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Before freaking out about CHINA IS DOOMED, look at the historic record.

From 1957 to 2017, per capita GDP in China grew from $68.24 to $8830.17. That's over a thousand times more productive. You can angst about faked numbers or whatever all you like, but the trends are plainly obvious here. China's economy has grown consistently at an extraordinary rate for a long time now, and there's no obvious evidence that a collapse is just around the corner.

In case anyone was wondering, $68 in 1957 is equivilent to $607 in 2018.

And it was over a hundred times more productive (rather than a thousand), even with the original numbers. With the inflation-adjusted numbers, it's over ten times more productive. (Still nothing to sneeze at...)

The numbers were already inflation-adjusted. Even given my percent-vs-times goof (my bad), the Chinese economy is 130 times more productive than it was 60 years ago.

People are assuming the numbers weren't inflation-adjusted because it's so hard to believe. But it's true.

At what real economic cost? GDP, we’ve discovered, is an accounting method that doesn’t account for climate change, for example.

Maybe that doesn’t agree with your politics. How about all the people harmed by China’s wars? What about its own victims, like victims of the Great Leap Forward? The latter happened within its borders, but that reduces the denominator.

A one child policy reduces the denominator too. What would China’s population be today, its per capita GDP, if the denominator was larger?

Fine, don’t angst about faked numbers. But do you seriously believe that the GDP per capita isn’t massively hacked to the benefit of the CPC? And even then, is the average Chinese still being below the American poverty line something to celebrate?

Just because the number has grown doesn’t mean it would not have been higher in a free society.

you're arguing a different argument.

China today is better than China yesterday is a fact. Their economy is growing, rapidly, and life is improving for the average Chinese person. This is also true.

Your last statement, that China would have improved under a different (better) organizational system might also be true (its one I happen to agree with). But that does not, in any way, mean the previous paragraph of this response is any less true.

What an odd comment to make :) It's true you can ignore all economic reality and focus on growth (fake or real). But history time and time again has shown that NOBODY escapes economic reality. Nothing goes up forever.

"Debt, we've learned, is the match that lights the fire of every crisis. Every crisis has its own set of villains - pick your favorite: bankers, regulators, central bankers, politicians, overzealous consumers, credit rating agencies - but all require one similar ingredient to create a true crisis: too much leverage."

Who's that quote attributable to, with a link if you have one? It's brilliant.

Andrew Ross Sorkin? https://www.nytimes.com/2018/09/10/business/dealbook/financi...

Thanks. Brilliant article too.

I'm not sure it's that odd a comment - I've seen arguments that China is going to run into problems with too much debt, poor infrastructure projects and the like for 30 years or so and it so far hasn't really happened. There are a number of reasons why:

Firstly as mentioned there has been a lot of real economic growth. I was there around 1983 when GDP per capita was about $300, there were almost no cars and hardly enough food. Now they are the worlds largest economy by PPP GDP with 4WDs, air pollution and the like.

Secondly the debt is mostly in Yuan which the government can print. 3rd world countries typically go bust when they borrow in foreign currency. With China I believe it's the other way around - they hold a lot of US bonds so the US effectively owes dollars to China, not the other way around.

Thirdly the socialist system for better or worse means the government can just delay paying debt. In the west if developers borrow billions to build empty flats them and or the banks that lent to them go bust, in China they just give them another decade to pay. This can lead to misallocation of capital - all the resources going to useless empty flats rather than productive stuff but seeing the first point about GDP it can't be too bad.

The above is economic reality. Some stuff does keep going up - entropy, US GDP per capita with occasional blips and maybe Chinese GDP with blips also.

No one significant is predicting a doom/collapse (which parent didn’t mention either, so I guess you are just putting out a red herring), but China is definitely due for a crash/financial crisis to wash out all of the economic bad blood/distortions that has accumulated from its rise. There is plenty of evidence that the real estate market will go bust in the next few years.

China could get stronger after a crash as it’s economy gets dosed with realism, or depending on how the government manages it, it could be in for a Japan-style lost decade or two.

>No one significant is predicting a doom/collapse

No one significant predicted the biggest economic collapse since the great depression either.

The Great Recession was nowhere near a collapse, it was a crash/recession, even the depression wasn’t really a collapse, the USA clearly recovered from it within a decade. A collapse is like Venezuela ATM and Zimbabwe before.

Collapse precludes a recovery in the near term, and means some sort of government or dynastic change. Collapse language is used in contrast to a much normal crash.

And crashes do happen a lot in China. Just recently there was the P2P lending crash.

Ya, and obviously the stock market. But none of these have been big enough to cause a full blown financial crisis. China hasn’t had one of those since the 90s.

They do some bloodletting to let off some pressure from time to time. This pushes the full blown crisis further down the road. However this time they are in an obvious bind over the real estate price boom and there is no easy way out.

The can kicking only makes the eventual crisis even worse. Real estate is one area of weakness waiting to blow but debt, especially local government and SOE, is definitely another.

