The IMF expects China’s Total Debt to double from US$27 trillion in 2016 to US$54 trillion in 2022. That would be a five-fold increase in total debt just since 2009.
I’m not convinced that will happen. But, if it does, the creation and deployment of US$27 trillion of Credit by China over the next 5 - 6 years would:
1. Drive asset prices sharply higher all around the world,
2. Inflate and distort the supply and demand for every product produced anywhere in the world; and
3. Fundamentally alter the geopolitical balance of power.
Just as an unsustainable boom in US debt produced the global economic crisis of 2008, the unsustainable boom in Chinese debt is likely to be the cause of the next global economic crisis.
What we don’t know, however, is how much larger China’s credit bubble will become before it pops. It is possible that it will become a great deal larger. If it does, it will transform the world.
The latest Macro Watch video explains why China’s credit bubble probably won’t survive until 2022. However, it also considers what the consequences could be if it does.
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