the real threat to them is collateral damage to the US stock market (and foreign capital investment in US RE) but the NGD movement in the US will probably benefit from asset devaluation as it removes obstacles to change.

        • ArcticChickens says:

          If $100,000 (let alone $200,000) is definitely a “deal breaker” for the majority of the country, considering about half the country has less than $500 in savings.

        • Bankers says:

          ArcticChickens – I thought similar, but iindie’s approach I think is substitution to achieve same level of service/usage, hence his system is probably to fit a higher power use household. In reality you can downscale to minimal electric use for everything but heating without actually feeling denied the basics which most are used to. I have done that on one occasion for well under 10k, and it repays easily over ten to twenty years depending on system longetivity. Obiously for solar you need sunshine though. For transport hybrid or compact/efficient ICE are fine for most uses. For heating there are many options, starting with insulation, shade, heat exchange, solar heating and so on. If you are in the arctic then you are going to need fuel though to complete that.

          The point is though that an acceptable level of comfort using low consumption methods and renewable is possible as cheap or cheaper than what we pay for a similar level now using standard products. Because these systems are front funded by the individual the cost stands out, because there is still not wide experience there is doubt and uncertainty over functionality. It’s a good feeling to be near independent energywise though, and it subtly changes the balance re. authority and traditional monopoly of supply that we are used to. At the least, for a minimal framework, you know that you basically are going to have near zero bills for the next couple decades if it comes to frugality of any kind, and that is a big weight off the mind of people already struggling to make ends meet… if they don’t choose to finance larger vehicles etc. instead of the above… and it helps to own a home or else there is limited incentive to invest.

        • ArcticChickens says:

          @Bankers, I absolutely agree on other methods for heat. I live in Alaska, and I think one of the things (there are many, of course) that cripples this state is that the vast majority of structures were built with a “lower-48” state of mind. Thin walls, poorly insulated ceilings, many windows with no consideration for solar gain, and on and on.

          I’m eyeballing a piece of property right now with the intention of building a small 20×20 open home with loft. Just the basics – things like plumbing can come later. With an upfront investment in an 8 inch wall made of alternated 2×4 studs and capped with 4 inches of high density foam I’ll have that easy living – under 10k (and only $200 of that for heat!!) a year in living expenses in one of the highest COL states. I won’t have the luxuries most people take for granted, but it’s comfortable living.

          I suppose that’s initially why I was not so amused by iindie’s numbers – my gut reaction is to downsize!

        • Bankers says:

          Where I built was warmer so different materials, but winter was towards zero (I know, that’s summer or something close for you) . Here is one side project to play with and include if you have time. It is simple, you can build from better materials than suggested and shape the design to space

          it keeps the air much fresher and removes humidity while keeping in heat, worked really well in the lived in room I fitted it of @ 200 sqft. Cost me about 30 dollars to make, you don’t need any controllers for fan speed for it to work fine, connects straight to 12v and uses total around 2w.

          If you haven’t built own before it is worth the effort imo, hope it goes well if you decide to.

        • ArcticChickens says:

          Thanks for the link. That looks easily doable, and solves the 1000$ HVAC question I was facing.

        • Bankers says:

          Welcome. 12 cm pc fans are good and transfer around 60 cfm each way, plus they run silent and tolerate a wide voltage range . You can get creative on the layout of panels, have inlets and outlets at end, or on the top or bottom surfaces etc. I used policarbonate and foil, no need to drill vents, each outlet inlet can be completely void. Have to mull it over to see what I mean. Also be sure to build in a drain for the condensation that runs off on the panels facing the outward flowing air, not hard but have to think about how it is going to sit when installed. Ours was on 24/24 all year without problem, had to replace one fan in that time ( 5 dollars new).

      • alex in san jose AKA digital Detroit says:

        Paulo – I learned about Peak Oil theories back in the mid-2000s before the crash, and I learned that in talking to your typical “green” person at a health food store in Palo Alto, if you wanted to see them literally turn green, mention that living properly on the Earth involved a bike not an expensive Volvo wagon.

