Betting on Deflation May Be a Huge Mistake. Here’s Why…….

Submitted by Guest Contributor,  Clint Siegner – Money Metals Exchange

Precious metals investors heading into 2016 worry the dollar will continue marching ahead, right over the top of gold and silver prices. The Fed is telegraphing additional rate hikes throughout the year, and commodity prices – led by crude oil – are falling. There have been tremors in the biggest beneficiary markets of all when it comes to the Fed’s QE largesse – U.S. equities and real estate. And the possibility of a recession is growing, both in the U.S. and around the world.

There are plenty of reasons we might see even lower official inflation numbers and a stronger dollar in 2016. But don’t think for a second that consumer prices or living costs will fall. They haven’t, they aren’t, and they never will in a sustained way – thanks to the Fed’s creation in 1913. This is where the deflationists have it wrong.

The impact of further disinflationary forces or even a deflationary episode on precious metals prices is a bit harder to predict.

The bear case for precious metals is rather simple. Should metals trade like commodities, they are likely to follow other raw materials lower. If we get a liquidity crunch akin to the 2008 financial crisis, just about everything will be sold as investors raise cash to meet margin calls or flee to the dollar as a perceived safe-haven.

There is also the possibility that metals prices will simply be managed lower. Growing numbers of investors realize that Wall Street is not a bulwark of free markets. Major banks have admitted to rigging markets against their own customers, and the Federal Reserve aggressively intervenes in markets in its quest to centrally plan the world economy. Why wouldn’t the Fed also be active in trading precious metals? Those dismissing the notion that metals prices are manipulated are naive.

Today’s Situation Is Different Than 2008

The bear case assumes history, in particular the experience surrounding 2008, will repeat. Or that there is still plenty of ability for anyone seeking to force metals prices lower in the futures market to actually do so. Or both.

Maybe. But relying on those assumptions could be a tragic mistake. Continue reading

The Gold Market

Submitted by Guest Contributor –   EconMatters

Mario Draghi is a Hype Machine 

The Gold Market is pretty interesting here as investors realized on Thursday that much that comes out of Mario Draghi`s mouth is complete hyperbole, because things aren`t nearly as dire in Europe as some bankers try to persuade for additional stimulus out of the ECB, and Germany isn`t going to sign off on the extreme bazooka stimulus measures because Germans by nature are conservative, and there is a commensurate symmetry between ratcheting up extreme monetary measures and stoking the fire of unintended consequences. 

December Rate Hike Fully Priced into Markets 

The Federal Reserve is all set to go on with a 25 basis point rate hike in two weeks, the financial markets have priced this in to the tune of around 80%. The surprising tone of the precious and industrial metals price action of Friday in the face of the US Dollar strengthening and oil getting hammered on OPEC news was interesting to say the least. The entire complex rallied from Copper, Aluminum, Platinum, Palladium and Silver to Gold as new money moved into the sector, and stayed there even after Mario Draghi tried to walk back the Euro from Thursday`s currency gains on the US Dollar. 

Gold Price Action 

After putting in the low for the year on Thursday morning of $1,045 per troy ounce, Gold finished Friday at $1,084 on the February 2016 futures contract. Gold has been hovering right around the $1,060 – $1,070 level for the last two weeks, and even if this is just short covering, somebody forced some shorts to cover. Maybe financial markets and the Metals markets are starting to realize a ‘One and Done’ rate hike by the Federal Reserve isn`t the end of the world. And given the $18 Trillion and climbing in US Debt facing central bankers at the Fed they are going to have to be doing a whole lot of “monetizing” or in layman`s terms currency printing for the foreseeable future so Gold and other Metals look attractive here at multi-year lows. 

Continue reading

Why A Russian Default is a Very Real Scenario in 2016

Submitted by Guest Contributor – Genevieve LeFranc

Debt.

Everyone understands it pretty well when it comes to their personal finances. You borrow money, you have to pay it back. If you can’t, your creditor hounds you until you either come up with the cash or restructure your repayment schedule. Or, worst case, you eventually file for bankruptcy, thereby defaulting on your debt. Simple.

Yet people, especially in the West, seem blithely unaware that the same basic principles apply to countries, as well. Most of us tend to think that nations can’t or won’t default on their debt. Well … maybe Greece will. But surely not a big country.

