America’s Evergrande economy

[Bill Bonner’s Diary]( America’s Evergrande Economy By Bill Bonner Wednesday, September 22, 2021 [Bill Bonner] BALTIMORE, MARYLAND – Evergrande it ain’t. What we are wondering today is what’s ahead for the U.S. economy – inflation or deflation? Maybe [the Evergrande story]( will give us a clue. To fully understand the Evergrande story, you almost have to understand the whole story… …of how, in 1971, the U.S. switched to a “flexible” dollar that it could print at will… …and how the switch created a boom in China… and a bust in U.S. manufacturing (it’s easier to “print” money than to make refrigerators). In an honest economy, pre-1971, the U.S. had to repatriate its dollars by offering equivalent quantities of goods and services to the Chinese… …or risk having to settle up in gold. Recommended Link [The Great Bitcoin Meltdown Is Coming]( [ad_img]( “If you suspect Bitcoin is going to crash, I just want you to know, you’re right.” – Jeff Brown Prepare now, and get rich later… [Here is the truth about Bitcoin that no one else will tell you.]( -- Concrete River But with the new system… it could just print up more dollars… which the Chinese, bless their hearts, used to buy U.S. bonds… All this money created a boom in China… which quickly got out its cement trucks. The concrete flowed like the Yangtze. We saw the construction boom on [our trip to China in 2014]( – a breathtaking display of human industry and material progress. The highways were new. The buildings were new. The trains… docks… factories – all new. You could scarcely find a house more than 18 months old. Never in the history of the world had so many people gone from being so poor to so rich in so short a time. Per capita income rose from $318 in 1990 to $10,500 in 2020. And never in history had so much money been borrowed to make it happen. From $1.7 trillion of total debt in 2000, China now owes nearly $50 trillion. Its debt-to-GDP ratio now stands at 335%. [Featured: Musk, Cuban, Branson and 7 of the World’s Biggest Banks ALL Piling Into THIS New Tech]( More Evergrandes China’s economy grew by leaps and bounds. People were working harder than ever… and earning more and more money. Surely, they would want to buy places to rest their weary heads? Property developer Evergrande saw the demand coming, and borrowed heavily to meet it. In this regard, it was particularly resourceful. Bloomberg’s Matt Levine reports: Evergrande owes money to Chinese banks. It owes money to foreign hedge funds, and foreign investors own its stock. It owes money to suppliers, and to Chinese retail investors in those wealth management products. And it owes apartments to buyers. And the retail investors who bought Evergrande wealth management products were often also Evergrande homeowners, because the products were sold at Evergrande buildings. Yes, the company advertised its own debt to its employees and customers, as suitable for “conservative investors seeking steady returns” – promising 11% per year. And now, it owes some $300 billion… with no way to pay it. The Financial Times reports on the fallout: China’s property slowdown sends chill through the economy And so we wonder: What other Evergrandes are waiting to be discovered? What other excesses are waiting to be reckoned with? Recommended Link [Stop Reading. Write This Down.]( [image]( Teeka Tiwari picked Bitcoin at $428 before it became the first trillion-dollar coin by market value. Now he’s giving away the name of his next top pick for FREE! A coin he believes could follow in Bitcoin’s footsteps to become Crypto’s Next-Trillion Dollar Coin. [Click here and write its name down]( -- Senseless Debt The whole debt-drenched U.S. economy, perhaps? U.S. government debt has gone from under $1 trillion in 1980 to over $28 trillion today, a 28 times increase. That would have been fine if the economy had kept up. But it didn’t. U.S. GDP in 1980 was $2.8 trillion. Now, it is almost $23 trillion, an eight times increase. As Evergrande has discovered, debt only makes sense when the rate of return on the investment is greater than the cost of the debt. That’s hard enough to do for a private company, with a keen sense of business… and owners with skin in the game. For the U.S. government, it’s been impossible. [As we showed earlier this month]( all of its major investments over the last 50 years have been losers. [Featured: Does Biden want to spy on your bank account?]