The Chinese real estate ponzi is collapsing

The Chinese real estate ponzi is collapsing:

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The Chinese real estate ponzi is collapsing.

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China’s real estate market is the largest market in the world and has been collapsing for a year.

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This affects everyone globally.

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Why?

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Because everything is connected.

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China’s real estate for the last 30 years has grown to unimaginable proportions financed by cheap debt financed by the world’s banks.

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For 30 years, Chinese citizens piled into real estate as that was one of the only ways to grow your wealth.

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House prices continued to go up until they didn’t.

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Last summer was the first time we saw crises in the market.

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It started with Evergrande, something which I wrote about last year, and then spread to many other developers.

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The problem with real estate prices dropping is it eventually hits the banks.

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It’s exactly like Lehman in 2008 in the US.

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House prices fell, people couldn’t pay their mortgages, houses started defaulting and mortgage bonds held by the banks blew up almost bringing down the whole global financial situation.

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Now imagine a crisis larger in size happening across China.

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The banks are screwed.

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We’ve already seen Chinese citizens protest in front of banks as their assets have been frozen.

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All these people who worked hard and saved their money properly in a bank are now left with nothing.

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The global media isn’t doing too much of a job to talk about it because they largely can’t see the connections.

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So follow me for a second.

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Who financed China’s real estate boom the last 30 years?

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Banks.

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Not just Chinese banks but global banks.

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How?

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Through credit, aka the bond market.

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Now in China you have something called the on-shore bond market and the off-shore bond market. 

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Onshore is domestic banks/financial institutions and off-shore is the rest of the world.

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My bet is Xi will do everything he can to save the domestic banks in the onshore bond market - at least as many of them as possible.

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Some of the smaller and mid banks might be screwed, which we’re seeing the beginning of right now.

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But they will likely save the larger banks.

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However if you’re an offshore bondholder, like many Asian, European and US banks - good luck.

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It means re-structuring, write-downs and bankruptcies.

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Good luck getting your money back, even if you get pennies on the dollar.

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Many Chinese developers are bankrupt and it likely will get worse.

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If you’re a bank outside China, you think Xi is going to save you?

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Good luck with that.

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Don’t think we’ve seen the worst of this crisis yet.

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This is also why Taiwan is such an interesting situation.

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Are China and the US going to go to war to distract their populations from the shitty situations in their local economies?

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China’s already in a recession and same with the US.

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What better way to distract people than by starting a war.

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Now you could argue China was going to do this anyway, and what better way to do it during a time of economic hardship.

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My bet is Xi thinks he can outlast the domestic disturbances in his economy given he’s an authoritarian dictator who’ll just jail anyone who goes against him. 

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He likely thinks he can outlast this short-term problem and grow the country long-term based on the China 2049 plan.

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Biden/whoever the next Republican nominee doesn’t have as much power and will likely face a lot more issues domestically.

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If you get an 08 situation again not only in the US but also around the world, with the debt burden this high while interest rates are going up, good luck.

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We’ve yet to see the consequences of what happens as China’s real estate market collapses but don’t think it won’t affect you or me.

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In a globalized world like we’ve been living in the last 40 years, everything is connected.

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We’re seeing the beginnings of de-globalization and the Chinese real estate ponzi collapsing could be a huge match to the coming global economic fire.

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