    • Rinaldo says:

      “since the smallest uptick back into real interest rates compared to price inflation will lead to massive contagion.”

      Japan had almost zero interest rates for 20 years and soon the BoJ will own every IOU. The result was no inflation whatsoever, but people still believe low interest rates lead to higher inflation and vice versa. Probably because Paul Volcker successfully killed inflation with a 20 % FF rate.

      The real disaster will develop after the FED has introduced negative interest rates and “the pompous little twits” will take over.

      • Tinky says:

        Japan is a unique country, and assuming that what has worked there would work, say, in the U.S., is dubious at best.

        Furthermore, the world is a very different place now, and the next 20 years will most certainly not be closely analogous to the last 20.

    • Bankers says:

      The way I see it is that trade is the currency, but currency reserves buy into the global format, they are like a due to those who control the trade structure financially, politically, militarily, and via accord. Chinese currency reserves are actually concessions to that system that are reinvestment in the US, that is crediting the US. The recent raise in rates and talk of protectionism by the US has called dollars back to the US, but this happened as relations with China were becoming stagnant, including trade. So I think this is some mutual circumstance. What comes to mind for me are two things.

      First is that China is the cheap labour for the US, so if the Chinese market closes to US for whatever reason then the US loses that. Then the US has to persuade other countries to take China’s place or it has to manufacture more itself for it’s wealth, both are much more easily said than done and would be a big disruption on society, including inflationary.

      Second is that if viewing currency as being trade itself , China now has a lot to trade with the world, including poorer countries. There is no one there to replace what it is producing. So you might end up with conflict of say dollar hegemony and Chinese trade hegemony. As that impacts on power and politics, and on resource distribution globally, well there is room there for plenty of tension.

      So I agree that any kinds of major adjustments in China, by China or towards China are going to have some profound effects, and I am not very sure that our own countries really have a proper idea of where those would impact or lead. I don’t know either, except that they would create some major difficulties somewhere at global scale. .

      • Bankers says:

        A note on what I mean by inflation, as my view is slightly different to most. When people talk of inflation they usually mean money supply and/or price inflation, and they look at the relevant indices to determin that.

        I look at what is experienced by the population and to an extent businesses. So during Weimar you had increasing money supply chasing/fueling increasing prices, valuations became so distorted that the market could not function, people were left short, and chaos ensued.

        During the great depression, money supply, after a certain expansion, decreased and prices and values tanked. However for average people and business their income or remaining available ability to service and purchase shrank more. People were left short, and chaos ensued.

        To me those are both inflation experienced by average people, accompanied by a distortion of values that made the market unworkable. Because these events are much based on monetary and financial policy, it see it as wrong to judge them by monetary and financial indicators, which are after all the flexible input that likely helped cause the events.

        So for example with China I’ll imagine a part of a severe picture – trade and flow of finance stops with the country, and “all else being equal”. Fuel price goes down, but OPEC reduces supply, so US turns to own resources, which are more expensive but fiscally in house, you see some domestic price inflation and earnings distributed in a new fashion. The stock market tanks because the functioning of some main entities are fully tied to Chinese manufacturing, this reduces the money via financial reward into the economy, the hands of consumers. The flow of consumer goods slows right down due to their restriction on supply, the associated service industry implodes, and stock markets plunge more. Unemployment increases, government tries to smooth the event by increasing money supply to keep values turning, but the reality is goods and jobs are not available no matter how much spent, and you end up with great depression two or weimar two or a managed economy on lockdown . To the end “average person” the result is not being able to service their debt, find work, keep business afloat, buy what they were used to. Basically a scenario from hell, without considering how society or countries might react towards each other to “set it all straight”.

        I am not that (italics) pessimistic, maybe I should be, but it is an example of how contagious in real world terms major disruptions in global order are able to be.

    • MC01 says:

      Cryptocurrency is a relatively new and small method of “capital flight” from China. The bulk of capital flight was enabled by two methods: overinvoicing and inflating the price for M&A abroad.

