By Dr. Jeffrey Lewis

The Chinese financial system, along with the rest of the emerging market, exist as an extension of "the world is flat monetary policy" on a scale never seen before. It is equally a giant leverage play on the last remaining resources for a population that has overproduced its stay.

The financial blog Zerohedge.com recently presented a summary of a BBC program featuring a report from Robert Peston, who traveled to China to investigate how the mighty economic giant could actually be in serious trouble.

http://www.bbc.co.uk/programmes/b006mgxx

We've excerpted and commented below...

"China is now the second largest economy in the world and for the last 30 years China's economy has been growing at an astonishing rate, wowing the world, as spending and investment has been undertaken on a scale never seen before in human history - 30 new airports, 26,000 miles of motorways and a new skyscraper every five days have been built in China in the last five years. It is all eerily reminiscent of what happened in the West... the vast majority of it has been built on credit."

Credit equals fiat or currency backed by faith. It is held up by law and force by proxy or by fiat. And while this currency can be created at the will of issuing authorities, it is readily exchangeable and/or replaced by another of the same quality or nature. While exchange rates give rise to the perception of relative value, and massive trade arbitrages the differences, in the end it is all an illusion hanging by a thread of confidence. This confidence, by definition, is unstable and obviously unsustainable.

"This has now left the Chinese economy with huge debts and questions over whether much of the money can ever be paid back (spoiler alert: it can't and it won't)".

Faith is pure emotion. Emotions rise and fall with the tides and the winds of change. It is just a matter of time before the tipping point arrives, driving the masses toward a kind of fiat agnosticism.

"There is an unresolved self-contradiction in Chinas current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years."

Read this article:
How China Fooled the World With Fiat