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The prevailing theory about China, widely accepted both there and here, is quite unique:
“China’s economy has been expanding so fast for so long,” they say, “even if it suffers a slowdown, it will still be a lot stronger than most other countries. So instead of yearly growth rates of 10%, we could see growth rates of 6% or 5%. What’s so bad about that?”
There’s just one pesky problem with this theory:
It’s wrong.
It has no basis in history, fact or logic. It’s one of the greatest fallacies of our time. And that single error could soon emerge as a dominant factor in the destruction of wealth.
High-growth countries almost always behave like high-flying stocks. When things turn sour, they don’t just slow down. They crash.
Take Russia, for instance.
From 2000 to 2007, its GDP was flying along at an average turbo speed of 7.2%. Then, when the global bust hit in 2008, its leaders proudly flaunted the fact that, despite a slowdown, it still grew by a hefty 5.3%. But they spoke too soon. In 2009, the Russian economy contracted 7.8%. It didn’t just slow down; it crashed.
In the same region and at the same time, higher-growth countries got slammed even more dramatically:
- Estonia, which had reached a peak growth rate of 10.2% in 2006, shrunk by a shocking 14.7% in 2009.
- Neighboring Latvia swung from an 11.9% “miracle” to a 14.4% disaster in the same years.
- And Ukraine, up 12.1% a few years earlier, was crushed by 14.8%.
In contrast, other countries, also in the same region, also during the same years, prove my point in reverse: They were growing at a far more modest pace. So when bad times struck, their decline was also a lot more moderate: The Czech Republic contracted by 4.8%; Bulgaria, by 4.2%; Hungary, by just 1.7%; and Poland, not at all.
Just an Eastern European phenomenon? Heck no!
It’s the same exact pattern all over the world and as far back in history as the data will take you.
Go to Peru in 1986 and 1987. The economy grew by a whopping 9.4% and 9.7%. Then, suddenly in 1988 and 1989, it got walloped with collapses of 9.4% and 12.3%. Ditto for Chile a few years earlier.
Jump over to the United Arab Emirates in the late 1970s and early 1980s. For three out of four years, its GDP expanded by a breakneck 21% per year. Then, suddenly, it collapsed by 15%.
Or visit Iran in 1969. Fantastic growth rates in the 10%-15% range later gave way to twin mega-collapses of 12%-21.6% yearly.
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I don’t even have to go that far. From here in South Florida, I can just cross over to the Bahamas 80 miles away and see the same thing: Growth rates holding steady at about 9% or 10% year after year in the 1960s, only to be followed by disastrous wipeouts of 16.8% and 14.8% in the 1970s.
And of course, I need not remind you about the grave consequences of high growth rates in U.S. history: After the roaring 1920s, America’s GDP plunged 11.9% in 1930, 16.1% in 1931, and 23.3% in 1932. After just three years, nearly HALF of U.S. GDP was gone.
In each of these case studies, I’m sure historians can come up with “unique destabilizing factors” to explain away the economic collapses:
Speculative booms and busts. Social and political upheavals. Wars and revolutions.
But that’s the whole point. Rapid growth always comes with rapid social and political change, which, in turn, inevitably leads to social and political disasters.
Here’s just a glimpse into what ails China today.
According to Foreign Policy Magazine …
“No other large economy in history has grown so fast for so long [and] some of the methods used to maintain that rise are now proving counterproductive. …
“Bubble 1: Exports. Now at 23 percent of national income, exports have been the mainstay of Chinese growth since the early 1980s. However, exports could never have achieved that status without subsidized credit from the government-controlled banking system and an artificially low exchange rate. … and the credit subsidies have led to overcapacity among exporting firms. The dilemma is how to shrink these firms without creating widespread unemployment or further impairing the banking system with non-performing loans.
“Bubble 2: Real Estate. The oversupply of housing and commercial real estate in China’s major cities is a direct result of government policy. … Ghost cities abound: Jing Jin — located between Beijing and the industrial city of Tianjin — has thousands of unoccupied villas.
“Province and city leaders created new office towers as a way to attract companies and entrepreneurs who would employ local residents and pay taxes. An added attraction was that builders usually shared their profits — corruptly — with government officials who supplied permits and provided land, energy, and water. …
“Banks that made loans for underutilized buildings could face a new crisis in non-performing loans. So, there are big problems ahead for the banks and developers, especially of commercial office space.
