Pop

“The  IMF has urged governments to take action to tackle a record $152tn debt mountain before it triggers a fresh global financial and economic crisis … [this is] 225% of global GDP, with the private sector responsible for two-thirds of the total … [the debt is]  concentrated in the advanced countries of the west and some of the big emerging market economies such as China.”

The problem is that repayment of debt from the private sector relies on robust sales and a buoyant economy. Many times when companies can’t repay their debts the creditors end up with little or nothing. So a large fraction of that debt is at risk, which in turn puts fear into the markets that in turn can cause the very conditions that ensures that the debt is never repaid.

I believe that one of the largest issues is that lenders to Western companies haven’t adjusted (up) the risk factors associated with lending to operating companies that have Chinese competition.

Chinese competition, financed by low cost government-related finance, has made many business sectors totally unviable for Western competitors.

However the Chinese themselves often operate in loss-making bubbles, propped up by a government intent on jobs and growth in wealth, and with little investment in innovation.

The only answer, unfortunately, is that the Chinese bubble goes pop. Short of this I can’t see things improving.

It’s the only way they will learn that, although it appears that you can have a free lunch, don’t expect it to be magic pudding too.

And it will go pop. Because, apart from the the largest mismanagement of an economy ever undertaken, we also have the impact of rapid global unemployment as information technology J-curves on us.

I have no idea what the other side will look like.