Dear Money & Crisis Reader,
We’ve got ghost towns here in the west.
Some were abandoned after the closure of the town’s mine or factory.
Others found themselves cut off from civilization, as more direct roads between cities diverted traffic away from these rural outposts.
But the one thing that unifies all our ghost towns is that they used to have people in them… and now they don’t.
However, across the sea, our friends in China have discovered a more efficient way to pump out ghost towns.
They simply build enormous, expensive cities… and never put any people in there in the first place.
This probably sounds like I’m joking. But modern China has a bizarre ghost city problem… and it could very well trigger the next big financial crisis.
You see, building cities is great for China’s GDP and employment.
But when you build a city, you’ve got to fill it with people. Or else you’ve just got a mountain of debt to payoff and no way to make your money back.
China had probably hoped that it would be a “build it and they will come” situation. After all, there are about 400 million citizens still living in rural China.
But China is no Kevin Costner. And high property taxes and poor construction deterred regular Chinese citizens from moving in.
Meanwhile, many of the workers who gave their blood and sweat to build these cities have since died from an illness caused by the deadly working conditions.
Yesterday, one of these workers, who is dying from silica dust poisoning caused by the drilling, was profiled in the South China Morning Post:
So frail that his heartbeat was visible beneath skin stretched across his rib cage, Wang, from Hunan province in central China, had lost 15kg (33lbs) over the previous year and weighed only 40kg.
Filled with resentment, he glared up at the city’s skyscrapers, which he had helped build from 2004 onwards – at the cost of his health. “We are treated like ants … not humans,” said Wang, gasping for air. “I sold my life to Shenzhen. If I had known the danger of pneumatic drilling, I would never have done the work, no matter how poor I am.”
Wang is one of thousands of workers who are seeking money to pay for their medical care and funerals. But most of the folks Wang worked in construction with are already dead.
Data from the Chinese public health ministry claims that silica dust poisoning killed 22,701 Chinese workers in 2017. That’s about half of all global deaths caused by silica dust poisoning last year.
And those are just the figures they released. The Communist Party has a history of fudging the numbers to make it seem like everything’s going great for the People’s Republic.
In fact, they are now claiming that many of the apartments in these ghost cities have already been bought up by investors and folks who are planning to move there in the future.
But for now, the cities remain empty. And the time to fill them up may have already run out.
Over the weekend, I sat down with Currency Wars author Jim Rickards to find out just how deep this crisis goes.
All the best,
Editor, Money & Crisis
P.S. After 15 years of secrecy, Jim is finally able to reveal this sensitive information.You probably aren’t aware… but Jim developed a special tool while working with the U.S. government… that can predict surprising political and economic events before they happen. Click here for Jim’s shocking confession.
Debt Bomb Ready to Explode
The great Chinese growth slowdown has been proceeding in stages for the past two years.
The reason is simple. Much of China’s “growth” (about 25% of the total) has consisted of wasted infrastructure investment in ghost cities and white elephant transportation infrastructure.
That investment was financed with debt that now cannot be repaid. This was fine for creating short-term jobs and providing business to cement, glass and steel vendors, but it was not a sustainable model since the infrastructure either was not used at all or did not generate sufficient revenue.
China’s future success depends on high-value-added technology and increased consumption. But shifting to intellectual property and the consumer means slowing down on infrastructure, which will slow the economy.
In turn, that means exposing the bad debt for what it is, which risks a financial and liquidity crisis. China started to do this last year but quickly turned tail when the economy slowed. Now the economy has slowed so much that markets are collapsing.
But doesn’t China have over $1 trillion of reserves to prop up its financial system?
On paper, that’s true. But in reality, China is “short” U.S. dollars. The Chinese may have $1.4 trillion of U.S. Treasury securities in its reserve position, but they need those assets possibly to bail out their banking system or defend the yuan.
Meanwhile, the Chinese banking sector, which in many ways is an extension of the state, owes $318 billion in U.S. dollar-denominated deposits of commercial paper.
From a bank’s perspective, borrowing in dollars is going short dollars because you need dollar assets to back up those liabilities if the original lenders want their money back. For the most part, the banks don’t have those assets because they converted the dollar to yuan to prop up local real estate Ponzis and local corporations.
There’s not much left over to bail out the corporate, individual and real estate sectors.
This is all part of a global “dollar shortage” attributable to Fed tightening, both in the forms of higher rates but also a reduction in base money.
A dollar shortage seems implausible in a world where the Fed printed $4.4 trillion. But while the Fed was printing, the world borrowed over $70 trillion (on top of prior loans), so the dollar shortage is real. The math is inescapable.
So the Chinese debt bomb that has been a long time in the making is finally getting ready to explode. The economy is slowing, debt is exploding and the trade war with Trump has hurt China’s exports needed to earn dollars to pay the debts.
The defaults are beginning to pile up. Several large corporations and regional governments have defaulted recently.
China’s leaders have panicked at the slowdown and have started the credit flow again with lower interest rates, higher bank leverage and more debt-financed, government-directed infrastructure spending.
Of course, this solution is strictly temporary. All it does is postpone the day of reckoning and make the debt crisis worse when it does arrive.
With every passing day, a Chinese financial collapse draws closer. The rest of the world will not escape the consequences.
When the crisis strikes in full force, possibly in 2019, the rest of the world will not be spared.
P.S. This could be my most important message of 2018.
To date, the CIA has given clearance to fewer than 100 people in the entire world involved with this project. I happen to be one of them!
But as a tax-paying American citizen, you deserve to know the truth.
Click herefor all the details.