“Bubble 3: Excess Infrastructure. After the early 2000s recession and the Great Recession in 2008, Beijing maintained its country’s growth rate by a massive public works program. … China’s toll roads reportedly lost $25 billion in 2014. Many of the costly Olympic facilities in Beijing lay fallow. … Worse, party officials pressured state-affiliated banks to lend billions for these projects. …
“Bubble 4: Rigid State-Owned Enterprises. [These] exist in dozens of sectors, employing tens of millions of people and generating roughly 40 percent of China’s GDP. In many cases, they are either monopolies or oligopolies. [But] it is extremely difficult for even the central government to cut them back. …
“Since many are uncompetitive in an open global economy, and are getting deeper in debt, they will ultimately require a bailout similar to the refinancing of the state banks in the 1990s.”
All this is very familiar to me. I’ve seen it all over Latin America, Eastern Europe and Asia. My dad told me about similar episodes of it in the early 20th century. I’ve studied many more in the 19th century and before.
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To me, the outcome is obvious: What initially looks like just a “slowdown” will turn into a massive crash that breaks the back of an already-fragile global economy.
Don’t let China hit you by surprise. Start preparing right now by raising cash and building a strong hedge portfolio.
Good luck and God bless!
Martin
P.S. All enrollment for Global Currency Investor MUST CLOSE TODAY!
… And when it does, your opportunity to SAVE up to $2,100 on your membership will EXPIRE.
More importantly, you will have FORFEITED your opportunity to go for gains of up to 1,000% as the euro and Canadian dollar tumble … as the U.S. and New Zealand dollars soar … and much more!
Do NOT allow this deadline to pass until you have the facts:
Click this link for details and activate your membership before it’s too late!
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
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In fact, the same boom and crash happened in the US , 1929, 2000, and 2008.
That is interesting.
Thank you.
The growth in China is artificial. The investment will prove to be bad investment. This government intervention globally is a shortcut. It will end in disaster.
whatever happened to larry edelson’s china miracle? is the yuan still going to be the world’s default currency?
not artificial, it’s real. it’s called a credit bubble like no one has ever seen before. so china is going to be the world’s largest economy ahead of the usa and japan?
we’ll need more credit for that.
Upon reading your editorial, I notice the comment ( advert) pertaining to “The end of Social
Security? “. Upon investigation I read the if action is not taken by April 30th one could lose $60.000 etc. Really ? Investigating further I find that I can only get this information if I subscribe to another newsletter for a fee. So if I don’t…. I lose the $60.000 plus the subscription fee, all because I wanted to discover how to save the $60.000 in the first place.. These teaser advertisements are ( for me ) the main reason to unsubscribe from useful information generally provided in Money and Markets. If I had the money to subscribe to all teaser ads that are going to help me survive, I would not have any money to invest thereafter.
Yea and I think you can still go into banks and ask for the silver 50¢ coins, not that they would have any. That was good “tease” for M&M subscriptions for more than eight months.
Dear Alexander,
I know what you mean. I attended a presentation put on last week at the American Center in Ho Chi Minh City by the SS Director for Asia Pacific where he touched on this very subject among many others. I concluded that the situation does not affect me and seems to be rather limited in application; so I am glad I have not paid for a lot of hype. One interesting item that came up was the big increase in the number of Americans now moving out of the US into Asia; with a large increase into Vietnam.
Thanks for a well written presentation Dr. Weiss. China could not have gotten to where it is today on their own; and just as their boom was tied to the world, so will be their bust.
Martin
What about a similar overview of EU Countries pulling together all the Weiss data.
John
Bill Bonner and others made a fortune selling copy-writing training services to teach people how to write the “chicken little” teases that sell everything on the Internet by using fear to create a sense of urgency to sell questionable products and services. These have now morphed into the painfully lengthy videos we are now forced to endure. Weiss now relies heavilly on such practices which makes most of their emails very off-puting.
So why do your “endure” them?
I don’t watch them anymore and wont……until they put “ON” / “OFF” buttons on those videos….I just dont have time to sit thru 20 minutes of blah, blah, blah. I just want the facts in 1-2 minutes. Until that is provided, I no longer watch those ‘must see’ videos.
Likewise for me. Somehow, copy writers have convinced their clients that a long repetitive presentation is desirable. I’m with F151. If you don’t have me in two minutes, you lose me.
People are more likely to buy something if they’ve already invested a certain amount of time looking into it. I don’t give them more than 30 seconds, then bye bye.
All you have to do is x out the video and then they ask you if you want to leave the page or stay on the page. I click on stay-on the page and then quickly scroll down through the wording until near the end where they tell you what the real message is after they have prepped us for it.
So is China going to be dumping it’s gold on the World market?
China’s economy is almost completely collapsed. Their official data are mostly false.
So what is so reliable from the US BLS?
How about the BRICS-especially India?