Why we believe this is partly due to an ignorance of history, which features literally countless defaults, among nations great and small. Even the US has done it. More than once. It happened right at the beginning, in 1779, when the fledgling US nation defaulted on its first currency, the Continental (which led to widespread use of an early American pejorative phrase: “not worth a Continental.”) And a very recent example was when Nixon severed the tie between gold and the dollar in 1971; that was a default on the precious metal debt the country owed to France and others.

It’s also partly due to the current financial behavior of the American government, which acts as if the cure for a debt problem is more debt (do not try this at home, by the way).  As Congress raises the federal debt ceiling, and the Federal Reserve creates ever more currency units out of thin air, it creates the illusion of stability. All it’s really doing, though, is just kicking the can down the road.  The US has placed itself firmly on this path. But that doesn’t ensure that the rest of the world’s nations can or will follow the same one.

Particularly Russia.

In 2014, I published The Colder War, which became a New York TimesBestseller.  Vladimir Putin, Russia, oil and energy were all dissected in my book, which today is every bit as timely as it was when I wrote it in 2013.  Because of the decade I spent researching the book, I have a very unique Westerner’s perspective on Russia.

Here’s one of the things I learned: Russia is completely unafraid of a default on its debt. Continue reading

American Middle Class Is On The Endangered Species List

Submitted by Guest Contributor – Michael Snyder

51 Percent of Americans Make Less than $30,000 per year

October 22, 2015 “Information Clearing House” –  “End Of The American Dream” – We just got more evidence that the middle class in America is dying.  According to brand new numbers that were just released by the Social Security Administration, 51 percent of all workers in the United States make less than $30,000 a year.  Let that number sink in for a moment.  You can’t support a middle class family in America today on just $2,500 a month – especially after taxes are taken out.  And yet more than half of all workers in this country make less than that each month.  In order to have a thriving middle class, you have got to have an economy that produces lots of middle class jobs, and that simply is not happening in America today.

You can find the report that the Social Security Administration just released right here: .  The following are some of the numbers that really stood out for me:

38 percent of all American workers made less than $20,000 last year.

51 percent of all American workers made less than $30,000 last year.

62 percent of all American workers made less than $40,000 last year.

71 percent of all American workers made less than $50,000 last year.

That first number is truly staggering.  The federal poverty level for a family of five is $28,410, and yet almost 40 percent of all American workers do not even bring in $20,000 a year.

If you worked a full-time job at $10 an hour all year long with two weeks off, you would make approximately $20,000.  This should tell you something about the quality of the jobs that our economy is producing at this point.

And of course the numbers above are only for those that are actually working.  As I discussed just recently, there are 7.9 million working age Americans that are “officially unemployed” right now and another 94.7 million working age Americans that are considered to be “not in the labor force”.  When you add those two numbers together, you get a grand total of 102.6 million working age Americans that do not have a job right now.

So many people that I know are barely scraping by right now.  Many families have to fight tooth and nail just to make it from month to month, and there are lots of Americans that find themselves sinking deeper and deeper into debt. Continue reading

Why a Gold Standard?

Submitted by Guest Contributor – Dan Popescu

Keeping it Simple

In this article I want to approach the idea of a gold standard from a more “regular people” perspective rather than from a “high academic” economic/finance and, sometimes, legalistic perspective. I constantly read books and articles full of mathematics written by the economic academia, trying to show why a gold standard is a relic of Antiquity, unsuitable for the modern world.

Still, as a physicist, I would like to remind economists that they would not be able to write their papers on a PC, communicate with an iPhone, drive a car or fly on a plane, if it weren’t for two relics of Antiquity essential to scientists and more than 3,000 years old that have barely changed since then: algebra and geometry.

gold-ingots-1-gramGold prepared for small-scale transactions.

When I was a child, my father, an engineer, used to tell me over and over again, “If you can’t explain it in simple words, it’s because it makes no sense or you don’t understand it yourself”, and “keep it simple”.

Recently, while doing research for an article on the gold standard, I stopped and thought about a “new” (not from Antiquity) standard: the metric system. I realized how exceptional and how humble those scientists were when they created it. I just couldn’t believe it.

Here is a system designed to correct a problem faced only by scientists, which is to measure quantities at the angstrom level (10−10) and at the astronomical level (1010) that the old system couldn’t handle. They could have designed a system that only they can understand. Who cares if the common people don’t? Too bad for them… They will have to hire us to do the calculations.

