URGENT🔴 China’s Next Financial Crisis Next Month: China’s Yuan CRASH!

China: Harbinger Of Global Economic Decline

China’s weakening growth has been widely attributed to the country’s trade frictions with the US, but the trade war is only one of many problems…The latest numbers released by China’s statistics bureau fueled widespread concerns about the outlook of the global economy, as the Asian superpower reported its slowest growth rate since 1990. The figures showed a 6.6% growth for 2018, confirming the view that the growth engine of the world economy is running out of steam.

Deep-seeded vulnerabilities, far beyond the trade war

China’s weakening growth has been widely attributed to the country’s trade frictions with the United States. To some extent this accurate, as the dispute has burdened both countries with billions of dollars from tariffs and retaliatory counter-tariffs. The 3-month ceasefire that was agreed during the last G20 conference in Buenos Aires is set to end in March and if an agreement is not reached by then, hostilities are bound to resume. Donald Trump has threatened a 25% tariff on $200 billion in Chinese imports, a step that will pile on considerable pressure to the already vulnerable Chinese economy and darken its prospects.

However, the trade war is only one among many problems that the country is struggling with. Even if a trade deal is finally struck with the US, relief will most likely only be temporary. The reasons behind the growth slowdown run much deeper and paint a truly worrying picture of the future. And while the cracks are just beginning to show now, their origins actually lie all the way back in 2008.

In the aftermath of the financial crisis, China appeared to be one of the precious few to make it out unscathed. While its Western peers plunged into chaos and despair, its own economy continued to hum along, almost as if nothing had really changed. However, this escape came at an extremely high cost. China has amassed an unprecedented amount of debt. Already by mid-2018, total debt-to-GDP had exploded to over 250%, a dramatic surge from 140% only a decade earlier. Today, according to Goldman Sachs numbers, it stands at over 300%, making the government’s efforts to engineer a “soft landing” look like wishful thinking.

As the Chinese government tried to deleverage and to rein in some of its past excesses, the extent of the damage began to come to light. The country is riddled with loss-making factories, with excess production capacity, insolvent “zombie” companies, all parts of a wasteful economy created by debt, corruption and extreme centralization of power in the hands of the Chinese Communist Party. After years of corporate spending sprees and acquisitions with borrowed money, in 2018, the rate of corporate debt defaults set new records.

Its banking sector is crippled as well, with nonperforming loans reaching their highest level in a decade at the end of last year. As official figures out of China are largely unreliable, independent analysis and estimates conducted by Autonomous Research put the actual losses Chinese banks are set to suffer through bad loans at $8.5 trillion. That’s 24% of total credit, bringing the estimated loans on which debtors have failed to keep up with scheduled installments or interest payments five times higher than the official projections.

Capital outflows also present a serious challenge. Despite the country’s strict measures and extensive efforts to prevent it, capital flight is rampant. Chinese investors have been accused of driving up real estate prices in many western capitals, a notion not entirely unfounded, as in 2018 they remained the top foreign residential real estate buyers in the US for six years in a row, according to the National Association of Realtors.

Finally, China’s long-term outlook appears equally grim. Demographic trends place a heavy burden on the country and its ability to sustain economic growth. Despite the government’s efforts in recent years to encourage its citizens to have more children, the latest figures show its birth rate hitting lows unseen since 1949, as the number of babies born in China in 2018 dropped by 2 million. Although the country finally relaxed its one-child policy in 2016, birth rates failed to pick up, while long-term, severe damage had already been inflicted to its social and economic development. Apart from the blatant repression and human rights violations that defined the policy which is estimated to have prevented about 400 million births, it also resulted in a diminished workforce, gender imbalances and the acceleration of its aging population. According to a study by the China Academy of Social Sciences (CASS), the country’s population, now at 1.4 billion, is projected to reach a peak of 1.44 billion by 2029. After that, it is expected to enter an extended period of “unstoppable” decline, with the workforce population dropping by as much as 200 million by 2050, while the proportion of retirees is set to steadily increase until 2060.

Global impact

The Chinese economy accounts for almost a third of global growth, while the country is the world’s largest trader, driving global commerce. That means an economic slowdown is not just China’s problem. To the contrary, it very much affects many countries that face varying degrees of exposure to the Asian superpower, as well as the global growth prospects at large. In late January, the IMF cut its estimate for global growth this year to 3.5%, a noticeable drop from the 3.7% rate recorded in 2018 and a reversal of the growth rate increases of the previous years. This pessimism is far from exclusive to the IMF. Forecasts by the World Bank and the OECD have also been recently downgraded. Among the common reasons for the projected growth slowdown given by analysts is the concern surrounding China. As Citigroup warned in a mid-January note, a slump in China can “blow the global economy off course.”