How about OUR P.R.I.C.K.s?
Puerto Rico, Illinois, Connecticut, and Kentucky?
[They are the US version of the PIIGS (Portugal, Italy, Ireland, Greece, Spain)].
LMAO!
I have been reading Elliot Wave news & it predicted the USA stock mkt would crash “free fall” was the exact term used. I was so convinced & every time the mkt drops by 10% I thought this is it. I have lost 80% of my capital & yet the mkt has yet to crash. What every doom sayers have not factor into the crash theory is that Gov around the world is printing loads of money at next to no interest, thus use the massive cheap money to buy stocks, which is easiest to profit.
I have found that following any kind of wave or cycle theory is usually devastating in the short run. That’s because if the timing or amplitude of the wave is off, you’re going to lose your money. Works the same for currency trading. I know Soros once hit it big in the currency markets, but people also win the lottery–just you and I don’t.
Sometime or other, the theory will be correct. The markets will fall. Most likely, not at the time the theory says they should.
E Waves work…..but you have to read them correctly. And THAT is the problem. It is often very difficult.
The reason it’s so difficult is that you can only read them correctly in hindsight, just like any TA chart pattern . Not to mention the “inversions”, where instead of a mkt peak to correspond to the predicted wave peak, there’s a valley, or vice-versa. Very difficult indeed.
Being an Engineer I get involved with a lot of charts and graphs including for economic and financial analysis. Predictions made based on waves and demographic cycles that look like they have been herked, jerked, pushed and pulled just make me scratch my head. Maybe that is because they have been herked, jerked, pushed and pulled by Central Banks and government policies.
What do you think about the narrative that companies have been using this cheap printed money to buy back their own shares, thus pumping up shareholder’s nominal returns. Theory is that as the Fed withdraws from money creation by raising the rate, returns will drop and selling will follow. Look at what happened last fed raised rates. It seems liek the impact of the rat in December was negative although indexes have been rising recently
insider buying is always a good sign. insider selling is what can be worrisome.
Since approximately half our GDP is just printed money, China will copy and do the same. Just go to eBay and see how all the older outdated currency has inflated values. To think the dollar cannot be replaced is insane. If we move to a one world currency, politically unattractive investment vehicles will be replaced.
A one world currency would be to the world like the Euro is to Greece.
…like to europe. a world currency will never happen. it would be like trying to herd a group of cats.
Tell Larry E., Martin. He keeps saying things are fine in China.
The very point I was going to post. This looks like a rather serious difference of opinion between Martin and Larry. I don’t recall ever seeing a rift of this magnitude between these guys, at least expressed in public. There has been a *lot* of turnover of trading gurus at Weiss, Inc. in the last few years as so many have presumably failed to bring home sufficient subscriber bacon, and most of the original (as of, say, 2007) cast of characters is long gone. I hope Larry doesn’t join the list of cast-offs.
I recently read an interesting take about a bubble in financial services; I should expect change is in the wind. One thing about it is that if you look hard enough you can find something for everyone under a 360 degree rainbow of advice for everyone. At times like this you do your research, determine the direction that you are convinced you must go and set your path; but be aware that if you are on the wrong path then things could go bad in a hurry.
I do. Fervently!!!
“a strong hedge portfolio” What about the danger of bail-ins???
This article is the practical application of theories proposed by Karl Marx in Der Politischeeconomies(The Political Economy) or When Politics Drive the Economy and Economics Drive Politics. Franklin Taylor a signer of the Constitution and a key Virginia statesman in his book The Evil Moral Principles of the United States pointed out the dangers and inherent unfairness of a paper money system. Every government around the world is stealing accumulated capital(savings)that represents years of labor by artificially low subsidized interest rates and insuring competition for capital can not occur by printing money. The exact opposite of justification of the Federal Reserve Act. China and many other countries could avert disaster by allowing unsubsidized competition. That would threaten the political powers so it won’t happen until economic dislocation is turned inward and people threaten the rulers in whatever country. Then things change. To date there is no such movement anywhere. Even ISIS is a palace coup over who will be heir apparent to the Nation of Islam and direct the centuries long struggle over wealth and power. Welfare of common people is an afterthought.
Much of that is very true….especially since the creation of the Fed in the USA.
Every indicator I see tells me that we are or should be in a bear market. Barring some unknown black swan event there probably won’t be a flash crash unless somebody hits the wrong key on the wrong computer but we’ll slowly decline until an equilibrium is reached in the supply and demand side of things. This could take a very long time because of government intervention but will be less painful for the average Joe because he’ll only be worse off by generation rather than overnight. That’s no small comfort but for those in control it maintains their own status and so for them is successful. The conclusion is that it doesn’t much matter. It’s just whether or not you want to have a good swift earthquake or a long drawn out crumbling. I think the long drawn out may be better for people on the whole as it gives you time to adapt. So in the meantime get out of the market and wait patiently. And don’t play the ups and downs unless you have a friend in the market manipulating world aka organized crime. The danger of them causing the crash is just to great for the little guy.
