With all the concern (and hype) about the UK leaving the EU – over the next few weeks I am going to delve into some economic realities around the globe. I am going to write about China, Japan, Germany, Brazil, and the USA. There are major economic concerns that will inarguably have ripple effects here in the US. I once heard – There is not bad news. There is not good news. There is only news.
The challenge is to be able to prepare and plan around it. For those that are already retired – the need to protect what they have accumulated is paramount to their financial planning. For those that are preparing for retirement (I am in this group) the goal is to develop strategies to reduce debt, create sustainable and predictable income sources when retirement comes. The economic landscape both here in the US and moreover throughout the developed world are important factors in the planning process.
Let’s look at China. Simply put China is a mess. Such a mess that it boggles the mind. They have an economy that is about $10 trillion which supports 1.3 billion people. If you do the math that means the per capita income for the Chinese people is about $2500 per year. The Chinese government in their attempts to raise the GDP (Gross Domestic Product) have built the greatest debt and housing bubble in the history of the world. Today they have debt in excess of $40 trillion dollars.
Have you heard of the Ghost Cities in China? There are 70 of them which have been built in the last five years. They can house over 1 million people but there are no people currently living in those cities. The Chinese government does not allow its citizens to invest outside China. The citizens have been investing their discretionary money into the condos and apartments that make up the Ghost Cities. The people of China have no idea that this real estate and debt bubble is built upon a foundation of “smoke and mirrors” and that it will burst. The financial devastation that this will cause – not only for China but for the world’s economy is unimaginable.
How about Japan? Japan – from a standpoint of age – is the oldest country on the planet. They have a significantly older people than they have younger people to support them. More than 1/3 of their economy last year came from their decision to print money. They have been dealing with deflation for more than a generation. There have been many economists that have predicted that Japan will never recover from this. In many ways China is following in the same path that Japan did 30 years ago.
To top this all off – Japan and China are dealing with serious territorial issues that can only exacerbate the economic issues that both countries are facing.