So the People’sPrinting Press accumulated foreign exchange at a rate that defies anything in recorded financial history. From about $1.5 trillion of foreign exchange reserves when the Greenspan boom was cresting, China’s reserves have soared to almost $4 trillion at present. But the red oligarchs didn’t really mind the frenzied inflow of hot, yield-chasing dollars and euros. The inherent corollary of China’s massive foreign exchange buying was an off-setting emission of domestic RMB. Needless to say, that’s exactly what the comrades sitting atop the world’s greatest economic house of cards wanted to do anyway.
If the American consumers’ balance sheets were was tapped-out—and after the ratio of household debt to wage and salary income soared from a historic 80% level to 210% in 2008 they were fully cooked and done— then Beijing would mightily tap its own balance sheets to fund the greatest infrastructure building spree since the pharaohs.
Accordingly, China money supply indicators soared by 30 percent annually, fueling the mother of all credit bubbles. Total domestic credit outstanding (“social financing”) erupted from $9 trillion in 2008 to $24 trillion at present. As a computational matter, this 5-year/$15 trillion credit expansion amounts to 2X China’s alleged GDP number for 2008—that is, it represents an outbreak of sheer lunacy under any known laws of sound economics.
But in the interim it turned China into a “sucking sound to the West” that would have deafened even Ross Perot. As China’s credit-fueled construction machine ramped-up it sucked in hydrocarbons, alumina, iron ore, nickel, copper, coking coal, steam coal and the rest of the raw materials menu at blistering rates. This wholly artificial and aberrantly large draw on the world’s raw material supply system, in turn, caused a massive scramble to expand mining, drilling, smelting, processing and shipping capacities at red hot rates. The capex budgets of the Big Three global mining companies—-BHP, Vale and Rio Tinto—-soared from $35 billion in 2009 to $65 billion at the 2012 peak. That amounted to one huge caravan of big yellow machines heading to Australia, Brazil, China, Mongolia and other mining pits of the world.
But global tapering time is now arriving. The red hot infrastructure maw of China is being desperately cooled-down by the new regime in Beijing least the Middle Kingdom be completely paved with empty highways, bridges, fast rail, airports, luxury condos (65 million empty and counting), shopping malls, ghost cities, shaky skyscrapers—-and its financial system be crushed under huge additions to the $25 trillion of unrepayable debt which is already fast going sour.
