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It is time to start preparing for another major economic catastrophe, and this time it won’t start in America. It’ll come from China; in fact, it’s probably already started.
The looming catastrophe is the biggest real estate bubble in human history, and it was ably documented by CBS correspondent Lesley Stahl  for a recent 60 Minutes broadcast. Stahl’s report is well done and absolutely frightening. Everybody who cares about his or her economic future needs to see it, and see it now.
The highlights of the report  are as follows:
- The so-called Chinese economic miracle is a fraud; it is based on out-of-control real estate development. The Chinese government has been driving its economy by forcing local and regional governments to build vast numbers of new buildings nobody wants or needs. This fuels industrial production, but it produces no real wealth and siphons what wealth there is into the bubble economy. Stahl’s camera crew found entire ghost cities with nobody living in them.
- The bubble economy is paid for by China’s middle class; the only thing they can invest in is all that real estate. The real estate is worthless; there are no buyers because the average person in China only makes around $2 a day. The Chinese Communist Party makes it illegal for average Chinese to invest outside the country. Party bosses, who have their money in Swiss bank accounts, don’t care about the situation.
- The bubble has started to burst, and many of the developers no longer have the money to continue with their projects. Vast numbers of buildings are sitting half finished. Much of China’s capital is tied up in loans made to finance worthless real estate.
China’s Bubble Will Hurt America
The bursting of the China bubble will hurt the United States in two ways. The first is that China might suddenly sell off those U.S. Treasury bonds it has bought up in an attempt to keep afloat. As of December 2012, China held $1,202.80 billion worth of treasuries  according to the Treasury Department’s own figures. That would destroy the value of those bonds; it would also destroy the U.S. government’s power to bail out industries or borrow money.
Think the fiscal crisis is bad now? What happens if Congress cannot raise the debt ceiling? We’d either face massive cuts in government services or massive tax increases or both. Look at how the fiscal cliff and other shenanigans on Capitol Hill have affected the markets.
Yet they may only be the tip of the iceberg; our economy is basically based on trade with China. American retailers sell Chinese goods, American railroads and trucks are set up to haul Chinese goods, and our largest retailer, Wal-Mart, has a business model based on the availability of cheap Chinese goods. Keep looking and you’ll see that technology companies like Apple, which makes the iPods, iPads, and other yuppie toys, produce their products in China. American agriculture is dependent on the sale of food to China. What’s left of our manufacturing is increasingly based on selling the Chinese stuff they cannot make, such as machine tools.
If the Chinese economy suddenly or gradually collapses, the trade could dry up. A Chinese implosion could cause our economy to fall to Great Depression levels. Instead of a recovery, we could be looking at a far worse economic downturn.
Chinese Collapse Could Further Damage the U.S. and Lead to Worse Things
An obvious victim of economic collapse in China will be the Chinese Communist Party, which has staked its reputation on economic success. The economic success now looks like a giant con game, and guess who the Chinese mob will blame? Hint: it won’t be the United States of America.
Events in Russia in 1991 and the Middle East last year showed us how quickly totalitarian and authoritarian governments can collapse. The situation is often here today, gone tomorrow. This can create a power vacuum that can lead to worse tyranny and war. The collapse of the German economy in the 1920s and ‘30s led to Hitler and the Nazis. The collapse of the Russian Empire led to Lenin and the Soviet Union.
The situation in China today is a lot like that in France in 1789, where the monarchy, having bankrupted the country, turned to the middle class for help. Bungled attempts at “financial reform” led to the French Revolution and the Reign of Terror in which the king and queen and many innocent people were sent to the guillotine. The result was Napoleon and twenty years of war that tore Europe apart. Napoleon, like Hitler, tried to solve his nation’s economic problems by invading other nations and pillaging them.
Chinese Chaos Could Lead to Catastrophe
It is unclear who or what would replace the Chinese Communist Party. The party has effectively crushed or stifled all opposition. As in Russia in 1991, there is simply nobody outside the party capable of exercising any sort of real leadership. The result will probably be chaos on a massive scale, particularly if the Chinese military and security forces don’t get paid.
Something else to remember and get scared of is that China has nuclear weapons. Unlike North Korea and Iran, China has nuclear missiles capable of hitting the U.S. right now. What happens to them if there is no government left in Beijing? Who would be controlling the 3,000 nuclear weapons  in China right now?
This doesn’t even count other weapons of mass destruction that China might have. When the Soviet Union collapsed, it was discovered that the Russians had a massive secret stockpile of biological weapons they hadn’t told anybody about. There’s a strong possibility that there are huge stockpiles of biological weapons or massive biological weapons factories in China today.
What happens to those weapons if the Communist government collapses and Chinese military personnel are going hungry? One possibility is that those weapons could fall into the hands of terrorists. Another is that they could fall into the hands of homegrown Chinese extremists, such as diehard Communists, Islamic insurgents, or Messianic cults.
What Should You and Your Family Do?
It’s obvious that there’s little or nothing that you and your family can do about the situation in China. Ultimately, the Chinese people themselves will have to sort this mess out. Yet until they do, we could face some very dark times indeed.
The main thing average people and their families need to do is to be as self-sufficient and independent as possible. Have the means to produce enough food to feed your family, generate your own electricity, try to provide your transportation that isn’t dependent on oil, and make sure you have job skills or a business to generate an income for your family. On a financial level, keep a large amount of cash handy; if the economy crashes, you’ll be able to pick up some terrific bargains.
A final thought here: Haven’t we seen this all before? Once again, the media has bought into the lie that a carefully planned and managed economy can produce prosperity. It cannot. It has never worked and never will, but the media refuses to believe that. The willingness of Wall Street and the news media to buy into the lies coming out of Beijing should teach the average person not to trust those people. They are a pack of fools and suckers, and they should be ignored.