If one is interested and willing, and if one listens very carefully, one can hear the rotten piers supporting the entire Potemkin Economy creaking and snapping as the waves of economic mismanagement, greed and corruption slam away relentlessly from all sides.
yes look at the nikkei index since the 80’s when japan had their meltdown, it’s been negative a long time. the government and just gradually milks the people it’s the boiling frog principle.
I may be cynical, however, I do not believe the Chinese do anything in good faith. I would say it is time for us in the western hemisphere to buy made in the USA whenever possible and grow our own economy organically. I would also suggest we buy from our NAFTA partners and for certain unavailable in North America products, buy from the EU countries.
good idea, Al, the Chinese have been saturating our market with toxic products for a long time. it’s an aspect of military strategy known as asymmetric warfare, by which a country which is miltarily weaker than their opponent can use economic and psychological means to subvert their opponents military advantage. for example, the lead painted toys they exported to the united states. they knew that greedy american importers would sell these products to american consumers in spite of the fact they were toxic and would increase american health care costs. same as a lot of the shoddy things that are sold at low cost american department stores which tend to fall apart when you use them or clothes that shrink 2 sizes or bleed colors excessively when they are washed. americans should produce everyhting we use in our own country, from clothespins to computers. the culture and economic war always precedes military action, in fact it is usually not necessary to uise military force on your opponents if your culture and economy is strong. That’s Sun Tsu, chinese miltary philosopher from 6th century.
Only one problem with all the China bashing.
Bout 40% of what we buy from “China” is produced by U.S. companies or their affiliates!!
So a lot of US corp profit has come from job destruction HERE!!
So point the finger at “our own” multi-nats and their purchased politicos here!
Smart Trade is what we need. We need to manage our own capitalism much better!
Great Report : Not fully being stated is how China now threatens the Fed. Its simple raise interest rates or WE SELL !!!!!!!!!!!!!!
Weiss would be wise to offer video or text on their lengthly “video game” offerings. I too will not sit through a video presentation when at the end, I have not learned enough and I am asked to cough up $$$ for what???!!!
When I click cancel on most of these type info commercials, they give a choice of staying on and seeing a print version. I can scan down quickly through the text and get to the nitty gritty rather quickly. Try it – nothing to lose.
very intelligent, tks
China is very dependent on export. As a merchant nation, it needs goodwill to sell its goods to global customers. However, with its current focus on expanding its global military power starting in the South China Sea, it risks alienating its customers.
It’s happening slowly but people are now avoiding products made in China because of its image as a regional bully.
You don’t sell products by acting like your customers have no other options in the market. You lose customers by intimidating them. It’s a free market out here and people have more freedom of choice.
People who write these articles should go and see what is really happening on the ground.
The growth of Chinese exports was caused by the greed of western companies exploiting low labor costs with the assistance of western governments who thought that by exporting jobs they would improve their own economies. The logic behind unfettered free trade is not just flawed it is wrong and in this case has resulted in an enormous wealth transfer from the US to China.
Maybe they weren’t “exploiting low labor costs” but trying to avoid over regulation, ridiculous corporate taxes, or a few generations of GREEDY UNIONS and our inability to tap our own natural resources such as coal which China seems to get away with regularly which makes them much more competitive right out of the gate.Natural Gas Conversion was a real option to being free of the OPEC CARTELS! It kills me this “B.S.” about corporations being greedy, what about all the “regular people” who have IRA’s and Mutual Funds in these “greedy corporations” who are also depending on their dividends for retirement. Well that doesn’t happen if the business is out of business. I am wealthy but when King Obama leaves us 19 trillion in debt, of we stop all social programs and payments we owe today and pay 10 million dollars a day for 365 days a year, it will still take over 5000 years to pay off our national debt.
Idiotic statements by a uninformed person. You have to either be a Union guy or a regular worker that just has never been on both sides of the coin. I have. Or a really ignorant businessman. When I hear “greedy corporations” and know what kind of hell the government puts on us in the form of over regulations I want to explode!
The same depressions we had under republican businessmen Hoover and Bush.
If we are in a Depression, then recovery will be the next stage followed by growth and then finally a Boom which will be followed by another recession and then the cycle starts all over again.
