The New Middle Kingdom Of Concrete And The Red Depression Ahead, by David Stockman, Director of the Office of Management and Budget under President Ronald Reagan.

No wonder the Red Ponzi consumed more cement during three years (2011-2013) than did the US during the entire twentieth century. Enabled by an endless $30 trillion flow of credit from its state controlled banking apparatus and its shadow banking affiliates [world GDP: $70 trillion], China went berserk building factories, warehouses, ports, office towers, malls, apartments, roads, airports, train stations, high speed railways, stadiums, monumental public buildings and much more.

China has seen the greatest mis-allocation of capital in history:

The apparent prosperity is not that of a sustainable economic miracle; its the front street of the greatest Potemkin Village in world history.

The heart of the matter is that output measured by Keynesian GDP accounting — especially China’s blatantly massaged variety — isn’t sustainable wealth if it is not rooted in real savings, efficient capital allocation and future productivity growth. Nor does construction and investment which does not earn back its cost of capital over time contribute to the accumulation of real wealth.

Needless to say, China’s construction and “investment” binge manifestly does not meet these criteria in the slightest. It was funded with credit manufactured by state controlled banks and their shadow affiliates, not real savings. It was driven by state initiated growth plans and GDP targets. These were cascaded from the top down to the province, county and local government levels — an economic process which is the opposite of entrepreneurial at-risk assessments of future market based demand and profits. …

In short, China has become a credit-driven economic madhouse.

So how is it going to crash? In essence, credit implies a promise of future repayment of a similar value. That is simply not possible. Either deflation and default, or a great inflation, must follow.

And, no, a wise autocracy in Beijing will not be able to off-set the giant deflationary forces now assailing the construction and industrial heartland of China’s hothouse economy with massive amounts of new credit to jump start green industries and neighborhood recreation facilities. That’s because China has already shot is its credit wad, meaning that every new surge in its banking system will trigger even more capital outflow and expectations of FX depreciation.

China will increasingly plunge into a regime of harsh, capricious dictatorship as the Red Depression unfolds. And that will only fuel the downward spiral which is already gathering momentum.

[China is crawling with empty factories that are] a screaming marker of an economic doomsday machine.

Australian governments might be wise not to bank on high iron ore prices:

But the mother of all malinvestments sprang up in China’s steel industry. … we are talking about wholesale abandonment of steel industry capacity greater than that of Japan, the EC and the US combined. China is exporting yet another downward deflationary spiral to the world economy…