However, look at the system they designed. It allows those highly educated “rocket” scientists to work in fields like particle physics and astrophysics but at the same time is so simple that even an illiterate person can learn it fast. They used the base 10, which is the easiest to learn and use. One doesn’t need a diploma to multiply or divide by 10. For temperature, they chose as limits the freezing point as zero and the boiling point as 100. Again, base 10 and the range humans deal with most of the time. No need to do sophisticated calculations to understand it. Continue reading

Wall Street and the Military are Draining Americans High and Dry

Submitted by Guest Contributor – William Edstrom

The United States (US) government often cites $18 trillion as the amount of money that they owe, but their actual debts are higher. Much higher.

The government in the USA owes $13.2 trillion in US Treasury Bonds, $5 trillion in money borrowed by the US Federal government from Federal government trust funds like the Social Security trust fund, $0.7 trillion for state bonds issued by the 50 states, $3.7 trillion for the municipal bond market (US towns, cities and counties), $1.97 trillion still owing by Freddie Mac and Fannie Mae, mostly for bad mortgages in years gone by, $6.23 trillion owed by US government authorities other than Fannie Mae and Freddie Mac, $1.04 trillion in loans taken out by the US Federal government (e.g. government credit card balances, short term loans) and $0.63 trillion in loans owed by government authorities (e.g. their government credit card balances, short term loans). As of April 1, 2015, according to the Federal Reserve Bank’s Financial Accounts of the US report, the government in the USA has $32.77 trillion in debt excluding unfunded government pension debts and unfunded government healthcare costs

Debt is money that has to be paid. The government in the USA also has to pay $6.62 trillion for unfunded pension liabilities, as of April 1, 2015. There are thousands of government pension plans in the USA (e.g. County, State, Teacher’s, Police). The Federal Employees Pension Plan is now short $1.9 trillion according to the Fed’s March 2015 statement plus $4.7 trillion in unfunded state and municipal pension liabilities according to State Budget Solutions which calculates on actual pension returns (approx. 2.5% per year from 2009 to 2014, instead of the fantasy ‘assumption’ of an 8% return used by the Fed to guesstimate pension fund money). The largest governmental pension fund in Puerto Rico ran out money (became insolvent) in 2012 and the government now has to pay $20.5 billion for that. Pension contributions into government pension plans have been less than what these pension plans pay out to retirees which is why the government was short by $6.62 trillion for government pensions as of April 1, 2015.

The DJIA has gone down 9.5% since the Spring. $6.3 trillion in governmental pension plan money was invested in wall street as of April 1st. Additional government pension plan losses have been, so far this year, $0.6 trillion. As of August 29, 2015, the government in the US owes $7.2 trillion for pensions. Every additional 10% the DJIA drops is another $0.6 trillion in unfunded pension costs that the government has to pay.

The Federal government owed $1.95 trillion in unfunded entitlements for the Federal Employees Pension Fund as of April 1, 2015. Unfunded entitlements are health care benefits for retirees above and beyond Medicare benefits. States, municipalities and governmental authorities owe an additional $4.2 trillion for retiree health benefits. Medicare and Medicaid costs, about $0.83 trillion in 2014, escalate 6% a year and Obamacare adds $0.18 trillion a year in governmental health costs, mostly for subsidies. Medicare, Medicaid and Obamacare costs will escalate to $1.28 trillion in 2018.

Bottom line, as of August 29, 2015, the government in the USA owes $46.1 trillion (bonds, unfunded pension costs, unfunded healthcare costs, credit card balances and loans). Continue reading

China may have given US Fed an excuse to delay rate rise

Submitted by Guest Contributor – 

Fed building - US Federal Reserve starts 'QE-lite' to placate markets If Shanghai’s stock market correction last month suggested that investors should be watching China not Greece, then last week’s devaluation of the yuan confirmed it. Whether Athens gets its €86bn is a great big irrelevance compared with the unfolding drama in Asia.

Trying to work out the implications of Beijing’s dramatic intervention in the currency markets is complicated by the fact that no one is quite sure what really prompted it and, therefore, what is likely to happen next.

On the face of it there were two reasons for China to weaken the renminbi. The proximate cause appeared to be worse than expected export data confirming an even sharper slowdown in the economy than anyone believed. A hard landing looks increasingly like a good result for China. A soft peg to the dollar means that China has become progressively less competitive as the US currency has appreciated.

