“Evergrande, a real-estate colossus in China, is collapsing. Don’t expect the collapse to be contained to China. The global macro implications are huge.” – Mike Shedlock
The U.S. economy is staring down the barrel of a financial shotgun thanks to the Chinese real estate bubble that just popped.
The trouble started at a developer called Evergrande, which is suffering a major crisis. One Wall Street Journal article sharply summarized the company’s problems:
The party has ended. Years of aggressive borrowing have collided with Beijing’s crackdown on debt, leaving the giant developer on the brink of collapse. Construction of Evergrande’s projects in many cities has stopped.
The Guardian referred to it as “China’s Lehman Brothers moment.” Of course, Lehman Brothers collapsed during the U.S.’s own 2008 financial crisis.
“The mess in China does not stop with Evergrande,” according to Mike Shedlock.
How huge? Well, we’ve seen this before in the U.S. (the Great Recession) and in Japan, where the real estate bubble of the late 1980s led to a “lost decade.” These economic events don’t respect national borders. They go global.
With that in mind, here’s how bad it might get…
China officials asked to get “ready for the possible storm”
Get ready for the possible storm ahead…
That’s exactly what the Chinese leadership warned local authorities after the Evergrande collapse became apparent. According to a Kitco report:
[Chinese] officials noted they are being asked to get “ready for the possible storm,” including all the potential economic and social consequences that could come along if Evergrande fails to meet its financial obligations.
And fail the company did, as reported by Market Rebellion in a tweet on September 23: “Evergrande reportedly missed its $83.53 million March 2022 bond payment that was due today.”
Here’s why this isn’t a “run of the mill” economic crisis for China:
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