Stagflation is what I expect. Everyone should have at least a small stash of physical gold or other precious metals in hand; the sooner the better. That is, if you want to be able to participate in the boom you talk about James. One thing is for certain, the politicians and bureaucrats will be looking out for their sweet arse instead of yours.
My belief is: as the economy of our civilization produces wealth by being more productive and efficient, to value is passed to most people by the money’s value increasing. The major cause of our troubles is credit. We have gone overboard on credit. The government and the Fed cannot accept the money becoming more valuable because it makes credit so much harder to repay It is not the market place that creates inflation, except some prices can rise in some situations, bur inflation is caused by the money policies deliberately intended to reduce the value on the money. That is why salaries are supposed to keep rising, to compensate for inflation. But higher wages creates more inflation and if reaches the point when people can’t pay their bills, people buy only what helps them survive and prices collapse. And what about savers? They are right in the first place but they lose.
the usa seemed to do quite well for decades (and maybe currently as well) as a consumer and personal service industry country flourishing in the 18 and 1900’s. why can’t china with the worlds largest population do the same?
Thanks again Dr. Martin for your excellent insight.
You have exposed the potential danger of the China market as a whole. However, I realize there are a few aspects you did not mention. It appears to me China is learning from the historic failure of the past. China is moving from an export oriented economy to a domestic consumption economy. With a population of a quarter of the world population and a growing middle class environment, it is hard to believe china cannot avoid a hard landing or the crash as mentioned. In addition, China’s One Road One Belt initiative could propel China economy into a new paradigm. Notwithstanding the new AIIB has been overwhelmingly welcome by all the nations in the world.
China buys more gold in one year than miners can produce… Long term masterplan?
Two things about China:
1) Recently, China “pulled the plug” on law to have only one child per every couple. Now, any couple can give birth legally to a second child. Figure out “the math” on what that means to its overall population, along with the dynamics of the growth of “the middle class” and their demands for an increasingly “Western European, North American and South American Life Style”. China’s leaders will have a ” lot of fun” holding that force in check ?
2)Ever since the International Communist and Marxist Parties began their quest to take over countries all over the world, their mantra has been “Lie, Lie, Lie about everything.
Those Parties have lied to each other and over history killed more of each other than many other countries in history. Josef Stalin is their HERO…Historians have estimated that during his time in power, he was responsible for the deaths of about sixty Million Russian citizens (60,000,000 ) Atttaababy Jo. He certainly knew how to “take care of the people who did not agree with him”. When you face a Communist or a Marxist, at least you are warned what to expect.
The dot.com market along with the subprime mortgage market were set up to funnel money out of the US economy and to subvert, along with the California Energy Crisis.
And in the middle of it planes flew into buildings.
If you go to http://www.conartistskauai.info it will show you events leading up to these things as well as the quality and character of the people who gave us weapons of mass destruction.
In “Confessions of An Economic Hit Man” and his new “The New Confessions of an EHM”, John Perkins details how governments and their leaders were duped by EHM, who promised wealth and economic growth by selling overdevelopment of infrastructure. In many of the countries named above and others of Latin America, Africa, and the far East, I suspect that is exactly what happened. When debts came due, there was not enough cash flow to service the debts. The sale of natural resources if any were usurped to pay interest on debt, while main street living dived. He, also, comments that EHMs in this country have used the same tactics to sell homes, autos and college educations riding the wave of debt until repayment becomes impossible.
USA needs a self sustaining economy. We need to abolish the fed and issue gold and silver backed congressional issued currency. Establish excise taxes and import duties as necessary to offset slave made goods produced in red China. We also need to stop all immigration and deport every illegal. USA needs to become fortress America and stop meddling in global affairs. Use all available energy and cease all energy imports. Minorities need to stop attempting to run the country.
Remember at least 40% of what we buy from “China” is via US multi-nats or their affiliates in China! So our own “capitalists” are a big part of this predatory “outsider” problem! It’s not just “Gov’ment is the problem” but smart governance via a “managed capitalism” that is transparent enough to be able to “see” Who Wins, Who Loses and Who Pays The Bills!!!
Don’t look now but I think we have been suckered into a gold trap again.
$1,000 gold is just a volatility point ($1042 to be exact). when stocks go up, gold will go down.
Just a reminder. Communism was a response to the seriously lopsided winner-take-all form of cronie capitalism present in the 1800s led by various “royal families” whether kings n queens or industrialists. The “gilded age” produced with WW1 followed by the 1929 “crash”. It seems the commies produced their own “royal families” too, that didn’t let the “proletariat” control things either!
So democracy is important to insure “the people” have a decision making voice as well as purchase power voting too! How many of you will be voting this election?