China started military maneuvers around Taiwan threatening to invade the island.

In response, Taiwan started military exercises to demonstrate that it could withstand the chinese invasion with the help of the United States.

The news shocked investors because if anything like that happens it will be catastrophic to the world economy.

The Taiwanese straight and the Taiwan itself an essential part of the global economy producing chips that are used in literally every technology you can think about from smart phones to computers to cars, live alone medical equipment.

Despite its small G.

D.

P.

An invasion of Taiwan will create more inflation and more global instability and more disruption of global supply chains.

When Taiwan showed a chinese drawn I think the world thought that china would definitely invade Taiwan.

But thankfully it did not happen.

If you look at the numbers, a chinese invasion of chai wan is practically impossible now since china is on the brink of an economic catastrophe.

We have already explained the crisis in the previous video but that's just one part of the story.

The crisis that's about to unfold in china is far worse than many of you think sometimes politicians choose to go toward to solve their problems.

But let's hope that's not going to be the case this time we can't even solve the current inflation.

We have.

I can't even imagine what would happen if the world factory were sanctioned like Russia.

That is true that companies are slowly shifting from china but that's not going to happen overnight.

It is going to take years.

Other countries still don't have the infrastructure that china has making production easy, smooth and affordable.

The economy is like a wheel.

It takes a lot of effort to roll it, but when it's rolling it's much easier to keep rolling it.

When I drive a car, it takes far more energy to speed up than to keep the current speed.

Once you're on a highway, driving 100 kilometers an hour is much more energy efficient than going from 0 to 100 and chinese Communist Party's recent actions since Covid hit the world have put the spinning wheel in danger of stopping zero.

Covid policy is great but a factories can keep functioning then companies will have to shift their manufacturing since they can't survive unless they keep the revenue coming.

The age where they could easily afford to borrow free money is over now is the time to either bring in the cash or suffer.

The consequences.

Were already seeing news about how businesses are cutting jobs as much as they can since the storm seems to last much longer than many expected.

Most businesses expected that the Covid era was going to be the tough times.

But it turns out that the Covid era was the good times.

The real crisis started beginning of this year and we have no clue when it's going to end.

Even the fact the world's most powerful financial organization is blind and can figure out where the economy will be in six or 12 months from now.

So, any predictions we make are nothing but just a perception of where things could be based on the factors on the ground now, China makes almost 19% of the global GDP.

Whatever happens to its economy will impact the rest of the world.

When you look at each crisis individually in china, nothing catastrophic is about to happen.

I mean, a mortgage crisis, a banking crisis, an outflow of companies for geopolitical reasons, a temporary shutdown of many factories due to zero covid policy, you start noticing how these crisis is altogether do impose a series challenge to the economy.

On top of that, if we take into account that since she Jinping came to power, china has begun isolating itself from the rest of the world, which almost imposes a threat to its economy.

You see, china's economy grew when it opened itself to the world and open economic zones that made it profitable for global corporations to set up factories there, these economic zones have turned into some of the wealthiest cities in the world, such as Shenzhen.

There is a social contract between chinese Communist Party and the chinese people.

No one challenges the power of the CCP.

In return, the CCP will keep growing the economy if CCP does not keep its part of the bargain china might start facing political instability.

There already videos on the internet where people are protesting in the streets demanding their money back from the banks that can't afford to let people withdraw their savings or demanding their apartments to finally be built.

But developers can finish the projects since they don't have the funds and are full of debt.

Of course these are just small minorities.

But with the way things going on now the discontent will keep rising at some point there is going to be a turning point.

Everything can fall like a domino effect.

If you look at the numbers, growth has steadily been declining in China after hitting 14.2% of GDP growth in 2007, things haven't recovered since then, every consecutive quarter year has been followed by a lower GDP growth, especially since the United States started a trade war with China when Trump was elected president GDP growth fell to under 6%, the lowest since 1990.

And if it wasn't enough, COVID has significantly slowed down growth.

The figures, of course for 2021 are high.

But that's because the economy was recovering from the crisis.

The chinese government perfectly understands the dangers and it's taking measures.

First, the chinese central bank lowered the rate of the one year, medium term lending facility loans to some financial institutions by 10 basis points.

Then the people's Bank of china carried five year loan.

Prime rate by 15 basis points to four, 4.3% from 4.45% and lower its one year loan.

Prime rate by five basis points to 365, the rate, cut an extra money for lending a small compared with China's $17 trillion dollar economy, the world's second largest, but the ruling party is afraid to take any aggressive measures that could hurt the economy.

So they are super careful not to worsen the crisis.

Economists are saying that china should be more aggressive in its actions, but aggressive actions sometimes lead to devastating consequences as we have seen in the US and europe in the last two years.

Countries that blindly distributed cache and now suffering from the highest inflation in four decades, China's real estate market is already in a bubble.

We're not going to get into details as we have explored previously.

But in short for the last three decades, china's developers have kept taking loans to keep building apartment blocks.

Since there aren't many investing tools, people in china kept storing their wealth in apartments as a place to protect their wealth.

The astronomical demand led to dozens of thousands of empty homes that have turned into a bubble in order to cool down the bubble.

The central banks often raise the rates or cut public spending.

But the current slowdown in the economy is pushing the government to take opposite measures and cut the rates that will only keep inflating the bubble, which will make the future crush even worse.

The real challenge is if the economy slows down 65 million homes or one in five homes in china are empty.

If the situation gets worse, people will look to sell their homes to pay their bills if they can't even rent them out.

Wasn't that the initial purpose of their investment when enough homes are listed in the market?

That's when the panic will start, when prices will start going down, the developers will definitely go out of business.

Many developers like Evergrande already collapsed.

If something like that happens, the rest will follow soon, it is really difficult to stop a collapse in the housing prices.

The US went through something like that in 2008, it had to keep the rates high enough for several years.

I'm not sure if the CCP can afford that Despite its $18 trillion China is still a developing country, it's not even close to the United States, almost $70,000 GDP per capita.

The real question is if the real estate shape the growth for the last three decades, what will feel the growth for the next decade?

China is heavily investing in africa trying to make what china was for the United States and the future destination for its exports.

It may also take china more than a decade to transform itself into a developed country, since it needs to at least double its current GDP, will it be able to solve the crisis without the bubble bursting is a big question.

Thanks for watching and see you in the next one.