The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy by David Wiedemer, Robert A. Wiedemer, Cindy S. Spitzer Read Free Book Online Page B

opposite—government-controlled nonmarket intervention. And, we might add, the only reason they have the financial power to do something so unwise as massive forced bank lending for construction is the enormous economic gains made from their move toward a more free-market-driven economy.
    So, we think the possibility arises for China to endure not just a hard landing, but an economic meltdown due to a collapse in construction compounded by slowing exports. At the very least, it seems highly unlikely that China’s government can navigate an exit out of this construction bubble any more carefully than the United States or Spain. Just maintaining their current growth rates means maintaining the unbelievable amount of construction they are currently doing and then doing even more every year, plus not having any downturn in exports—in fact, they need continuous increases in exports. It all sounds highly unlikely and very much like the Japanese export- and construction-fueled economy of the 1970s and 1980s that finally popped in a most spectacular fashion.
    Yes, some cheerleaders might be able to tell us why China is so well managed that it can avoid what happened to the United States, Japan, and Spain, but it seems like pure cheerleading at its best. Not only do we not believe China is better managed but that China’s non-market economic management—the massive government intervention to circumvent market forces—is actually going to result in a far bigger collapse than that faced by any of those countries when their construction bubbles popped. The best comparison is Japan, since, like China, it was fueled by massive export growth as well as massive internal construction-related growth. The Japanese story ended in great turmoil, even though it was a much more advanced and capably managed economy than China when its bubbles popped.
    For the world’s bubble economy, a meltdown by China would have unusually harsh consequences. That is part of the reason so many people are cheerleaders for China’s construction bubble, even though they wouldn’t normally support such extreme nonmarket intervention in the economy in their own country. China is not only the second biggest economy in the world; it is providing almost all of the growth in the world since the financial crisis. So it is having an outsized impact on the United States and world economy. It is also important psychologically to the financial markets, giving them some real teeth behind the belief that high economic growth will continue, just not driven by the United States anymore. If it pops, it will be a big disappointment, especially if the hard landing becomes a meltdown.
    Like so much about China and the economy in general, it is hard to know exactly when such a meltdown could occur because it is so dependent on government actions (Chinese government) and psychology. But it is likely we will see a more pronounced slowdown than we are already seeing in the second half of this year, and 2013 will be the first real chance for a meltdown to occur. Like our own government, the Chinese government will fight this with money printing, but they have been doing this for some time and, at some point, it simply won’t work. China is already a huge economy, and maintaining its high growth rates will become increasingly difficult under any circumstances. And when that growth stops, it won’t go gently into the night, but rather will likely go from dream straight to nightmare.

Iran: Our Next Black Swan?
    On almost everyone’s list of potential “black swan” events this year is Iran. We think it is unlikely that the current administration would support bombing Iran’s nuclear facilities in an election year. However, the possibility of an Israeli strike on Iran looms as a real possibility. The reason is that many in the Israeli military and government believe that there is only a limited period of time left to attack those facilities before it is too late. They certainly