Global Economic Crisis

Sheldon Filger-blogger for GlobalEconomicCrisis.com

With 1,300 projects across 280 Chinese cities, Evergrande  currently ranks as the second largest property developer in China and one of the major builders of apartments in the world’s second largest economy. But not for long.

As a result of Chinese government measures that were meant to put a brake on rising housing prices by restricting riskier mortgages, but had the unintended consequence of curtailing  credit to an extent that had not been foreseen, Evergrande is now starving for cash. It has  $300 billion USD in debt, and is increasingly struggling g to meet  interest payments. The likelihood is that Evergrande will default on its outstanding loans.

There are already predictions that Evergrande will become the Lehman Brothers moment for China. Despite the nation being an authoritarian police state, there have been angry demonstrations  throughout China, bordering on riots. The reason is that large numbers of investors, and well as a multitude who have placed large down payments on apartments that may never be built, are angry at the prospect of finding themselves suffering massive and possibly irrecoverable financial losses. It should be recalled that the bulk of Chinese citizens’ wealth is the equity in their apartments.

Though the bulk of those directly exposed to the risk of an Evergrande collapse are Chinese citizens, the repercussions  cannot be contained within China. The size of the Chinese economy and its global interconnectedness mean that there will be collateral damage and contagion impacting the entire global economy. Just as the implosion of the U.S. subprime housing market set off the global financial crisis of 2007-09, the impending demise of Evergrande may very well be the final nail in the coffin of the post-pandemic world economy, ushering in the global economic crisis of the 21st century.

Evergrande may become the epicenter of global financial contagion, just as Wuhan was for the Covid pandemic. What happens to this very large but increasingly insolvent company will be highly consequential for the global economy.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

There is increasingly worrying data emerging from the largest developed economies, revealing rapidly rising levels of inflation. Despite the veil of silence being maintained by sovereigns, and the claims by central banks such as the U.S. Federal Reserve that inflationary spikes are but a temporary phenomenon, the data tells a different story.

Germany released a report  indicating that in  August, year to year inflation was 12.3 % versus  11.3 % in June. This shows that Germany being in double digit inflation territory is no flash in the pan, but a lasting and accelerating trend. This is also the highest rate of wholesale price inflation in the German economy since 1974

In the United Sates, housing prices year on year have risen by almost 20%. This is a staggering number, made more inexplicable in the wake of a still weak and Covid ravaged economy being propped up by both government deficit spending and Fed monetary loosening. And those policies lie at the heart of the problem.

Covid has afflicted global supply chains, leading to shortages of key commodities and industrial parts such as computer chips for automobile manufacturers. That in itself is a major driver of price inflation. However, central banks engaging in unprecedented money printing has , in effect, turbocharged inflation.  The artificially low mortgage rates  that have resulted from Fed policy decisions have not only provided new home buyers with easy credit; in the United States speculators and investors have been seizing the cheap money now available to buyers of homers  for purposes of flipping them for quick profits or, increasingly , converting them into rental properties.

As I have warned previously,  the indicators of stagflation-high inflation and low or negative economic growth- are increasing, pointing to a dismal long-term economic  future characterized by a severe recession or depression with high inflation in the near or medium term.