      A typical example: in 2017 HNA Group bought through one of its many subsidiaries an 82.5% stake in the Frankfurt-Hahn Airport (HHH), a German airport which at the time had over €130 million in debts and which was kept from bankruptcy by constant cash injections from the Government of Rhineland-Palatinate, to the tune of €15 million/year.
      Only two airlines use this airport: Ryanair and Wizz, and both only agreed after being provided with ultra-generous subsidies such as much discounted landing and handling fees.
      It’s a rotten airport, about 20 miles from the nearest railway station and 25 from the nearest highway: “developing it” as HNA promised would have meant spending enormous sums just to build the needed connections.
      HNA overpaid for their share, and massively so: over €15 million for a failed airport that should be razed to the ground and turned in a nature reserve. On those €15 million HNA paid disproportionate “handling” fees all along the way from China and what happened to those “fees”? Most likely they were used to buy a house in Australia, a warehouse in Greece and so on.

      Don’t think for a minute the Chinese government had no idea what was going on. They were fully aware of how HNA acted as a “front” for capital flight from their country. But as it usually happens when things go smoothly nobody cares.

      And what of the Government of Rhineland-Palatinate? As it always happens they were duped or, much more likely, allowed themselves to be duped. They partied like fratboys upon graduation when the smiling sharp-dressed Chinese executives arrived to shake hands and sign contracts. Politicians always do.
      Now there’s a bill to pay.
      HHH is still bleeding money all over the place and to make matters worse Ryanair will be shifting about 20% of their flights to the far more desirable Frankfurt Airport (FRA) at the end of the month.
      As HNA has been barred by the Chinese government from making further investments in HHH (to stop more capital flight), the Government will have to pick up the slack: the EU has already authorized about €11.5 million/year of direct aids until FY 2021. The €15 million HNA paid in 2017 will be completely gone shortly early next year and the Government will end up well underwater on the deal.

      We can blame China as much as we want, but they have found some truly outstanding enablers in us.

      • iindie says:

        I suspected as much with HNA who has several structures where I live (somewhere south of Cuba) and there are several cases being pleaded here implicating them as well …

        At least two Real Estate projects have been used as colateral to leverage investments here and are presently dead in the water.

        From the available documentation and parties each and every tranche of the project have been rehypotecated to three banks in three different countries (China , US and Canada) , not to mention Wealth Management Products.

        So from an initial investment on the project which would be worth about 100M Usd in sales term we have an expected engagement of about 200M from various financial institutions .

  6. Unamused says:

    =>They’re not systemically important enough to matter, these citizens, these entire populations.

    No indeed. But just wait until their jobs get automated. By the millions. Reuters reports “U.S. companies put record number of robots to work in 2018” and China is certain to do the same, and so is everybody else. Gizmodo reports that “Automation Is Coming for the Oil Jobs, Too”, so no help there. And so forth.

    Let’s be honest here. The purpose of a capitalist system is to enrich the wealthy, and because that is its purpose it does so extremely well. Its purpose is not to support the population, which it does very poorly, precisely because that is not its purpose. At most that is a side effect, a by-product. The role of the general population is to provide sources of profit through its labor, but neither its basic support nor its elevation are actually relevant to that purpose.

    Already, most people in the world can barely support themselves, and automation is certain to make even more people economically useless, as the value of their labor disappears, and therefore disposable. Since alternatives to this sort of system are not allowed because they do not serve the maximization of profit, it is easy to see where this is going. The world is headed towards a rather grim corporate totalitarianism, followed by ecological collapse as plunder and degradation accelerate. There are no plausible or radical scenarios where either can be prevented or reversed.

    All you can do is watch the show. And pass the popcorn.

    • polecat says:

      Well sure, the popcorn will be passed along .. to someone else, who can afford the corn .. while it can still be grown !

      • polecat says:

        Maybe we should pass around lamposts instead.

        • RD Blakeslee says:

          In the initial throes of its agony, trying to maintain itself, our citizenry has elected a promising can-do wheeler-dealer as president and a wildly imaginative child as its representative from Brooklyn.

