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Wednesday, January 19, 2011

China ups the ante on systemic losses

China, as it has been well documented on this blog, has been hyper-inflating it's economy by plowing money into real estate development. The unbelievable bubble they are building has resulted in entire cities being built without anyone living in them.

China's own reports of economic data is alway suspect, and skewed to place it's financial situation in the best light possible. If China would only realize the best way to replace America as a world power ISN'T to act more reckless than the USA, but instead to act more trustworthy.

Alas, lucky for me as an American citizen, China is proving that they are less responsible.
It has been revealed that over 1.5 trillion dollars is estimated to be at risk by local Chinese governments who have mis-invested in the hyper real estate bubble. According to Chinese government law, local government is not suppose to engage in such speculation.

But with China's great economic success, it is also accompanied by great excesses and mis-investment. One can only guess the spectacle that will start to unfold if China starts to realize 1.5 trillion in US dollar terms losses by local governments. Will China join in with the European Central bank in raw printing to fund local government losses?

And if it does, it will be one hell of a deflationary collapse, or a currency collapse, it remains to be seen how this unfolds. I don't know why people bother reading suspense novels, just reading the world economic news provides more intrigue than any novel.

Reality is the greatest form of entertainment.

Thanks to Bob schulties for the link

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