By Morf Morford, Tacoma Daily Index

I’m sure everyone has heard the saying “the elephant in the room”. In most cases, the “elephant” is the topic no one wants to address – usually death, debt or a controversial family member.

As with most metaphors, this one is long overdue for an update. From climate change to certain political figures to aspects of the economy, the proverbial “room” is packed with “elephants”.

There seem to be more and more topics that more and more of us just don’t want to – or don’t feel comfortable – talking about. But beside multiplying, these metaphoric “elephants” keep growing. And seem to be getting hungrier. And ready to tear the entire “room” or even “structure” apart.

Thanks to our “connected” technology/culture/economy something could happen thousands of miles away, or in an industry completely unrelated to ours and the shock waves might recede, or they just might grow into a tsunami that washes away ground that we thought was solid.

Made in China

Besides virtually all of our toys, tools, clothes and devices “Made in China”, it would be easy to make the convincing argument that the entire US economy is, in fact, “Made in China”.

We in the United States have moved, maybe deliberately, but perhaps semi-accidentally, into a primarily service economy. This is a “cleaner”, safer and often more profitable economic sector. But it means that other economies – mostly Asian – literally make all of our stuff.

From shoes to clothes to food and tools, if you look around your house or in a closet, you are likely to see that most of your things come from far away. And to put it simply, that means that most of our dollars went far away. Our dollars, for many years now, have lifted China’s economy. And for them – and us – it has primarily been good for both of us.

But money always moves, and where, and how it moves is not always predictable.

Debt

Politicians might rant and campaign on our national debt, but consider this; the International Monetary Fund estimated that China’s total local government financial vehicle (LGFV) debt has swollen to a record US$9 trillion in 2023.

As with personal debt, a large part of the cost of debt is the essentially unmeasurable loss of opportunity costs.

Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, wrote recently on ThinkChina.sg that China, the second largest economy in the world is caught in “the structural consequences of a disinflating real estate bubble” and that “Chinese policymakers should focus on limiting potential spillovers into the financial sector and thereby systemic risk.”

Which means that we, and the rest of the world are not far behind. And we better all hope and pray that China succeeds in limiting that spillover.

To use a well-worn cliche; we’ve seen this movie before. If they go down, they won’t go down alone.

China, as we all know, has a state-dominated/controlled financial system. That means that they can make decisions – and mistakes – on a scale that few, if any, independent businesses could survive.

A prominent Asian journal asked, “is a ‘Lehman Moment’ looming?” A “Lehman moment” is where one company’s problems become everyone’s problems. And the avalanche continues – and gets larger with each day.

With the ocean of cash floating from North America and Europe to China for the past several years, perpetual (and double digit) growth seemed to be the natural, if not permanent, state of China’s economy.

On the domestic front, China initiated home privatization in 1998 (thanks to former Premier Zhu Rongji) as part of the national plan to boost sustainable in-country demand. It turned into what has been a mainstay of the economy, as it has been in the US for several generations; an industry which, in China, contributed to more than a quarter of the national growth in its boom years in the 2010s.

As with any economy, rising home prices led to increased speculation – by individuals and developers. Which meant increased debt levels across the country.

When you factor in “disinflation” (code for price drops) in real estate, profit margins evaporate and debt fills-in any vacuums.

And as with personal debt, the larger the debt, the bigger the problem. And the more deeply rooted it becomes.

Sometimes the elephant is bigger than the room

The world’s largest economies have impact far beyond the financials. Dollars (or any currency) represent value of labor and resources. And value is always more than immediate – value is based on what something has been worth and what it is expected to be worth.

When global economies flounder, they are like elephants staggering across a landscape; there is no escape and no refuge.

Stability has forever been the best medium for a prospering economy. We might imagine that global economies are, or at least should be, more stable than individual or corporate budget sheets.

A look at history shows that, in most cases, national, even trans-national economies are just larger. Essentially, the stakes are higher and there are a few more zeroes on the balance sheet.

In other words, when an “elephant” economy (like the US or China) begins to stumble, we better all take notice.