Would you believe that China actually has a freer market right now than the United States? Instead of providing a taxpayer-funded bailout to the criminals, China is instead allowing its overleveraged, speculative property investment sector to suffer the defaults that are necessary to bring the nation’s economy back down to reality, which in turn is unleashing a bond market implosion. Following the Evergrande fiasco, many other property developers in China have since seen massive selloffs as the companies that occupy China’s junk bond market implode one by one. Fears continue to grow about a financial “contagion” event that many believe will eventually spread far outside of China as offshore bondholders become bag holders. Evergrande, for instance, has missed another round of interest payments, breaching multiple deadlines and shattering confidence among foreign investors. Most of China’s speculative investment market centers around housing, as people there have been buying up properties, many of which remain empty, in order to hold onto them as stock. The financial viability of this scheme is coming to a head, though, as the $5 trillion sector is now faltering. In addition to Evergrande, companies like Fantasia and Modern Land are following suit as the truth about their lack of liquidity comes to light, resulting in their stock prices plummeting. China’s entire bond market is basically in a free fall, in other words. And since the economies of the world are deeply intertwined with one another, this free fall will likely eventually spread to the United States like a tidal wave. “Yields on Chinese junk-rated dollar bonds surged 291 basis points to 17.54% last week, the highest level in about a decade,” reported Zero Hedge, citing the Bloomberg index.
China’s 10-year government bond futures drop to three-month low amid liquidity drain
To make matters worse, government bond futures in China plummeted to a three-month low as the country’s central bank drained liquidity rather than pumping more fake fiat into the mess like the U.S. always does. Futures contracts on 10-year notes fell 0.4 percent to 99.14, the lowest level since July 12. Meanwhile, 10-year sovereign bonds rose 5bps, the biggest gain in two months, to 2.96 percent. None of this is easy for the overinflated markets – one analyst called it “disastrous” – but many believe that it is necessary to stop the runaway train of inflation and financial terrorism, which here in America has become a hallmark of economic policy. In China, it would appear as though the government is planning to let the pain increase for a while before perhaps coming to the rescue of mom-and-pop investors. (In America, ordinary citizens are typically forced to bail out the fat cats with their tax dollars and endless fiat printing, which worsens inflation.) America’s economic policy is one that privatizes profits for the rich while socializing losses on the poor. This is the bedrock of America’s financial existence, after all, and it is how the rich continue to get richer while the poor always get poorer. “There is zero chance that China will see a U.S.-style bailout,” wrote one commenter at Zero Hedge. “The U.S. bailout (in 2008) helped banks by letting the property market tank while making bond holders and banks whole.” “What seems so foreign to U.S. thinking, almost unfathomable to U.S. bankers, is China wants defaults to bust the firms that caused the bubble, not bail out the banks and let actual citizen suffer. For that to happen, the companies responsible for it have to go.” “China didn’t say they want to slow the price increases on property values, they said they want affordable properties, and for that to happen you need a market crash.”