    • Rinaldo says:

      “There are no plausible or radical scenarios where either can be prevented or reversed. ”

      If something is there, you can only see it with your eyes open, but if it isn’t there, you can see it just as well with your eyes closed. That’s why imaginary things are often easier to see than real ones.

      – Norton Juster, The Phantom Tollbooth (1961)

      • Unamused says:

        ‘So they turned that job over to the machines, too. And the machines finished up the job in less time than it takes to say, “Tralfamadore.”’

        – Kurt Vonnegut, The Sirens of Titan

        • Boatwright says:

          “The Sovereignty of the United States resides in the people, not in the machines, and it’s the people’s to take back, if they so wish. The machines,” said Paul, “have exceeded the personal sovereignty willingly surrendered to them by the American people for the good government. Machines and organization and pursuit of efficiency have robbed the American people of liberty and the pursuit of happiness.”

          — Kurt Vonnegut, Player Piano

    • TruckMan says:

      The capitalist system has no stated purpose. What it should achieve is the efficient matching of supply to demand via the medium of money. However, what we have in the West is not capitalism, primarily because large corporations use government influence to set up cartels, using government regulation and policy as the means.
      Example: I can teach better than any public education teacher. I am not allowed to via licensing of educational establishments, unnecessary restrictions, enforced (failing) policy, and making everyone pay for my competition (state education) anyway.

    • DawnsEarlyLight says:

      “Automation may seem to put us in the right direction. But sooner or later, we may want to turn left”.

      …musings of a taxi driver

    • Broker Dan says:

      Probably the motivation for Universal Income experiments around the world

  7. timbers says:

    The solution is obvious: Sell the Federal Reserve to Jeff Bezos and Mark Zuckerberg (or auction it at the next Davos meeting) and use the proceeds to buy Chinese stocks. Financial Crisis averted.

  8. RD Blakeslee says:

    In the initial throes of its agony, trying to maintain itself, our citizenry has elected a promising can-do wheeler-dealer as president and a wildly imaginative child as its representative from Brooklyn.

    • RD Blakeslee says:

      Sorry for the duplication. Our discourse is flying in and colliding all over the place …

  9. J.M.Keynes says:

    – The inflation in Argentina is the result of the currency falling against all other currencies. That made imports much more expensive. This has nothing to do with “money printing” or hyperinflation. Argentina is now experiencing Deflation.
    – The crisis of 2008 was in one regard exceptional. In the timeframe 1950 – 2007 growth of debt, here in the US, was Always positive. Even in e.g. the recession of the early 1990s and the early 2000s. But in 2008 – for the first time since 1950 – the growth of debt was actually negative. Or put in other words: the total amount of US debt grew every year between 1950 and 2008 but in 2008 the total amount of debt shrank for the first time since 1950.
    (source: Steve Keen).

  10. Willy2 says:

    – When Japan went into “a recession” in the early 1990s, It was advised to write off all of a (very) large part of the bad debts ASAP. Then the amount of debt would become bearable again and the economy would be able to recover meaningfully. But instead the japanese (banks) fought tooth and nail such a policy. They wanted to “earn back” their losses instead of taking (large) write-offs and losses. (Yes, Japan had a housing boom & bubble in the late 1980s as well).
    – The result was that japanese economic growth remained anemic. In spite of N.-America, Europe and Australia going through economic boom time.

  11. Toronto Man says:

    I love it and thank you. This is my “the most” favourite program, “The Wolf Street Report” over most of the contents all over the internet and TV programs. China, Chinese people and Chinese money have been pretty much everywhere around the world including the African countries where most of people around the world don’t want to be there or even want to be near Africa. It will be just very “dramatic” perhaps around the world if China and its economy will collapse in the future.

    • Iamafan says:

      Collapse is almost inevitable. They will miss bond payments, default on loans, etc. The Fed simply can’t do all the heavy lifting for non banks like the ECB and BOJ does. Maybe there is a first time.

  12. andy says:

    Chinese market is only up 3% for the day. Alibaba dot com probably hits half a Trillion value this week, US dollars.

