So how justified is the pessimistic China story of doom and gloom?
I agree with their analysis.
And I disagree pretty strongly with the conclusions they draw.
And here’s what I mean by that, everything that the China pessimists talk about with
regards to overcapacity, excess debt, all of that is true.
And, in fact, it’s probably, in reality, worse than even what they say.
They’re entirely right about what that typically leads to.
Here’s where I differ significantly, I see a potential financial crisis as the last outcome in the China story.
And there’s a very simple reason for that.
And it has nothing to do with finance or economics.
And it’s this, if there is a China crisis, of what you and I would mutually agree upon
is a true financial crisis, 2008, you know something like that, that is what would become
the once a century event.
That would be D-day, that would be the communists rolling into Moscow, that would be 1989, all
Beijing will do everything possible to prevent a financial crisis from taking place.
Now, I need to be perfectly clear, that doesn’t mean that they’re going to make good policy
It most definitely does not mean that they’re going to make good policy decisions.
But it does mean that their objective is to prevent a financial crisis, at all costs.
When the US government was looking at some of the decisions it made in 2008, it made
a very clear, conscious decision, we are not going to rescue some of these firms, we are
not going to rescue specific asset holders in the decisions they’ve made.
Now we can debate whether or not that was the right decision, but there was a very clear
decision, we’re not going to do this, we’re not going to allow specific pain or events
Beijing does not have that option.
Someone I trust quite seriously on these issues said, it is Beijing’s objective to become
And what they mean by that is, they are very willing to turn it into a long, grinding mess,
but they are absolutely, under no uncertain circumstances, willing to let it become a
Because if it is a financial crisis, that changes everything we know about China, overnight.
That is the once a century event, and Beijing is going to do everything they can to prevent