> From 1957 to 2017, per capita GDP in China grew from $68.24 to $8830.17. That's over a thousand times more productive.

8830/68 = 130, not 1000. And is that $68 in 2018 dollars or 1957 dollars?

Going on the likely answer that its in 1957 dollars that is $595 in 2017 dollars. Instead of being 1000x more productive its 15x more productive in 60 years. In the same time frame the US increased per capita GDP by 6x for reference.

Y'know, instead of "likely answer", you could fact-check it.

2018 dollars. The vast majority of China in the 1950s and earlier lived in extreme poverty.

Also, I realize I meant a thousand percent, not a thousand times. My bad on that one. China is merely 130 times more productive (in 2018 dollars) than they were 60 years ago. Which I don't think disproves my point.

It doesn't matter if they have been growing.

What matters is 'do they have more to grow'.

And even if that answer is 'yes' (and I think it is), the next question is 'how level will that be'?

Because the bag will change hands many times. There can be pops and bubbles.

There could definitely be crashes where some lose their shirts - and the system is broken enough that they are unable to actually achieve all of that growth that we know they can do.

Maybe other countries ramp up on manufacturing quicker than we thought.

Maybe factory automation outpaces china.

Maybe there's a conflict that pops a bubble, or internal unrest.

Heck - maybe Trump's trade war really pulls the rug out.

All possible.

Okay, let's look at history. Since about 3800 B.C. there have been something like 500 economic cycles.

499 of them have ended in a financial crisis. Most in minor debt crises, a few in larger events (like 1929 or 2008).

This one will end just like all others. There will be a financial crisis to end it.

I mean, this has been happening for so long the Bible talks about it. Trust me, trust economists, or trust the lord: it will happen.

There is another pattern. Crises, from one to the next, tend to get worse and worse until they cause really large scale collapses. The Roman Empire encountered worse and worse financial crises until finally the republic was destroyed by the empire, and eventually because the provinces broke away. The 1929 crisis ... perhaps this is a bit simplifying, but not really ... caused WWII.

On the other hand, the 1979-1982 crisis was pretty severe and yes was followed by a large expansion and a mild, at worst, crisis ended that one.

But this is not a stretch at all:

1) economic expansion (in China, the US, and elsewhere) WILL end (100% chance). And it will end soon (China, and the world for that matter, are in one of the longest continuous economic expansions in the history of the world. Meaning right now it's already very exceptionally long, if not THE longest)

2) it will restart. Maybe it'll take a war, maybe (1 in 100 chance at worst) even collapse. But it will restart. Now that's easy to see, but 1 year into the crisis that will inevitably occur that's not going to be so easy to see.

I wonder how well this comment will age. Interesting times indeed.

Is China's debt like Japan or Greece... i.e. does it owe itself (like japan) or someone else? If it owes itself would that not contain the fallout of a debt crisis?

Emerging and international developed markets performed extremely well last year. Part of the under-performance this year is from the US dollar rising.

On an enterprise value basis the US looks more expensive than both international and emerging markets[1].

[1] https://allocatesmartly.com/asset-allocation-roundup-2/?aff=...

emerging market crisis already happening in Russia, Turkey and Venezuela

Could you provide information about Russia? I don’t see anything recent suggesting they are in a crisis.

Turkey is in a classic emerging market debt crisis, whereas Venezuela is a somewhat special case where oil prices are high and they have enormous reserves but they’re terribly mismanaged (to provide a huge understatement). Not saying you’re wrong about Venezuela, but they’re not the typical textbook case of an emerging market debt problem.

Actually the current price per barrel is almost half of what Venezuela needed to remain competitive, because even though they have enormous reserves, they are hard to extract. Since their primary export (and thus the commodity that makes up the majority of forex to/from Bolivares) is crude oil, the only possible response to this was massive inflation.

I don't know how accurate this is or if the research is actually from Morgan Stanley. Russia is not in a crisis...

https://www.zerohedge.com/news/2018-08-30/which-emerging-mar...

What's happening in Turkey? I've only really heard about the political shenanigans going on in the last couple years

At the very least, 15%+ inflation, currency issues.

Russian economy is stagnating, but there is certainly no crisis atm. The government has also accumulated a pretty large money stash over the last decade, like 3-4 yearly budgets. So I guess we're more or less safe for the next few years.

There's no contraction in Russia, that's true. But the risk there is the heavy reliance on oil (not a reliable economic basis) and on imports from China. Russia gave up a lot of the internal production capacity in the past.

Contraction last 2 quarters in South Africa

I'm not sure if you've been paying attention to equity prices. EM crisis, yield curve flattening, currency volatility, upcoming rate hikes, near-record P/E ratios, NONE OF IT MATTERS. Investors are bidding the ES and the QQQ to infinity no matter what the economic reality on the ground is.

The debt only matters when people call in their chits. Debt, similar to money, us a claim on future production. As long as people are willing to wait, and not get paid too much for waiting, everything will work out ok.

