The current China credit crunch is still being denied. The government papered over the aftershock of the June crunch, largely by pushing money into projects that only benefit the big, powerful families controlling the SOEs. Then the government produces some dubious economic statistics showing good growth.

However, the fact is that when lending to private firms stops, the economy stops. The crunch could easily get worse and eventually lead to significant social protests.

The China central government has done its best to "manufacture" positive economic statistics, which we consider largely false. But western economists believe them almost religiously.

The crunch in June 2013 could be for China what the summer of 2007 was in the U.S. when the commercial paper market froze. At the time, I considered the commercial paper event the last piece of evidence that the credit market meltdown had started and would lead to a financial crisis in 2008. That's what propelled me to write the book.

At the time, it was incomprehensible to me that the commercial paper market freeze-up event didn't get much attention. But when major firms like Goldman Sachs (GS), General Electric (GE), Dow Chemical have to go to Warren Buffet for loans because they can't get it anywhere else, it's serious. That's what happened in 2007-2008. Yet, Wall Street stayed bullish, at least in the media, even as the subprime mortgage derivatives melted down.

I see the same thing happening in China now. We started a China newsletter, The China Boom-Bust Analyst, two years ago. But U.S. investors couldn't understand that China was very important to their entire investment portfolio. The IBM story this month probably will soon be forgotten, perhaps in the next 48 hours. But the China recession will worsen.

If you liked this article you might like

The Best Companies for Women

Hewlett Packard Enterprise Becomes the Latest Tech Titan to Slash Jobs

Sorry Elon Musk but Artificial Intelligence Grows Jobs: Domino's Pizza CEO

Ray Dalio Also Thinks AI Will Be a Killer Just Like Tesla's Elon Musk Does