Debt, China, and the World Economy
China’s economy was hit hard by the Trump administration’s “trade war.” Trump and company hit China with nearly $250 billion in tariff’s in 2018. The intended effect was to hurt China and force it to clean up its intellectual property practices. The tariff’s and China’s peculiar economic practices since the 2008 recession have probably caused another recession.
Now the Chinese want to spend their way out of the current economic mess. Last quarter, Chinese central bankers helped launch $179 billion in debt to spur local economic growth all over China. At the same time, they cut taxes.
Basically, they want to debt their way out of the slow down. Call me skeptical that this isn’t creating “bubbles” all across the economy.
Take a look at Chinese real estate. In December, Tian Guoli, the chairman of China Construction Bank, warned of slowing growth in housing. He even went as far as to say don’t buy now. Then suddenly, home numbers rebounded due to “targeted stimulus.” Basically, the Chinese are going to deficit spend their way into prosperity. I don’t know when the debt house of cards falls, but it will. And when it does, the whole international economic system may very well go with it.