  13. KPL says:

    I do expect something on the scale of 2008 or worse for these reasons:

    1. Higher debt of the financial system
    2. Central Banks are unable to unwind their extreme policies and normalize.
    3. Social unrest on the rise (why is it only the rich can have their cake and eat it too?)
    4. Powers that be still following the same path (Bailouts, QE, ZIRP) cannot have a happy ending. IMO, they also seem to be doing the same thing again and again and expecting different results.
    5. All countries seem to be applying band-aids all the time. Which is the band-aid that will not hold
    6. Rise of anti-capitalism with its own set of not-so-happy consequences (all the result of 2008/2009 policies)
    7. Not sure which will be the last straw on the camel’s back
    8. I expect same policies – Bailouts, QE, ZIRP/NIRP – will tip the scales towards a civil war at some point in time

    The best part is I could be totally wrong!

  14. Timothy Julian says:

    What you ignore Wolf, is that the Russian crisis, nearly bought down the entire world financial system. You have got serious problems within the €. Italy looks to be imploding. I am not so sure we are not on the verge of another financial crisis. If China goes, it could take the whole world economy with it!

    • Wolf Richter says:

      “…the Russian crisis, nearly bought down the entire world financial system.” Ha, I lived through that one, and I don’t remember it that way.

      “Italy looks to be imploding.” Italy’s economy is stagnating at the moment. But Italy is not “imploding.” Ask commenter and author MC01, who lives there at least part of the time.

      “You have got serious problems within the €.” The euro is fine. I just checked the exchange rate. Looks like the euro hasn’t collapsed yet.

    • MC01 says:

      I like to use a methaphor for where Italy stands right now.
      Think of her as a person who spent a decade living a wild and unhealthy lifestyle which landed her in a hospital: this was the “Euro Boom” which sent the Milan stock market to an all-time high, real estate valuations skyrocketing and fueled a consumption boom totally unrelated to wage growth.
      After a long and painful stay in the hospital she is more or less back on her feet. As we get older our body (in this case Italy’s economy and society) cannot handle excesses in the same way as when we were 20: just ask John Belushi.
      But instead of trying to live a healthier lifestyle she’s back at her old excesses… only problem is she’s now older and with a body still very much worn by the previous health crisis. That’s why for all the ECB monetary repression even nominal GDP growth has been between anemic and stagnant.

      To make matters worse, even that anemic growth came from extremely fragile sources: real estate and the often overlooked position of Italy as one of the major vendors for German exporters.
      Former Minister of Finances, Professor Padoa-Schioppa, has consistently been one of the few voices denouncing how “broken” Italy’s real estate and construction industries are. Nobody, not even his own government, listened to him but he’s been proven right time and time again.
      And I’ve seen the second film play up more than once in my lifetime: when German exports hit a small speed bump (they don’t need to “collapse”), vendors get taken to the cleaners through a deadly cocktail of slightly lower volumes and considerably tighter margins. Most will survive but many others will either enter administration or drop dead, especially those which recently entered this sector.

  15. KiwiinCanada says:

    The best scenario in China seems to be a long drawn out somnolence, similar to a anaconda digesting a very large animal it has just swollowed whole. In this case the substantial debts (the animal) have not been matched by a stream of income (the digestive juices) necessary to process them. The debts however are not held entirely by the snake (the government and its various agencies) but by individual households and small businesses. The asset bubble implosions and debt right offs therefore have to be managed in a slow motion controlled manner in order to avoid the rupture of organs (serious social unrest).

    The possibility of social unrest can be addressed in many ways. The communists have a long rich history of repressive measures they can draw on as necessary. They are also pioneers of control through social media , education and data collection and management. In addition they can revert to the time honored process of distraction and redirection. In this case the population is not only distracted and entertained by festivities and mass media but also subtly redirected in their basic expectations. The expectation of continued economic growth and personal advancement is likely to be on hold for a generation. This is typically justified by reference to some exogenous threat. They are constrained in this possibility however as they are dependent on their external “enemies” (Japan, America, etc), for markets, capital and technology. In addition the utilization of armed conflict as the ultimate redirection and distraction might well be deemed far to risky in the modern era. There is also the possibility that the social contract may evolve to a devolution of powers, after all more democracy implies lessened consequences for bad outcomes. Your party will always survive to the next turn in the election cycle.