A slowdown would be particularly painful for Asia and many emerging markets, as for the better part of the last decade, they have grown dependent on China and its robust demand for commodities and materials. However, it’s not only Asia that will feel the impact of shrinking demand. Germany, the US and Australia are also heavily exposed to this risk. This is especially worrying in the case of Germany. As outlined in my recent article, LINK, Germany plays a decisive role in the economic future, or lack thereof, of the Eurozone. As it is already weakened and facing strong headwinds of its own, additional pressures from China could not have come at a worse time.

Far from it being a problem for the distant future, the impact of China’s economic woes is already being felt by companies internationally. Car sales in the country have dropped to a 7-year low, impacting automakers like Volkswagen and Toyota, while a significant decline in iPhone sales delivered a severe blow to Apple’s stock price.

Overall, the problems faced by China were largely predictable. A nation buried under such mountains of debt would eventually have to confront the elephant in the room. Growth based on and fueled by credit is only an illusion and cannot be sustained. As reality comes knocking, China’s gloomy outlook should serve as a warning to investors in the West, where governments also attempted to use the very same methods to prop up their economies.

At this point, the damage is irreversible and the imminent global economic slowdown will expose the deep cracks in our system. For investors, as the storm begins to set in, the time is now to take proactive steps and to protect one’s wealth through a solid precious metals portfolio.

Finally, the fact that China has dramatically accelerated its gold purchases during the past decades and added vast amounts to its reserves is particularly telling. Although the People’s Bank of China (PBoC) still only ranks at the fifth place of the world’s top gold-hoarding nations, with approximately 1’900 tons of physical gold, the estimates of total gold holdings among individuals, corporations and gold miners in China are closer to 20’000 tons. This only goes to show that the people have long understood that if you want to be independent and sovereign, you need to secure your wealth and your savings in a real asset which can’t be created out of thin air, spontaneously devalued and manipulated.

Egon von Greyerz: TWO RESETS Likely That Lead To A Physical Gold Price At Unthinkable Heights

“THE VALUE OF THE DOLLAR HAS NO GUARANTEE WHATSOEVER”

The statement above is of course totally accurate for a country running budget and trade deficits for over half a century with a total debt, including unfunded liabilities, in the hundreds of trillions of dollars.

It could have been said today, but it actually dates back to August 1971 when the People’s Daily in China declared the beginning of the end for the monetary system of the capitalist world.

This prescient statement certainly has Cassandra characteristics. Cassandra was the princess of Troy who was given the gift to make prophecies that were true but no one believed. The Chinese government saw already 48 years ago that Nixon’s decision to end the gold backing of the dollar would be the end of the dollar and the Western monetary system. No one believed their prophecy at the time. But they are being proven right.

THE CHINESE PREDICTED THE DOLLAR FALL

Starting my working life in a Swiss Bank in Geneva two years before Nixon’s fatal decision, I have experience of that fall of the dollar that the Chinese predicted. In 1970, there were 4.30 Swiss francs to the dollar. Today you get just under one Franc for one US$. That is a catastrophic collapse of 77% of the world’s reserve currency in almost 50 years. If we look at the graph of the dollar against the Swiss franc below, we can see that this currency pair has been in a long consolidation at the bottom since 1987.

The next leg down in the dollar is not far away and the target over the next few years could be anywhere between 0.40 and 0.00 Swiss francs. This means a further fall of 60% to 100% could take place, making the dollar worthless. This confirms Voltaire’s statement that “all currencies eventually reach their intrinsic value of ZERO”. We know that this move to zero is virtually guaranteed measured against gold. But more surprising is that it could also happen against the Swiss currency. The Swiss banking system and the Swiss National Bank also have serious problems, so eventually the franc is likely to reach almost zero against gold too. But the dollar will win that race.

CHINA PREDICTED IN 1971 “THE DECLINE OF THE CAPITALIST SYSTEM”

The People’s Daily is the most influential and authoritative newspaper in China. It has been the official voice of the central government of the People’s Republic of China for the last 71 years.

The paper declared in 1971 when Nixon closed the gold window: “These unpopular measures reflect the seriousness of the US economic crisis and the decay and decline of the entire capitalist system.”

The paper further stated that the measures “mark the collapse of capitalist monetary system with the US dollar as its prop” and that “Nixon’s new economic policy cannot extricate the US from financial and economic crisis.” The article predicted instead that the measures would intensify the crisis.

Nixon declared in 1971: “The time has now come for a new economic policy in the United States. Its targets are unemployment, inflation, and international speculation. And this is how we are going to attack those targets……. The time has come for decisive action – action that will break the vicious circle of spiralling prices and costs.”