Beijing has tried everything else from interest rate cuts to lower reserve requirements and pumping up the stock market, so it was perhaps inevitable that it would succumb to the temptation of a weaker currency.

The daily fix of the exchange rate has been out of kilter with market reality for months now, so lowering the reference point was no more than a nod to reality. Continue reading

Bank C&I Nonperforming Loans Increasing

Submitted by Guest Contributor – Bob Moreland

After 5+ years of moving lower, the past two quarters have seen a marked increase in Commercial & Industrial Nonperforming Loans. Based upon numbers sourced from BankRegData, it is my opinion that Commercial & Industrial Loan performance has reversed and NPLs are heading much higher.

First, we’re going to look at the startling increase in Commercial & Industrial NPLs the past two quarters.

Aggregate U.S. Banking Commercial & Industrial NPLs:

From a low of $8.515 Billion at the end of 2014 C&I NPLs have increased $2.381 Billion for a 27.97% increase in 6 months. The NPL % to total C&I loans has grown from 0.50% in 2014 Q4 to 0.61% in 2015 Q2. We’ll come back to this ratio shortly.

Looking at C&I NPLs at the individual bank level reveals that the $2.381 Billion NPL $ increase is widespread and is not due to a small handful of institutions having issues.

Commercial & Industrial NPLs: Capital One

Capital One has seen C&I NPLs increase $233 Million (109.72%) over the prior quarter. Their NPL % has risen from 0.95% in 2015 Q1 to 1.99% in Q2. This appears to be a deterioration in their portfolio rather than an acquisition related increase. We also see an increase in their Early Stage Delinquencies as well.

Commercial & Industrial NPLs: Bank of America

From a low of $665 Million (0.31% of total C&I Loans) in 2014 Q4 Bank of America has seen NPLs increase $377 Million or 46.54% to $1.042 Billion (0.54% to total C&I Loans).

Commercial & Industrial NPLs: Wells Fargo

Wells Fargo saw the largest quarterly increase at $433 Million bringing the NPLs to $917 Million and 0.55% of C&I Loans(up from 0.27% in 2014 Q4).

As mentioned earlier, the C&I NPL increase is not isolated to just a handful of banks. Other banks who have seen notable increases the past few quarters include JPMorgan Chase, Comerica, Regions, Zions and Key Bank to name a few. Continue reading

Central Banks Ready To Panic – Again

Submitted by Guest Contributor – John Rubino – DollarCollapse.com

Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.

Now emerging-market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see. Here’s a representative take from Bloomberg:

Cheap Money Is Here to Stay

The Fed’s Countdown

Take New Zealand and Australia. Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”

Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks. Even those presiding over stable growth feel the need to placate hedge funds, lest asset markets falter. When this dynamic overtakes countries such as New Zealand (growing 2.6 percent) and Australia (2.3 percent), it’s hard not to conclude that ultralow rates will be the global norm for a long, long time.

Indeed, the major monetary powers that are easing — Europe, Japan, Australia and New Zealand — have all suggested rates may stay low almost indefinitely. Those angling to return to normalcy, meanwhile — the Federal Reserve and Bank of England — are pledging to move very slowly. Even nations with rising inflation problems, like India, are hinting at more stimulus.

“As interest rates continue to fall across most of the globe, central banks are also united in their main message: Once rates have come down, they’re likely to stay down,” says Simon Grose-Hodge of LGT Bank. “And when they finally do tighten, the ‘normal’ rate is going to be a lot lower than it used to be.”

Could the People’s Bank of China be next? “With underlying GDP growth still looking weak, more monetary policy moves are likely,” says Adam Slater of Oxford Economics. “And China may even face the prospect of short-term rates dropping towards the zero lower bound.”

This is not how the Fed, ECB or Bank of Japan envisioned the year playing out. They see ultra-low rates as an emergency measure, temporary in nature and to be dispensed with asap. From MarketWatch:

Here’s the real reason the Fed wants to raise rates

Federal Reserve policy makers are hoping, even praying, that no unexpected domestic development or international crisis intervenes to prevent them from taking the first baby step to normalize interest rates at the Sept.16-17 meeting.

Why? Fed officials point to a number of reasons: the unnatural state of a near-zero benchmark rate; the potential risk of financial instability; an improving labor market; diminishing headwinds; and yes, expectations of 3% growth just over the horizon.

