There is significant evidence that President Xi is taking the Chinese economy in the wrong direction

Absolute power corrupts absolutely. For example, he is waging a secret police war on the very billionaires who created the so-called “Chinese Economic Miracle.” As a result, many of these billionaires have retired in the past nine months. Imagine the loss to the American economy if Elon Musk retired. Xi has forced at least 20 of these super-capitalists to retire.

To stop the protests and riots, Xi will move to unite the people against a common enemy – the United States

Okay, so suppose a garden-variety real estate bust drives China into a garden-variety great recession. I say “garden-variety” because we have had three such crashes in my lifetime – the SL Crisis, the Dot-Com Meltdown, and Great Recession. We’ll probably have another one when China’s crash reaches us.

China should also just let real estate crash, until prices reach “rock bottom.” Japan failed to allow their real estate market to bottom out in 1989, and their economy suffered for two Lost Decades. Real estate is NOT going to zero. It will likely crash by 45%, just like ours did in 1986, 2000, and 2008. China needs to let over-leveraged investors go bust, fast payday cash advance loans to teach the market a lesson. Prudence. Thrift.

This tendency to make the same boneheaded economic mistakes every ten to fourteen years is not a capitalist thing. It’s not a communist thing. President Xi and the CCP arguably did nothing wrong.

This boom-bust cycle is just a strong tendency of human beings to forget thrift (the admirable trait of saving), to borrow too much money, and to speculate. This strong tendency reminds me of that scene with the moth, attracted by the porch light, in the kid’s cartoon movie, It’s a Bugs Life. “No, Harry, don’t look at the light!” “I can’t help it. It’s so beautiful.” Zap.

But China won’t let the crash just play out. The Chinese Communist Party (“CCP”) is afraid of its own people. (These are not my words.) The deal between the Chinese people and the CCP is that the people will endure the CCP’s repression in exchange for the CCP improving their lives by 6% to 8% every year.

Chinese regulators should let their most reckless banks fail and bail out the rest, making sure that the economy still has plenty of credit to recover

But clearly that “economic miracle” cannot continue straight up. Just like a forest needs forest fires to clear out the undergrowth, so too does an economy need busts to clear out the old, weak companies. The old, weak companies need to fail, so their workers and machines can be picked up by younger, more vibrant companies. The famous economist, Joseph Schumpeter in 1942 called this process, creative destruction. It is also sometimes referred to as Schumpeter’s Gale (a gale of destruction).

But it won’t happen in China. The Communists will paper over the crash. For example, the Chinese government has essentially assumed the debts of Evergrande. It is the Chinese government that is really making the interest payments to Evergrande’s bond holders. The CCP will try to contain this garden-variety great recession through money printing, the bailing out of failing businesses, propaganda, and sleight of hand.

But just as Miami may someday be unable to contain rising seawater, so too the communists atic slowing of their economy. They can’t prop up every company.

My fear is that when the Chinese people realize that the quality of their lives is going backwards, they will begin to protest. He will order the invasion of Taiwan and start the next world war. Starting a war to unite the people is an old trick, but it works.