When a Dragon Crashes

The soaring economy of China may be crashing, and if it does, it will become a global problem. For years the Chinese economy grew like Dwayne Johnson on steroids. Although social media connected China to the modern world, their government manages to keep many things, including economic procedures, walled off. Sixty Minutes did a segment two years ago on Chinese ‘ghost’ cities: metropolises populated by new condominium high rises, which stood empty.

Their untouchable stock market had the middle class Chinese investing their life savings for the dream of instant wealth. Even the rumors that the Chinese stock market propped up a faux economy could not sway the poor investors from gambling away their children’s futures.

If China stops importing raw materials for new bridges, factories and apartment buildings, it would remove what has been one of the main drivers of growth in a world economy. China’s main imports are electronics, oil, iron ore, copper, soybeans and plastic. So, if the Chinese no longer have the yuan to pay for their imports, what will that do to the price of our Apple products, Monster High Dolls and Nikes?

When the Chinese stock market wobbled, ours declined, sending the psychotic stock traders to Walgreens to refill their Xanax. The rule of stocks: What goes up must come down, what goes down will go up.

How will it affect our mortgage interest rates? The Soothsayers are now betting the Fed will put off their scheduled interest hike in September, to let the dragon sleep off the money hangover and see how everyone feels in October.

Old Chinese Proverb: “Building a castle is difficult. Defending and maintaining it is harder still.” Just ask Uncle Sam.

Diane Gerdes