Fed Chairman Janet Yellen, usually considered a member of the Fed’s dovish faction, sounded determined to act when she testified to Congress last week.

“We are close to where we want to be, and we now think that the economy cannot only tolerate but needs higher interest rates,” Yellen said during the Q&A. “Needs,” as in the patient needs his medicine.

What’s the urgency with an economy chugging along at 2-something percent and low inflation? I suspect Fed officials are terrified of being caught with their pants down, in a manner of speaking. Should some unforeseen event come along to upend the economy, the Fed’s arsenal would be dry. They’d like to put some space between their policy rate and zero.

That “unforeseen event” has arrived, leaving most central banks with a stark choice:

  1. Let the deflationary crash run its course at the risk of blowing up the quadrillion or so dollars of interest rate, credit, and currency derivatives hidden on bank and hedge fund balance sheets.
  2. Or push interest rates into negative territory pretty much across the developed world.

Since option number one carries a statistically-significant chance of ending the modern financial era it is absolutely unacceptable to Goldman et al, and is thus a non-starter. Which leaves only option two: more of the same but bigger and badder.

So…the central banks will panic. Again. Countries that retain some control over their monetary systems will see their interest rates fall to zero and beyond, while those that don’t will be thrown into some kind of new age hyperinflationary depression. Not 2008 all over again; this is something much stranger.

Average:

Let’s Talk About Gold

Submitted by Guest Contributor – Notes From the Rabbit Hole

For what seems like forever we have been mechanical in managing the precious metals because they have been bearish; period. This has been based on short and long-term technical indications and incomplete macro fundamentals. Gary the robot has had no difficulty whatsoever holding this stance despite Gary the human’s unwavering view that the value of gold is in its insurance and long-term retained value qualities.

The precious metals took a hard bearish turn last week and that is the best news I have seen in a while because the complex has been locked below important resistance (failed support) for some time now and the sector usually completes its severe corrections and bear markets with a bang, not a quiet whimper.

We have noted that despite a 4 year bear market there have been too many perma-bulls doing what they always seem to do in dispensing reasons (rationalizations) for the hopeful herds (which had not yet been exterminated) to be bullish. China demand, Indian Wedding Season (AKA the “Love Trade”) and world-wide gold jewelry consumption have been put forth as bullish fundamentals.

Indeed, one new promotion is that gold as part of the ‘fear trade’ is a thing of the past. Those who consider gold as insurance against negative financial events are merely anachronistic has-beens says this new school. Well, today the fear sits squarely in the belly’s of those who bought this promotion [edit: this Monday morning, with media-fueled negative hype on full blast, it settles deeper still].

Gold has been contrary to what has been going on in the US and now, some global stock markets; namely gold has been bearish and risk ‘OFF’ while stocks have been bullish and risk ‘ON’. That is in large part due to the fact that commodities have been bearish as well and there has been no overt inflation problem – according to financial markets (conveniently disregarding the creeping cost increases happening throughout the services economy) – and so an ‘inflation trade’ has not been a component in the global bull atmosphere.

This is all about paper and the value that market participants currently see in that paper. Stock certificates, mortgage documents, the debt of distressed and non-distressed entities alike… it’s all good because risk is ‘ON’ and it will remain good as long as risk remains ‘ON’.

Gold is dropping hard. We have a measurement of 960 by an old weekly chart we used to review back when gold was attempting (and ultimately failing) to break some important upside parameters. A failure of those parameters loaded some downside targets that includes the big support shelf from 2008-2009 around 1000 +/-.

What I think may be happening is that risk ‘OFF’ is blowing off to the downside even as risk ‘ON’ either tops out or prepares to blow off to the upside. Fantasies about gold being able to rally due to US employment growth (and inflation), European economic growth and love having broken out in China and India are being proven wrong.

There are no easy answers and those put forth to date are proven wrong. Gold holds a mythical spell on humans because humans posses fear and greed in great amounts. I once again hearken back to people asking me “how’s your gold letter going?” and my answer that seemed to fall on deaf ears… “it’s not a gold letter.” Continue reading

Farage on Europe at the Heritage Foundation

Submitted by Guest Contributor – Nigel Farage

Farage-Hermitage

Nigel Farage may be the only practical politician these days because he came from the trading sector. He explains the Euro-Project and its failures. He makes it clear that the Greek people never voted to enter the euro, and explains that it was forced upon them by Goldman Sachs and their politicians. Nigel also explains that the Euro project idea that a trade and economic union would then magically produce a political union – the United States of Europe and eliminate war.

