China is on the verge of an economic collapse and it could put the US economy in danger as well. As you probably already know, four companies in China appear to be on the verge of defaulting on $400 billion dollars, which would send shock waves throughout the country.
But, now, new information on a much larger scale could be driving the nail in their coffin. Local governments are in debt to the tune of $8 trillion dollars.
That is about half of China’s GDP.
China could be in a position where they need to raise a ton of cash to avoid defaulting on its debt. As of 2020, China was holding $1.063 trillion in US debt. Should they decide to cash out, it would greatly strain our own finances.
This would not be spread out through ten or twenty years but would have to be paid immediately.
We could print enough money to cover it, but that would weaken the dollar and lead to even more inflation than we are suffering now.
China’s hidden local government debt has swelled to more than half the size of the economy, according to economists at Goldman Sachs Group Inc., who said the government will need to be flexible in dealing with this as revenue is already under pressure due to a slowdown in land sales.
The total debt of local government financing vehicles rose to about 53 trillion yuan ($8.2 trillion) at the end of last year from 16 trillion yuan in 2013, the economists wrote in a report. That’s equal to about 52% of gross domestic product and is larger than amount of official outstanding government debt.
The LGFVs are a tool for governments to borrow money without it appearing on their balance sheets, but it is seen as the same as a government liability by financial markets.
US local debt is $2 trillion dollars against our GDP of $20 trillion dollars, whereas China has $8 trillion in local debt against a GDP of only $1 trillion dollars.
Pretty soon, China will not have enough money to buy Democrats in the United States. US colleges could feel the squeeze as well. This could cause a rift in the world economy as well.