Proponents assert that the essential nature of money is credit (debt), at least in eras where money is not backed by a commodity such as gold. Two common strands of thought within these theories are the idea that money originated as a unit of account for debt, and the position that money creation involves the simultaneous creation of debt. Higher the amount of money in circulation, higher is the Debt. For this and other reasons, Debt is growing globally and governments are running huge deficits while interest rates are still incredibly low. Looking at almost any indicator, stock markets have been more expensive once in the last 100 years — just before the dot-com bubble burst.  Not only, there is another risk to be considered: China.

A Bloomberg report on Chinese real estate has showed an increase of 31% from June 2015 through the end of last year. House prices have reached $202 per square foot. That’s 38% higher than the median price per square foot in the U.S., where per-capita income is more than 700% greater than in China.

This China story gets more interesting. Most of these apartments are sitting empty because they are purchased as investments. Rental yields in China are 1.5%, while the cost of borrowing (mortgage cost) is around 5%-6%. Chinese consumer debt-to-GDP is much greater than it was in the U.S. during the 2008-09 financial crises.

Rather than sowing down the inflation of the bubble, the Chinese government is ramping up development and rather than curtail leverage, banks are jumping into the speculative real-estate bubble

“There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, “You don’t understand. These are not eating sardines, they are trading sardines.”  – S.Klarman, “Margin of Safety.

Applying this to China, when an apartment becomes an unoccupied asset whose sole purpose to be used as a investment or speculation, it turns into a trading sardine. Its price will rise until — nobody knows; but at some point someone will metaphorically open that trading can and Chinese real estate prices will collapse, bringing the banking system and the nation’s economy down with them.

Today’s global investment environment is a game of musical chairs. Investors are up and marching along because the music is playing, hoping they’ll be able to grab a chair when the music stops (few will do so). Accordingly, I am investing as if the music might stop any second.

Low interest rates drove prices of almost all assets higher. Pricier assets made people feel wealthier and thus magically created economic growth. Low interest rates also pushed people into riskier assets, thus creating a mismatch between the assets people hold and their true risk affordability and appetite.

The problem with an economy being propped up by artificially appreciated assets is that this pendulum swings both ways. At some point, prices will decline. No one knows what will cause the decline — maybe higher interest rates, maybe a presidential tweet, maybe the implosion of the Chinese economy, or maybe an never seen increase in Bitcoin price

What is clear is that since interest rates are low and global economies are highly leveraged, central banks and governments will not have as much power to help.