Greek-Protest-Natzi

He has warned that the idea of a political union would end European wars has actually turned Europe into a rising resentment in where there is now a new Berlin Wall emerging between Northern and Southern Europe.

cyprus-fuck-europe

The Euro project was a delusional dream for it was never designed to succeed but to cut corners all in hope of creating the United States of Europe to challenge the USA and dethrone the dollar, That dream has turned into a nightmare and will never raise Europe to that lofty goal of the financial capitol of the world.

Draghi-Lagarde

The IMF acts as a member of the Troika, yet has no elected position whatsoever. The second unelected member is Mario Draghai of the ECB. Then the head of Europe is also unelected by the people. The entire government design is totally un-Democratic and therein lies the crisis. Not a single member of the Troika ever needs to worry about polls since they do not have to worry about elections. This is authoritarian government if we have ever seen one.

Draghi-Euro

The ECB attempts by sheer force to manipulate the economy with zero chance of success employing negative interest rates and defending banks as the (former?) Goldman Sachs man Mario Draghai dictates.

european-parliament

Now, far too many political jobs have been created in Brussels. This is no longer about what is best for Europe, it is what is necessary to retain government jobs. The Invisible Hand of Adam Smith works even in this instance – those in power are only interested in their self-interest and will risk war and civil unrest to maintain their failed dreams of power.

China’s Real Problem Isn’t Stocks – It’s Real Estate!

Submitted by Guest Contributor – Harry Dent

I always say bubbles burst much faster than they grow. And after exploding up 159% in one year, Chinese stocks crashed 35% in three weeks.

This all happened while the Chinese economy and exports continued to fall. And two thirds of these new trading accounts belong to investors who don’t have so much as a high school degree. How crazy is that?

As Rodney wrote earlier this week, the Chinese government is taking every desperate measure to stop the slide:

Artificial buying to prop up the market…

Banning pension funds from selling stocks…

Threatening to jail investors for shorting stocks…

Allowing 1350 out of 2900 major firms to halt trading in their stocks indefinitely, and stopping trades on another 750 that fell 10% or more…

It’s madness!

This second and FINAL bubble in Chinese stocks occurred precisely because real estate stopped going up. Over the last year it actually declined.

So after decades of speculation, the gains stopped coming in, and rich and poor investors alike switched to stocks.

But the funny thing about the Chinese is – they don’t put most of their money in stocks. Only about 7% of urban investors own stocks and half of those accounts are under $15,000. In fact, it’s estimated that the Chinese only put 15% of their assets there, and that may be on the high side.

What is so unusual about the Chinese is that they save just over half their income! And the top 10% save over two-thirds!

And where do those savings go? Mostly into real estate!

China’s home ownership rate is 90%. It’s just 64% in the U.S. even though we’re much wealthier and credit-worthy.

That’s because home ownership is a staple of their culture. A Chinese man has no chance of getting a date or getting laid unless he owns a home – no matter how small.

Just look at this simple chart:

Share of Chinese Wealth Held in Real Estate Versus US

Chinese households have 74.7% of their assets in real estate vs. 27.9% in the U.S. – which helps explain why theirs is one of the greatest real estate bubbles in modern history!

But the key here is – when that bubble bursts, it will cause an unimaginable implosion of Chinese wealth. In one fell swoop, three-quarters of their assets will get crushed!

And just how big of a bubble is it? In Shanghai, real estate is up 6.6 times since 2000. That’s
560%.

I’ve been going on and on about the massive overbuilding of basically everything in China for years now. I’ve never once flinched from my prediction that this enormous bubble will burst. And I’ve kept saying there will be a very hard landing no matter how much the government tries to fight it.

Central banks had been setting this global bubble up from 1995 to 2007. China’s government – even more so!

By my estimates, they’ve built up their infrastructure, real estate, and industrial capacity 12 to 15 years ahead of demand. And that’s if urbanization continues at such astounding rates. Good luck on that in a slowing world economy!

In a massive overhaul of their economy, they did this to provide jobs for half a billion people who moved from rural plains to urban cities over the past three decades. It was so rushed that 220 million migrated in just the past 12 years and aren’t even legal citizens in the cities they live in! Continue reading