( Nowhere to Fall But there’s a big difference between the debt bubble in the U.S. and the debt bubble in China. Evergrande built houses. And malls. And commercial buildings. And now that the supply for these things is greater than the demand, prices will fall. What did America produce? What prices will fall in the U.S.? Factories? Nope. U.S. manufacturing has been in a decline the entire 40-year period. Housing? Nope again. In the 1950s, America built 21 million new houses. But in the decade from 2010 to 2019, fewer than 6 million were built. Autos? Nah, the U.S. produced around 9 million vehicles last year… almost no increase from the figure 10 years ago. Recommended Link [Outlaw America: Failure to Comply = “Substantial Consequences”]( [ad_img]( Something strange is happening in America… According to MarketWatch, ordinary Americans are being put on ‘restriction lists,’ banning them from using certain businesses. Widely-followed geopolitical analyst Nick Giambruno says, “Ban lists are just the beginning. When Americans see what’s coming by the end of this year, the unrest we saw in the first half of 2020 will look like the ‘good old days’ in the United States of America.” He explained that, in the coming months, millions of Americans will have a critical decision to make: Comply, or you could be shut out of the economy completely. Nick’s message is controversial… and not at all what you’ll hear from the legacy media. But for right now, you need to see Nick’s urgent message… [Click here now!]( -- Meme Wealth What has the U.S. produced in abundance? Speculative investments! Techs. [Cryptos](. [Meme stocks](. [Stonks](. [NFTs](. High-yield bonds with negative real yields. During that same 40-year period, in which real output rose eight times, the Dow rose 33 times. The Nasdaq line was so close to the zero line in 1980, you couldn’t squeeze a greased penny between them. Now, it is nearly 15,000. In 1980, household wealth (stocks, bonds, real estate) measured about 350% of GDP. Today, the ratio is over 600%. And, of course, in the Evergrande scheme of things, the excess was financed by debt. Total U.S. debt (including households, government and business debt) stood at 1.65 times GDP in 1980. Now, it is 3.78 times as great. There, then, is the excess. And there is the bubble that is about to burst. Tomorrow, we will look at what happens next. Regards, [signature] Bill --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=America’s Evergrande economy). --------------------------------------------------------------- FEATURED READS [What Will Come From the Feds’ Two Day Meeting]( Federal Reserve is meeting for two days this week to finalize its projections for the economy and inflation. It will work to reduce its $120- billion-per-month purchases of Treasuries and mortgage-backed securities. The issue of the labor market will also be on the table… [Inflation Expected to Influence the U.K. For Next Two Years]( leading global agency reports that the U.K. is expected to have inflation running at about 3% at the end of 2022, the highest rate of the advanced economies. Inflation is high due to higher costs of raw materials, constraints on the supply of goods, and stronger consumer demand as economies reopen… MAILBAG In today’s mailbag, dear readers give their last take on Joe Biden’s COVID-19 vaccine mandate and the vaxxed-versus-unvaxxed debate… To Larry and Gary, let’s talk about mandates. I ask what mandate would the federal government impose on you that you would not feel comfortable with? Would it be going back to the draft lottery? For those who are not drafted, mandated to buy guns or given guns, and then being responsible for full training at a tactical shooting range? The purpose: to be ready for the invasion from China or Russia on our West coast. Maybe not now, but very well could be in the years to come. – Tony G. It appears that both Gary M. and Larry C. are a bit ignorant of some facts. I have a friend who got vaccinated as soon as it was available. She has since contracted COVID-19 twice. So the hospitals they speak of that are full of the unvaccinated is just a political talking point. If they would like a history lesson, all they have to do is look at what George Washington did during the Revolutionary War. He actually had his troops inoculated with a live virus to prevent Variola (smallpox). Natural antibodies produced naturally, not with some synthetic chemical. Vaccines are a modern wonder when used and developed correctly. But I believe this is more about control of the population than cure of the population at this point, at least in this country. – Howard B. While I agree with Gary, I also agree that the government should neither mandate what I put in my body nor, whether for religious reasons or not, mandate what I don’t want in my body! – Dwayne S. The public library informed me today that I had to be fully vaccinated to enter the premises. Will the controllers also apply this to retail stores? Sorry, you cannot buy food unless you are fully vaccinated. Give them fake money and they will obey us. Will they go as far as making it illegal to grow a garden? The 1% are losing it. – Fletcher E. Has the COVID-19 pandemic altered your economic opinions or views of the U.S. government? What other excesses are to be reckoned with, as Bill muses? Write us at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=America’s Evergrande economy). 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