NIXON’S FATAL DECISION

The Chinese understood already in 1971 that Nixon’s decision would have disastrous consequences, contrary to what Nixon declared. So here we are today with galloping inflation (including asset prices), collapsing currencies and exploding debts. All the things that Nixon said he would prevent.

Nixon stated further in his speech: “We must protect the position of the American dollar as a pillar of monetary stability around the world……..I am determined that the American dollar must never again be a hostage in the hands of international speculators.”

Little did he understand that his decision would have the opposite effect. Without gold backing, the dollar was not in the hands of speculators but instead in the hands of the US government and the Federal Reserve. And that is why the dollar has, since 1971, lost 97% against real money, which is gold, 57% against the DMark/Euro and 77% against the Swiss Franc.

CHINESE WISDOM VS WESTERN MADNESS

The wise Chinese predicted all this 48 years ago. Virtually no one in the West had a clue that Nixon’s catastrophic decision would be the beginning of the end for the US and Western economy and currencies and before that create the mother of all bubbles.

The 1971 article in the People’s Daily also saw the consequences of the US actions for the rest of the world: “The policy is meant to fleece the American working people and to shift the worsening of the US financial and monetary as economic crisis onto other countries.”

This is of course what has happened. The disastrous US monetary policies has spread like the pest to most countries in the world with exploding debts, falling currencies and massive inflation.

“The United States has forced other countries into accepting the primacy of the dollar and used power politics to maintain its privileged position”, said the People’s Daily in 1971.

In the meantime, the dollar’s real value has been undermined by the erosion of US gold reserves “brought on by the US imperialist policy of aggression and war.”

IS THE US GOLD GONE?

To suspend the convertibility “will eventually bring unprecedented destructive blows to the faith in the dollar, because this is tantamount to an open admission by the US government to the whole world that the value of the dollar has no guarantee whatsoever.”

There we have it, China’s ability to analyse the world around them, and the weakness of the US and Western policies, has enabled them to create the second biggest economy in the world or on a Purchasing Power Parity (PPP), the number one economy. China’s GDP was $100 billion in 1971 and is today over $12 trillion or on a PPP basis $23 trillion.

But this rapid growth has not happened without major risk. China is today in a precarious position with total debt having grown from $2 trillion to $40 trillion since 2000. As long as China can avoid a disorderly debt collapse and a revolution, it is likely to be the number one economy in the world on any measure in coming years. But the next few years will be tumultuous for both China, the US and the rest of the world as the world economy suffers from the coming economic downturn or collapse.

MARKETS

My views on long term market developments in the next few years have not altered for a very long time.

We will see a much lower dollar, collapsing stock and bond markets and much higher gold and silver prices. It won’t all happen at once. Bonds could easily pause their long term uptrend for a while before moving up strongly again.

Short term, the dollar looks weak and will soon resume its strong long term downtrend. So time to get out of dollars before it falls dramatically and the US implements exchange controls.

US stocks are now at a decision point. By far the most likely is that the downtrend which started in the autumn of 2018 will soon resume in earnest with a big drop next. The much less likely alternative is a final hurrah to new highs before the collapse. Other stock markets will follow the same pattern.

Gold and the other precious metals are on the way to new highs. There are two different paths for gold. One, which is favoured by some market experts, is a reset orchestrated by the IMF and the World Bank leading to a gold backed SDR. That would involve gold trading ceasing for a limited time, starting one weekend. When the market opens again, gold will be revalued to a much higher level which in US dollar terms could be $5,000, $10,000 or higher.

The other alternative is that market demand and pressures make gold rise very fast to new highs, and way beyond that, in the next few years. This would be a disorderly reset.

Since I would have no faith in the first official reset which will be fake and not solve any of the world’s problems, we are likely to see the second reset in any case. At that point the gold paper market will go to zero and the physical gold market to unthinkable heights.

In either case, the last chance of getting hold of gold at low prices, or at all, is now. Gold is unlikely to wait for a bigger number of investors to get in at these prices. So now is the time to get on the Gold Wagon before it is too late.

GOLD IS WEALTH PRESERVATION – NOT INVESTMENT OR SPECULATION

But remember that gold is acquired for wealth preservation purposes and not for quick gains. Thus it must be held in physical form and stored in safe jurisdictions, outside the financial system. Personally I think confiscation is less likely this time with high taxation of the assets of the wealthy much more likely. But if any country would confiscate gold, the US has done it recently and could do it again. When Roosevelt confiscated gold for US citizens in 1933, gold held by Americans outside of the US was not confiscated.

As I have shown recently, gold is now as cheap as in 1970 or 2000. So today is a unique opportunity to acquire gold at a price that is unlikely to ever be seen again.