Let’s take a look at China and the significance of a potential total collapse of the second largest economy in the world, how the coronavirus pandemic intensified the issue, and how the world’s top economists have determined that this could be the world’s greatest financial meltdown ever witnessed. As of July 2021, the national debt of China stood at 7 trillion dollars, 270 percent of its GDP. Standard and Poor’s global ratings has stated Chinese local governments may have an additional 5.8 trillion dollars in off balance sheet debt.
Now, let’s identify where the underlying cracks in the Chinese economy are starting to form. Here are the alarming parallels between the financial practices of China today, and what led to the stock market crash of 1929 and the 2008 global financial meltdown. China’s government began cleaning up its own balance sheets by selling off state-owned junk assets at significantly overvalued prices back to its own financially inexperienced and potentially naïve people in assessing valuations related to equity markets. Does this eerie scenario sound familiar? Back in the 1920s, a tactic of bankers in the leadup to the US stock market crash of 1929 was to manipulate the price of a particular stock. Wealthy investors would pool their money in a secret agreement to buy the stock, inflate its price, and then sell it to an unsuspecting public.
Just recently, a series of high-profile defaults involving state-owned companies in China have jolted the credit market and rattled investors. China's credit impulse, or the change of new credit as a percentage of GDP, peaked in October 2020, and has been declining ever since, following the similar downward path of the previous two credit cycles in 2013 and 2016. This can lead to a stress in China’s corporate debt market.
President Xi Jinping has tightened his grip on Chinese private enterprise, giving the government more influence over the management decisions of private firms, which could lead to potential serious consequences in China’s economic progress.
Here are three more reasons that make China’s economic future look dire. First, in recent years, interest on debt alone has grown to double the value of annual GDP growth, causing bank failures, restructurings, and major defaults of state-owned enterprises. Second, the working population is shrinking, which will result in a smaller labor force and fewer people buying property in China’s oversupplied housing market. And third, the United States and other world powers are no longer engaging with China to smooth its path to global opportunities.
As this financial global meltdown is occurring as we speak, could you afford to lose 50, 75, even 90% of your investments and life savings in paper assets?
Now that you know what is potentially right around the corner, now is the time to include precious metals and select rare coins as a portion to your long-term investment portfolio. Precious metals and select rare coins have shown strong appreciation in times of economic boom as well as in downturns in both global and domestic markets, including paper assets and currency devaluations.
The Dow Jones Industrial average from its peak in 1929 to its low in 1932 had dropped a staggering 92.9%, wiping out entire savings of millions of people around the world. By December 1935 the stock market had only recovered to 140 from its 1932 bottom at 41. During the same bear market period, hard asset investments of gold soared relentlessly upward the entire time. For instance, Homestake Mining stock rose approximately 680% during the worst financial meltdown in United States history.
Based on the statistics that Hard Asset Management research team is doing and finding, China is very much past the tipping point, where the debt simply no longer can be ignored.
The 1929 crash and the 2008 crash cut wealth and net worth by 50% in as little as 180 days while metals and rare coins dramatically rose in price, in some cases by multiple increases. This time, China will be leading the global meltdown, as its economy starts to top out and is in decline.
Hard Asset Management, one of the world’s leading precious metals and rare coin firms offers an approach where we proactively allow our clients to have access to the finest and rarest coins. Not only do we make recommendations on select pieces, but we recommend on when to sell and take profit. We also offer a free evaluation of your current collection and determine if those are the right pieces for the long-term that will maximize those coins for the best possible growth potential.
These are some of the examples of rare coin price increases we’ve seen over the last five and ten years.
Call one of our senior account executives today and talk about how Hard Asset Management can help you to diversify your portfolio.
