{"id":1547823,"date":"2025-07-18T23:15:00","date_gmt":"2025-07-19T03:15:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1547823"},"modified":"2025-07-18T23:15:00","modified_gmt":"2025-07-19T03:15:00","slug":"chinas-economic-demise-and-its-impact-on-the-us","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/chinas-economic-demise-and-its-impact-on-the-us\/1547823\/","title":{"rendered":"China’s Economic Demise And Its Impact On The US"},"content":{"rendered":"

China’s Economic Demise And Its Impact On The US<\/span><\/p>\n

\n

Authored by Lance Roberts via RealInvestmentAdvice.com,<\/em><\/a><\/p>\n

Few are as candid and historically accurate as hedge fund manager Kyle Bass when identifying structural breaks in the global economy. In a recent interview, Bass painted a grim but telling picture of China\u2019s economic condition, warning:<\/p>\n

\u201cWe are witnessing the largest macroeconomic imbalances the world has ever seen, and they are all coming to a head in China.\u201d<\/em><\/strong><\/p>\n

While China has long been touted as the next great economic superpower, its recent trajectory reveals a far different story, one marked by policy missteps, systemic financial rot, and a rapidly eroding growth engine.<\/p>\n

<\/a><\/p>\n

Bass didn\u2019t mince words either:<\/p>\n

\u201cChina\u2019s economy is spiraling with no end in sight.\u201d<\/em><\/p>\n

China\u2019s GDP deflator, the broadest measure of prices across goods and services, continues to decline as economic activity erodes.<\/p>\n

<\/a><\/p>\n

For investors around the globe, this isn\u2019t just a regional concern; it\u2019s a seismic macroeconomic event that will ripple through capital markets. The implications are significant for U.S. investors because when global economies falter, especially one as large and interconnected as China\u2019s, capital doesn\u2019t just vanish.\u00a0It moves<\/strong>. That movement will significantly impact U.S. assets as flows transfer back into\u00a0U.S. dollars<\/strong>\u00a0and\u00a0Treasury bonds<\/strong>. This global repositioning of capital isn\u2019t merely a symptom of market volatility; it reflects a profound reevaluation of risk in the face of deteriorating confidence in China\u2019s financial system.<\/p>\n

China\u2019s Backstory<\/strong><\/h2>\n

We must examine what\u2019s breaking in China to understand why this matters so profoundly. Bass emphasized that the issue\u2019s core lies in the real estate sector, which accounts for roughly 30% of China\u2019s GDP. This massive share of economic activity is under severe strain, with property developers defaulting, sales volumes collapsing, and home prices declining across major cities. However, this should be unsurprising as, after the financial crisis, we wrote many times about the mass overbuilding of\u00a0\u201cghost cities\u201d<\/em>\u00a0that were responsible for China\u2019s growth at the time. However, the\u00a0\u201cbullwhip\u201d<\/em>\u00a0effect of that massive overbuilding was inevitable.<\/p>\n

\u201cThey\u2019re sitting on 60 to 70 million vacant homes. It\u2019s a Ponzi scheme that is finally collapsing.\u201d \u2013 Kyle Bass<\/em><\/p>\n

This particular real estate bubble, which is unprecedented in magnitude, is bursting. This creates deflationary pressures and undermines the value of collateral supporting large portions of China\u2019s shadow banking system.<\/p>\n

Adding to the concern is the Chinese Communist Party\u2019s refusal to implement reforms that would bring greater transparency, capital discipline, and market-based corrections. Rather than allow markets to clear, Beijing is opting for control through capital restrictions, state intervention, and increased surveillance of financial activity.<\/p>\n

\u201cChina is experiencing a slow-motion banking crisis, and capital is doing everything it can to escape.\u201d \u2013 Kyle Bass.<\/em><\/p>\n

That capital flight is inevitable and, as noted, will significantly impact the U.S. economy and financial markets.<\/p>\n

Capital in Search of Safety<\/strong><\/h2>\n

This exodus of domestic and foreign capital will reshape the global macro landscape. We recently discussed that the\u00a0\u201cDeath of the Dollar\u201d<\/em><\/strong><\/a>\u00a0narrative was vastly exaggerated. While that post goes into more detail, there are five primary reasons why the dollar will remain the reserve currency of the world:<\/p>\n

Lack of a viable alternative currency<\/em><\/p>\n

Strength of the U.S. economy<\/em><\/p>\n

Network effects and global financial inertia<\/em><\/p>\n

Limited scope of de-dollarization efforts<\/em><\/p>\n

Resilience amid policy changes.<\/em><\/p>\n

Most importantly, the dollar dominates the composition of global currency transactions.<\/p>\n

<\/a><\/p>\n

China\u2019s economic collapse only exacerbates the world\u2019s dependence on the U.S. dollar for trade and storing reserve assets to support that trade.<\/p>\n

In times of crisis, investors don\u2019t seek yield; they seek safety.<\/strong>\u00a0Despite the U.S. running its fiscal imbalances and maintaining high levels of debt,\u00a0the U.S. dollar and Treasury bonds remain the world\u2019s premier safe havens<\/strong>. There\u00a0is no alternative with the same depth, liquidity, and perceived security.<\/p>\n

The Dollar Is Set To Rise<\/strong><\/h2>\n

As capital flees China and other riskier markets, the U.S. dollar strengthens. This is not just a theoretical concept; it\u2019s an observable pattern in every major crisis over the last several decades. The Global Financial Crisis, the Eurozone debt crisis, the COVID-19 pandemic, and the Russia\/Ukraine conflict all prompted a sharp rally in the dollar as investors sought the perceived stability of the U.S. financial system.<\/p>\n