We'll see if interest rates stay low long enough.

So, should I be in 100% cash right now?

My opinions are not of financial advice :) You can make money on a downturn as well as an upturn

Don't try to time the market unless you dont have any cash savings. Have enough cash to last 6-12 months without a job and invest the rest. You'll do better that way than trying to time the market.

12 months. 6 months is not enough in an extended recession.

Disclaimer: 2008 GFC experience (company folded, had to walk away from primary residence, etc, took 8+ months to find another job while burning through mortgage payments, medical/living expenses). Experience described in this comment and those below are so others can make more informed decisions than I did.

If the assets are liquid enough, 6 months may be enough to sell them.

My money market fund withdrawals were halted temporarily when the NAV broke the buck. I have 1 month cash on hand in a safe, the rest of it is in an FDIC high yield savings account I have access to immediately with a debit card.

Liquidity is a sliding scale when the economy is melting down. Fool me once.

Biggest thing is to reduce spending. The closer to zero you can get on spending, the longer you can survive.

I dont live in a place where I can afford a home, and Im actually seeing that as an advantage at this point- my investments are relatively liquid compared to a house, especially in a depressed/shocked market. It's not an asset until its sold- no mortgage, no problem.

Not paying for my mother's prescriptions and medical care she needed to survive wasn't an option. I had to pick between the house and her care, and the house went. No regrets about the decision.

Right perspective. You did the right thing even when it was financially painful. Props to you.

Thanks, I really appreciate that.

Ah, I'm Canadian so having to sacrifice everything for loved ones health-care didn't occur to me. That'd be a horrible position to be put in.

no, but you should avoid foreign stocks and emerging markets. I think the S&P 500 has a lot of juice left

S&p 500 still have significant exposure to emerging markets.

Couldn't you short EM to hedge this?

Don't short if can't afford to. Remember shorting has unlimited risk. What you should do is buy a put option, if possible.

Not cash in form of paper money or coins, but rather silver coins, preferrably 80% pure. These are sold by bags by main silver sellers such as Monex.

The point being if economy goes to shit that beautiful $100 bill you can spend to feed your family with lobsters will be worth as much and only as much as the paper it was printed on (hint - close to zero). In such times we will revert back to hard currency - gold and coins. But don’t buy gold bullion - it will be hard to buy bread with a 15gr gold bullion bar and noone will care to give you change. Hence best are 80% silver bags as a form of daily purchasing power.

The only scenario in which I can see my local grocery store accepting silver coins is in such a situation that my local grocery won’t continue to exist. I’m sure there are some $100 bills to be made by speculating on precious metals, but my local Kroger is never going to be cutting silver coins in half to make change.

Silver is just as valuable as that piece of paper. It really has very little inherit value. Just because it's shiny doesn't make it truly valuable. gold is the same thing. Both have some limited manufacturering usages but at the end of the day they are shiny, similar to that very pretty piece of paper.

sounds like the answer is bitcoin :)

whatever we put our faith in has value, and I envision our future generation putting their faith behind BTC. Of course, the normies will prob use something else - prob another crypto backed by BTC.

Please no. I am talking about the times in which we go back to basics. You can't be able to freely travel, not to mention communicate, etc (this is the scenario OP draws as when the currency collapse); how can you think there will be sustainable high speed internet connecting miners to sustain a bitcoin blockchain.

> Silver is just as valuable as that piece of paper.

Honestly how can you say that? A piece of crude that comes from Earth (not government printer) that is in somewhat limited quantity, always kept its value, whether governments raised or fell.

Here is a good read for you:

http://www.mining.com/web/the-forgotten-history-and-potentia...

Actually outside of manufacturering purposes it is less valuable than that piece of paper. It's shiny, big deal.

It's a big deal to other people. That is all that matters.

The absolute value is not what is important. These goods have a very useful property: their value remains stable. Even if silver or gold's real value is 1 cent per kilogram and therefore the price premium is something mind boggling like 1000:1 it still doesn't matter as long as this ratio remains the same over time.

The reason why bitcoin and other crypto currencies are not usable as a substitute is because they have massive volatility.

Why would anyone be wanting silver coins for that bread?

because when government based fiat collapsed, we will go back to basic. Gold and silver is knows for thousands of years to be somewhat valuable assets, comparing to paper you carry in your wallet that only holds value when government says so.

Unless you have other valuables, such as a nice watch or necklace silver in general will be a value you can exchange for first needs stuff such as bread, meat, water.

But why would I want silver coins in such a situation? I can't eat them, and I can't use them for any actual purpose.

As a Brit I feel somewhat fuckup-proofed by being long US equity funds. Both EM collapse and Brexit £ collapse would benefit them.

I still have a couple of gold sovereigns from the last financial crisis, at roughly the same value I bought them. Mostly as a reminder to ignore the goldbugs.

seems like its in china's longterm strategic interest to derive as much infrastructure and domestic development as possible from the international economy and then eventually crater it to defeat their international political enemies