Chinese Ponzi

Louden Swain: Can 800 million people be wrong?
Tanneran: Frequently.
--VisionQuest

There are many who believe that the 21st century belongs to China. By the reported numbers, its economic growth has surely been impressive--rapidly rising thru the ranks to capture the number two slot in the world GDP-wise. It will not take long for China to surpass the US at its current reported growth rates.

At its core, however, the Chinese economy remains a centrally planned one. And central planners are prone to large misallocations of capital over time.

Evidence is mounting that much of the Chinese 'miracle' has been more illusion than substance. At its core is a corrupt and out-of-control credit money system. Rehypothecation of assets has inflated credit on a massive scale. The People's Bank of China (PBOC) has been buying in bonds at a pace that would make the Fed blush (and that's saying something).

China's planners have applied much of the proceeds from this leverage toward bogus building projects in commercial real estate and manufacturing capacity expansion--much of which remains grossly underutilized. 

Like all inflations, things worked like magic on the way up to support the Chinese 'miracle.' When the Chinese credit ponzi breaks, however, people will once again be exposed to the seemingly unlearnable lesson that money-printing ultimately produces pain--not prosperity.