Over the last few years I have spoken extensively about how massive Chinese financial bubble is. Here is a small sample…..
Over the last ten years, China’s banking system has grown from less than $3 trillion to $34 trillion, equivalent to around 340% of Chinese GDP. To put it in perspective, the US banking system had about $16.5 trillion of assets heading into the financial crisis, equivalent to 100% of US GDP. “Credit has never grown faster or larger than it has in China over the past decade,” Bass wrote in a letter to investors dated February 10. There is no precedent.
If you have been following recent developments you are aware that President-elect Trump is angering China on a number of fronts. Starting with a much tougher stance on disputed South China Sea island(s), Taiwan, tariffs and even labeling China a currency manipulator.
Undoubtedly, China is guilty of most of these offenses and it is about time someone calls them out. Nevertheless, China is fuming mad and threatening war….
Beijing on Friday—the 13th no less—threatened the United States with “large-scale war.”
“Prepare for a military clash” said the Global Times in an editorial.
Beijing was hitting back hard against remarks made by Rex Tillerson, Donald Trump’s pick for secretary of State, in his confirmation hearing. “We’re going to have to send China a clear signal that, first, the island-building stops and, second, your access to those islands is also not going to be allowed,” he told the Senate Foreign Relations Committee Wednesday.
And this is where it gets interesting. If all of the above is unintentional – it is pretty stupid.
However, if Mr. Trump is doing this on purpose, it is nearly brilliant.
Allow me to elaborate.
Despite China overtaking the US as the #1 economy by GDP, it is still a paper tiger. Its entire foundation is a giant pile of highly speculative debt. As soon as it implodes, and it will, China’s economy will undoubtedly collapse.
If President Trump is aware of this, and I believe that he is, he can just about to renegotiate anything he wishes with his Chinese partners. Should they refuse to budge or even attempt some sort of a military option, the US has the ability to collapse the Chinese economy in a matter of months.
Will that lead to an all out revolution in China? Will that collapse the US economy into a depressionary spiral as well?
There are too many unanswered questions at this point, but I firmly believe that Trump is holding most of the cards in this high stakes game of economies. It will be interesting to follow all of the above. As we surely will.