Forbes has reported of a potential (probable?) “mega default” out of China. They even tell us “when,” Jan. 31st and “who,” China Credit Trust company. This is hardly “mega” anything as it’s only in the $500 million ballpark…but it is a “thread” that if pulled on hard enough or long enough could spread like an infection. I must admit, when I saw the headline my interest piqued only to see the actual meat not even being a ham sandwich.
If you notice in the article, this debt (trust) came about as a loan to a coal company and the author speculates that 12% or there about is the interest rate…I would urge you to take a broader view. The broader view being that “this is China.” Their economy is hugely leveraged and they have built, rebuilt and over built. They have even built entire cities that are empty. I’m not talking about sparsely populated; I’m talking about empty as in NO ONE lives there! Are they crazy? Or foolish?
No I don’t think so, follow this through. They have accumulated stockpiles of copper, lead, zinc, etc. not to mention gold…for free! They have built bridges, highways and even complete cities…for free! Free? Yes, I’ll explain in a moment. They have worked, produced and “traded” to accumulate “dollars” over the last 10-15+ years at a pace not even seen by the U.S. in the late 1800’s and early 1900’s. It has been a marvel to watch. They have as I mentioned also accumulated gold. They have probably now accumulated a stack that rivals what the U.S. supposedly has (had). And yes, much of the building and “business” was performed (or funded) by the use of credit, crazy amounts of credit!
So how does this make them any better off than any other country in the world if their financial system collapses just as fast as or even faster than the West? I believe that going all the way back to August 1971 that they “knew.” They knew that when we went off of the gold standard the “end game” was then carved in stone. I believe that they completely knew where this would all end up…in a paper heap collapsed into a black hole of zero value. So what did they do? They “played the game.”
They played the game and “helped” the U.S. go bankrupt by funding their debt needs. They also “built”…for their own future. You see, the Chinese look 100’s of years to the future rather than to the next “quarter.” I think that they fully knew that “when everything is worth nothing”…they would “have something.” “Something” as in a brand new infrastructure. Infrastructure that the West can only marvel at. Who cares about the banking or financial system? Who cares if everything paper collapses…”we’ll just start a new one!”
Do you see? They now have a modern country and it only took 10-15 years to build it (not to mention the small problem of poisonous smog). They knew that the financial system would ultimately come down so why should they go through a “re boot” to the system with rickety bridges and grass huts? Not only have they “modernized,” they have also provided themselves with a place at the table…the HEAD of the table when it comes to currencies. They have in my opinion accumulated more gold than any other country in the world now has. They have created their own future and one that is bright because they have “money” (gold) while the West was “spending their past.”
Will China just skate through a financial collapse…and one that may even start from an internal default? No, of course not but they are not looking at next year or the next 3-5 that it will take to pick up the pieces, they are looking out for generations to come! I have absolutely no idea “what” the event will be that turns the financial system upside down because there are just too many choices to pick from, I do suspect however that it will not be something “huge” and will be missed by most for several days. The Chinese however don’t even care “what” it is because it doesn’t matter. What matters is that their work is done, they have built infrastructure, modernized production, signed trade deals for the raw materials necessary for the future and accumulated “cash.” Crazy or stupid? No, they have outsmarted the world while we watched…while they “helped us help them!” The last 10 or 15 years of work is viewed by the Chinese as virtually “free” when set alongside the next 100-200 years!