China's COLLAPSE Is FAR Worse Than You Think... | Jim Rickards

I'd rather be the US than China. China's in even worse shape for different reasons. It's not so much interest rate policy, although they're subject to global interest rate policy and exchange rates coming from the Fed. But you can see it in real estate. It's a full-scale collapse. They're propping it up, but the buyers aren't interested. In other words, the Chinese government is telling the banks to lend money to real estate developers who can't finish housing. Well, that sounds good. It's like, okay, here's some money, finish the housing. But the buyers are not ******* in. The buyers have been burned. They're shying away from that asset class. They want to increase cash. They're looking at other asset classes. They don't have a lot of choices because China has very strict capital controls. They're trying to get their money out by means legal and illegal. They're buying gold when they can. But as I said, they may not have a lot of choices, but even money in the bank looks pretty good compared to what's going on in real estate. The problem is too big. The bubble is too large. It's going on for too long. We don't hear about it the same way we did about the Japanese real estate bubble in 1989, 1990. That was an epic crash. Japan is still not recovered. I remember in the 90s, early 2000s, they talked about the lost decade. Well, try three lost decades, that's going into a fourth. That's Japan, eight or nine recessions since 1989, but it's really just one long depression. That's the way to understand the Japanese economy. China's going into something like that. We don't hear much about it because they're not transparent. They lie about their numbers. You need to look at private sources and use other analytic tools to understand what's going on there. But they've got drops in consumption, industrial output, real estate's collapsing, their price indices are collapsing, all this in fear of inflation. It's been around, it's real, but it's now turning around very quickly. You can see that in China. China's going through something that the world has never seen. They're going to lose 600 million people in the next 50 to 70 years. This is a demographic implosion. This is worse than the Black Death. Of course, the Black Death killed somewhere between a third and half the population of Europe in the 14th century. It was a good time for labor, by the way. The labor was so scarce, the returns to labor went up versus returns to capital, because there weren't enough workers. That's the only thing that can come close. Even the Spanish Flu of 1919 killed about, no one's certain of the number, but between 100 million and maybe over 200 million people. The 30 Years War was certainly in the early 17th century, was certainly highly destructive. What's going on in China now is worse than any of those things. It has to do with simple demographic math. The key number is 2.1. Two people have to produce 2.1 children, man and woman, or you can say per woman, if you don't want, have to produce 2.1 children to keep the population constant. Why not two? Why not two producing two? The answer is infant mortality and those who don't make it to adulthood and can continue the repopulation of the planet, if you will. They're not even close to that. They're well below two. By the way, so is the rest of the world. So is Australia and the US and Western Europe and a lot of other places. This is a global phenomenon, but it's particularly acute in China. Maybe the case that China's replacement rate is or birth rate is actually one. It has to be 2.1 to maintain. It could be one or lower. This is a demographic implosion, unlike anything anyone's ever seen. It also has a dynamic. You can't reverse it very quickly. It feeds on itself as I was talking about inflation earlier. So this is going to continue for 50 to 75 years. They're going to lose 600 million people. There are a lot of definitions of GDP and a four or five part definition. They're more complex calculations, but there's one really simple definition. It only has two factors, population and productivity. How many people are working and how productive are they? That's nominal GDP. That's one definition of gross GDP or nominal GDP. Well, if your population is dropping from 1.4 billion to 800 million, you're losing 600 million people. Then what about productivity? The other thing that's going on is China's population is aging very quickly. You get a population set people in the 70s, 80s, and 90s with very large amounts of cognitive decline, dementia. Obviously, there's no productivity there, but it's worse than that, because then you look at the shrinking population between the ages of 25 and 54, it's called their prime working age. More and more of those people are going to have to be involved in elder care. They're going to have to be basically caretakers or caregivers for the older population I described. A very worthy job, but not one that lends itself to productivity gains. Bathing hasn't changed in about 5,000 years. Robots don't do best. The only real innovation in bathing in between 1870 and 1940, we did see the rise of indoor plumbing and hot water. That's good. I enjoy both, but that's it. I can't think of any other bathing innovations in the last several millennia. If you have a shrinking working age population, a rising older population, high degree of cognitive decline, and a big slice of the working age population having to provide elder care or be caregivers for the older population, tell me where your industrial output is coming from. Tell me where your productivity is coming from. Sorry if I mentioned this already, but 50% of the water in China is poisoned because of their industrial practices. If you're a gold miner in Australia, I've invested gold mines around the world. I know that places like Canada, the US and Australia, if you use cyanide to leach the gold, and that's a very common technique, you have to account for every microgram. Whatever you put in, you got to take out, weigh it, dispose of it properly. In China, they just dump it into the rivers and so the rivers are poisoned. China is an economic, demographic, industrial, moral, religious wasteland and will suffer. It's already in a recession, just to cut to the chase. Again, they lie about their statistics. Here you have the two largest economies in the world, US and China. US is slowly going into what I expect will be a severe recession. China is in a century-long decline, unlike one that the world has ever seen. That could eventually lead to social unrest and regime change, but let's not count on that in the short run. Just expect China to shrink and become more autarkic, decoupled from the Western world, and certainly not be a source of growth. Taiwan Semiconductor Manufacturing Company, the largest and most sophisticated semiconductor manufacturing in the world. Semiconductors are in everything. It's not just computers, there are 1,400 semiconductors in an automobile. There's a semiconductor or more in your dishwasher, your refrigerator, your washing machine, they're everywhere, Internet of Things, we all understand that. TSMC, based in Taiwan. The United States has a military doctrine called the broken nest theory. What it says is that if China, well, it comes from a Chinese proverb, ironically, and it says, if the nest is broken, how can the eggs survive? What it means is that if China invades Taiwan, and I'm not forecasting invasion, could happen though, we or the Taiwanese will very quickly destroy all the semiconductor manufacturers in Taiwan, we'll just blow them up. China won't get anything, they'll have the broken nest. Taiwan Semiconductor knows this. They talk to the US intelligence and military community all the time. They've just announced two separate $10 billion plus investments in Arizona for semiconductor fabrication plants, so-called fabs. Intel did the same thing, $10 billion plus three to five-year horizon fab they're building in Oregon. Oregon or Washington, in the Northwestern United States. Why are Intel and TSMC putting over $30 billion into two fabs in the United States? Can't you get cheaper labor in China? Yeah, these things are not going into Taiwan, they're not going into China. It's an example of the decoupling of the College of Nations I'm talking about. They're building them in the United States. A little more expensive, yes, but more robust. Shorten the supply chain, shorten the transportation lanes, put it into a rule of law society, do everything you can, everything you need to do to make it safe. That's what's going on. Australia will be a big part of that. It'll have very important, already does, but it'll have more important relations and transportation channels to the United States, not so much with China for the reasons I mentioned.