  16. Kenny Logins says:

    Whatever happens, it’ll be blamed on Brexit in Europe, and Trump in the USA.

    Who do the Chinese use as a scapegoat for when the enter ‘the danger zone’?

  17. I still don’t know much about Chinese culture, (there is a travelling show, “5000 years of Chinese culture in an evening”). That isn’t saying much. McLuhan noticed in the 60s that US advertising, art and corporate culture were all tied together, The Mechanical Bride. China seems to be missing some important pieces of the puzzle.

    • kitten lopez says:

      okay, i’m getting THE MECHANICAL BRIDE at the library because you mentioned it. i’m on a run of following threads to how we GOT HERE. so i’m getting that along with a few others of his works.

      as an artist i loooooved advertising and the image but even we are always doing the samba with insanity when you’re having visions you have to be able to step out of like a tent flap. but this image stuff. ew… you get too close to it and it makes you sick because you see others LIVE there and can’t get out.

      but i didn’t understand how all this image stuff eroded VALUES and made it all about how things LOOK and that we’d end up with horrific #metoo crap.

      i’m reading Boorstin’s THE IMAGE and Neil Postman’s AMUSING OURSELVES TO DEATH and am having the existential awakening of ’em all complete with sob. i’m glad for all the rains in san francisco to hide my despair because i was thinking that this iphone thing would be a fad and people would revert to humans out of …mall-type boredom?

      so i’m mourning The End of the ’90s finally and heard a bit of cheery news at the gym just now: a businessman friend told me about a store in the HEART of castro street where the landlord is letting a woman have it for free and she’s putting other stuff in there without a COMMISSION! this… ah.. .THIS is the artistic creative green baby shoot that i KNEW had to sprout SOMEWHERE in the cracks!

      i think it’s because they’re supposedly finally getting serious about that fee for empty storefronts because of the 100%-300% commercial rent increases.

      of course you’ve gotta bail as soon as a tenant comes along willing to pay the exhorbitant rent, but so what??? this is like squatting in a warehouse in new york city kind of new underground…it also makes local buying from local artists and having to be somewhere specific before it disappears much more INTERESTING to me.

      now i plan on hitting up other commercial spots to try and cut our own deal to have parties and fashion shows… maybe part of the moving around will be INTERESTING. at least i’d like to think so.

      so i’m already making it past the mourning phase of “will the populace wise up” realization. (smile)

      it’s hard at times but soooo much more fulfilling trying to live underground as a conniving rat! you never get old and pinched.


      • I also recently discovered his book “Take Today, The Executive as Dropout” which everyone should read and every business student should read twice. The iphone and the shrinking screen might be one way to cope in a less ‘visual’ world. China has no dissent, no counter environment, and therefore no art. Some might say it is perfect in that regard.

        • kitten lopez says:

          whoa… okay, thanks for that book title, too. i’ll read it. thanks so much, Mr Ambrose Bierce.


  18. Tony says:

    In the last 15 years, China was about “build and ask questions later.” Well, it was actually more like “borrow, build and ask questions later.” It wa centered around the concept that you can generate demand by providing supply. Since it worked so wonderfully for Shanghai and Macau for so long, every mayor and governor got a piece of action and built a bunch of shit that never will be occupied or paid.

    It won’t end well.

    • TheDona says:

      Evergrande, the second largest builders of apartment in China, is slashing all of it’s apartments by 10%. Strangely they are incorporated in the Caymens. Their debt load is HUUUGE!

      HNA group is starting to unload billions of dollars of their offshore assets to meet debt load and even onshore assets. It appears other Billionaires are the only ones buying shares and bonds to keep the Ponzi alive.

      Asia Times runs some good articles counter to what the story is coming out of Beijing.

  19. Bobo says:

    According to Crescat Capital, about 60% of publicly traded US companies had negative cash flow in 2018 ( in Canada it was 80%). Maybe this wouldn’t be an issue in normal times, but in a deep recession, look out below…

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