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The Bull in The China Shop

With Charles Hugh Smith & Gordon T Long

36 Minutes - 21 Slides

Charles Hugh Smith and Gordon T Long share their thinking on current financial developments in China.

The Bull in The China Shop


ISSUE #1 - The World Can No Longer Absorb China's Surplus

The good news is that China produces more than it consumes. This is the opposite of the US which consumers more than it produces.

The bad news is that the world can no longer absorb China's surplus (Production minus Consumption). Global trade has slowed dramatically impacting Chinese exports. The problem is further compounded since China as the new global economic engine, has become the dominate importer of other countries production.

The root cause stems from a "tapped" out American consumer and the "gutting" of the US middle class - the long time global economic engine.

The World Can No Longer Absorb China's Surplus

This economic slowdown has left China with falling growth in FX reserves and has forced the selling of FX reserves to sustain elevated run-rates which were financing massive infrastructure expansion and investment. Construction has been a major employer and absorber of a growing Chinese worker force even though recently more and more have been employed building ghost cities and malls to keep workers employed.


ISSUE #2 - Insufficient New Capital Formation

Additionally, Capital movement has reversed in China. China now faces a "capital flight" versus new Capital Formation coming into the country which has been powering the Chinese Manufacturing and Industrial explosion over the decade and half.

Chine Hot Money Flows


CONSEQUENCE - China Likely Needs to Devalue the Yuan

The consequence is that China needs to stop capital flight and increase exports and foreign capital investment the country is so dependent on.

United States and China GDP Breakdown

China has only a limited number of options which Charles Hugh Smith and Gordon T Long spell with aid of 21 charts.

Devaluation

There is much, much covered in this 36 minute video discussion.

 

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