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  • Writer's pictureRichard Murff

A Hard Landing for the US and China?

An Unfortunate Scenario

US and China

Despite the post-Thanksgiving shop-a-thon, US numbers are softening; bankruptcies, defaults and late payments are ticking up. So is unemployment, putting a break on rising wage as interest rates pinch. In short, a soft landing for the economy is looking less likely.

For its part, China can’t get its economic mojo off the ground either. That housing and real estate bubble can’t be held aloft forever, and Beijing’s Belt & Road Initiative loan-sharking scheme with the "Global South" isn’t throwing off the hoped-for returns.

Since the turn of the century, the two largest economies in the world operating on different cycles was a good thing, as the weaker could draft behind the stronger – softening the blow until the either cycle rebounded. China was so unscathed by the 2008 financial crisis that it convinced itself that they were about to take over the US, and the world. It also convinced Beijing that a tightly managed economy didn’t have cycles. The Russians were economic rubes, but it didn’t matter because it was a separate system.

This time around, the economic bio-rhythms of the US, China and even the EU all look to be in sink. That’s a problematic, as there is no one around to pull the other out of the funk. Even worse, the world’s second largest, fully integrated economy simply can’t see it coming.

With respect to the wildly insightful and entertaining Peter Zeihan, the total collapse of Chinese society likely isn’t just around the corner. Its retreat will happen like Argentina, that went from one of the richest countries in the world in 1914 to, well, Argentina. A country that, if it’s president-elect is to be believed, can’t afford its own currency. Still, there is a lot working against China: wonky demographics, a long overdue correction, and a slowing export-driven economy that is dependent on globalized trade as the world enters into a tariff-o-rama phase - a blind spot that Marxist command economies tend to miss in their ever-tightening grip the on business. This chokes off foreign capital as well as innovation.

Then there is the broader process of political ossification and a new institutional stasis. The Chinese word for it is neijuan, or "involution" that refers to life twisting inward, but with no real forward movement. The government has created its own universe of mobile phone apps and software to insulate its people from the outside world. What my father would have called in “navel-gazing.”

A collapse of Chinese economy will be like a collapsing star in the global economy: just take the currency. Since the start of the century, the US has increased the money supply by 15%, the Chinese have increased theirs by something like 800%. It can keep that domestic property sector from collapse, up to a point, but as we learned in 2008 – a market can be too liquid. A property sector collapse, with homes losing much of their value, would destabilize social stability, which would have the knock-on of destabilizing the Communist party. With the currency based on absolutely nothing, it too would take a hit – which would pull ripple across the Global South.

It would be better, then, if the US economy got whatever correction is looming out of the way before that happens. A hard landing for both China and the US in 2024 will be a hard landing for the world.


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