A Bug Looking for a Windshield

China enjoyed tremendous GDP growth for many years as the country constructed vast cities and built highways to connect them.  Unfortunately, many of the cities and roads are empty – currently rendering these assets useless – and no income is being generated to pay back the debt used to finance their construction.  So how are interest payments being made and principal repaid on time?  The government is printing money!

China is a nation drowning in debt and its government may be in panic mode. Over the past few months, it has injected over $1 trillion in new credit attempting to prop up its faltering economy. This epic amount is the largest quarterly liquidity injection ever.  Most of the money the government is supplying to the banks is needed to keep the bad debts on life support and their unproductive businesses alive.  Without a global upturn in business, it is only a matter of time before the small cracks turn into big ones and the dam breaks.  China is a bug looking for a windshield.

12-MFI Staff-RobertRobert J. Katch is the founder of Manchester Financial, an Investment Counsel/Wealth Management firm located in Westlake Village. For more information call 800-492-1107.

This material is provided for general and educational purposes only, and is not legal, tax or investment advice. For each strategy or option mentioned, there are detailed tax rules that must be followed.

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