The Great FALL Of China

Mike Verge Dec 18, 2016

 “The Great Fall of China”     

Ironically, Donald Trump could learn a lot about infrastructure building from China. The Chinese have a long history of infrastructure development.  The“Great Wall of China” was the biggest infrastructure project in human history, but this was only the first of many. More recently, in the past decade, the Chinese have taken it up a notch and implemented even more massive projects. Why should Trump and the rest of the world be concerned by Chinese infrastructure building? Because it’s not working!

Over the past decade, the Chinese government has been implementing a plan of moving people out their traditional rural farming environments into a more urban lifestyle in newly designed cities built specifically for them. These massive cities were built in the Chinese ‘mid-west’ to house immigrants from the far west of China. The problem is that the migrating citizens passed up these mid-west cities and moved directly to the existing coastal cities, like Guangzhou, Shenzhen and Shanghai. This huge government miscalculation has not only carved big holes in Chinese landscape, but it has caused massive coastal price increases and a  global stampede for housing!

 The ‘Infra-structure Ponzi Scheme’   (The Ghost Towns of China)

These empty mid-west Chinese cities were called the “Ghost Towns of China”. They were built by the Chinese government ostensibly to house the population of the mass migration but, like The Great Wall, they were just part of a massive government infrastructure project designed to create jobs and economic growth. This gargantuan task consumed massive amounts of commodities like copper, iron, coal and oil from all over the world generating a Chinese growth rate in the range of 12 percent. To keep the scheme going, each new project needed to be larger than the last one. But when people skipped these cities and the houses lay empty, the construction stopped and the “Ponzi Scheme” fell apart. The Chinese economy slowed down causing massive deflationary pressures. This is when the Chinese government panicked.

In the first quarter of 2016, the growth rate had dropped to 6.5 percent and the Chinese government gambled. They decided to use their last tool, the equivalent of the economic bazooka. They printed the Yuan equivalent of one trillion U.S. dollars! This massive amount of money was intended to re-vitalize their industrial and manufacturing facilities, but instead found its way into real estate in China and around the world creating a massive global real-estate bubble. Now China had another problem.

Happening Now!

The Chinese have gone from one infrastructure project to the next, printing ever increasing amounts of money. In 2013 Chinese Paramount Leader, Xi  Jingping  announced  their most grand project ever. It is a global infrastructure project called, “One Belt-One Road”. This is a massive project to build a land based road from China to Europe that follows the ancient Silk Road. In addition there is to be a maritime ‘road’ to complement it.  This project, linking Europe and Asia, is unprecedented in scope and cost. It will require vast amounts of money printing and additional debt. This brings us to one of the greatest fears of the Chinese government, currency devaluation. One of the unintended consequences of this money printing is the fact that each Yuan is worth less. Now their currency is tanking. In 2013 each Chinese Yuan was worth 16.5 cents (U.S.).  Today it is worth 14.4 cents and falling fast!  If their Yuan continues to fall at it’s current rate , it will cause massive Chinese inflation and at the same time, massive global deflation. Commodities will drop around the world, global economic growth will slow, and a massive wave of deflation will engulf the world. Currently, while the world is watching Donald Trump, the Chinese economy is drifting into turmoil. But don’t worry about missing the final impact, ‘The Great Fall of China’ will be so great, you will be able to see it “from outer space”.

 

Mike Verge is President and CEO of “Verge and Associates” Strategic Consultants

He is author of:  “Global Deflation” (available on Amazon)

He can be reached for comment at : [email protected]