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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 368.29+0.6%Nov 7 4:00 PM EST
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To: elmatador who wrote (131279)3/3/2017 3:10:13 AM
From: Elroy Jetson  Read Replies (1) of 217580
 
That's the false prosperity created by a credit bubble. If the debt creates a positive return, the debt to revenue ration can actually decline as the debt load increases - which is what you want to happen.

When the money gets invested in something like the World Chinese Trust Building in Los Angeles which produced no income for 13 years and a small capital loss when it was finally sold, any debt taken on to originally create the capital which built that building certainly increased the debt to income ratio.

That's the problem in China's economy - there's not enough market feedback to guide investment decisions in a way which increase societal wealth.

But once the global economy begins to deteriorate and deleveraging starts, as we entered in 2006 - 2008, governments have to start making short-term decisions to prevent a total collapse. Remove some of the excess pressure but no more - and in China that required the subsidization fo steel companies and building 'ghost cities'.

If that spending tides them over to better times, then it was money well-spent. But if the bad times continues, then it only made the problem worse. It's a gamble.
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