<\/a><\/p>\n

The mechanics of this are straightforward. When global capital flows into dollars, it often flows directly into\u00a0U.S. Treasuries<\/strong>. Treasury securities remain the world\u2019s deepest and most liquid sovereign debt market. As discussed in that same article, global Central Banks are cutting rates at one of the fastest paces on record. To wit:<\/p>\n

\u201cThe ECB has been aggressively cutting rates, eight times in this recent cycle, while the U.S. Federal Reserve remains on hold. The result is a divergence that is developing between U.S. Treasury bond yields and, for example, the German Bund.\u201d<\/em><\/p>\n

<\/a><\/p>\n

It is crucial to understand why this is so vital for investors.<\/p>\n

Higher yields attract capital inflows.<\/em><\/p>\n

Treasuries remain the preferred store of foreign reserves, and:<\/em><\/p>\n

Yield differentials drive dollar appreciation.<\/em><\/p>\n

In other words, as the demand for Treasuries increases,\u00a0bond prices push\u00a0<\/strong>up and yields decline<\/strong>. Even when the U.S. is running record deficits and issuing vast amounts of new debt to fund government spending, foreign demand can offset the downward pressure this supply might otherwise have on prices.<\/p>\n

In a stable global environment, one would expect rising Treasury issuance to push yields higher. But in a world where the second-largest economy is in decline and trust in its financial system is evaporating,\u00a0Treasury bonds find buyers not because they offer high returns, but because they provide a guaranteed return of capital<\/strong>. That distinction is critical. Investors are not allocating capital for growth but reallocating it for preservation. That behavioral shift has enormous implications for markets.<\/p>\n

China\u2019s Deflationary Impact on the U.S.<\/strong><\/h2>\n

It also has consequences for the U.S. economy. The United States has benefited tremendously from China\u2019s rise over the last 20 years. During that period, the U.S., through its corporations, could\u00a0\u201cexport inflation\u201d<\/em>\u00a0and\u00a0\u201cimport deflation\u201d<\/em><\/strong>\u00a0via China\u2019s cheap labor, rising middle class, and voracious demand for commodities and goods. From industrial machinery to high-end consumer brands, China was a reliable marginal buyer for U.S. exports and a production partner for U.S. supply chains. As that engine falters, U.S. multinational earnings will increasingly come under pressure.<\/p>\n

A structurally weakened China means\u00a0less global trade<\/strong>,\u00a0less demand for U.S. goods and services<\/strong>, and\u00a0slower investment flows<\/strong>\u00a0from international corporations. The knock-on effect will be lower nominal GDP growth in the U.S., even if domestic consumption remains resilient. As such, markets will begin to price in a lower terminal growth rate for the U.S. economy, particularly in sectors exposed to international demand.<\/p>\n

Moreover, China\u2019s descent into deflation could export disinflationary pressures globally. That risk will likely exacerbate the risk that the Fed is making a\u00a0\u201cTransitory Mistake.\u201d<\/a><\/em><\/strong><\/p>\n

\u201cThis link between the economy and inflation is evident from the Economic Composite Index, which comprises nearly 100 hard and soft data points. Following the spike in economic activity post-pandemic, economic growth continues to decline. Given that inflation is solely a function of economic supply and demand, it is unsurprising that it continues to cool.\u201d<\/em><\/p>\n

<\/a><\/p>\n

Understanding that the U.S. imports deflation from China, the risk of a sharper disinflationary impact from China on the U.S. will become evident in the economic data. As Bass noted:<\/p>\n

\u201cThey\u2019re not just dealing with a cyclical downturn. This is a permanent shift toward zero or negative real growth.\u201d<\/em><\/p>\n

That assessment has profound consequences for China and how policymakers and investors think about global growth in the decade ahead.<\/p>\n

Conclusion<\/strong><\/h2>\n

In this environment, the traditional drivers of market performance, earnings growth, productivity gains, and capital investment, will take a back seat to macro stability and risk management. Investors should shift their analysis from\u00a0\u201cWhere can I grow my capital?\u201d to \u201cWhere can I protect it?\u201d<\/strong><\/em><\/p>\n

For now, the answer appears to be the U.S. Treasury market. Ironically, even with sticky fiscal deficits and political gridlock, capital prefers the U.S. over every alternative. That should tell us something.<\/p>\n

As we\u2019ve written many times before:<\/p>\n

\u201cCapital doesn\u2019t care about ideology\u2014it cares about trust, liquidity, and rule of law.\u201d<\/em><\/p>\n

When trust in a significant economic power like China evaporates,\u00a0the resulting capital flows don\u2019t walk, they run.<\/strong><\/p>\n

Investors would be wise to pay attention. The shift underway isn\u2019t temporary. It reflects a deeper reordering of global economic leadership and risk tolerance. While the U.S. faces plenty of its structural challenges, it is still, for now, the cleanest shirt in a very dirty laundry pile.<\/p>\n

For more in-depth analysis and actionable investment strategies, visit\u00a0RealInvestmentAdvice.com<\/a>. Stay ahead of the markets with expert insights tailored to help you achieve your financial goals.<\/em><\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nFri, 07\/18\/2025 – 19:15<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/economics\/chinas-economic-demise-and-its-impact-us<\/a>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

China’s Economic Demise And Its Impact On The US Authored by Lance Roberts via RealInvestmentAdvice.com, Few are as candid and historically accurate as hedge fund…<\/p>\n","protected":false},"author":0,"featured_media":1547824,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1547823","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1547823","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1547823"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1547823\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media\/1547824"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1547823"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1547823"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1547823"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}