Tuesday, June 16, 2009

Another BRIC in the Wall

On July 17, 1918, in a basement near the Russian city of Yekaterinburg, Czar Nicholas II, his wife, and all of his children were murdered by the Bolsheviks and buried in a makeshift grave. Yekaterinburg was later renamed Sverdlovsk under Soviet rule, and was notable as the fiefdom of Boris Yeltsin during the final years of his communist career.

Almost ninety-one years later, Sverdlovsk is once again Yekaterinburg, and the city is playing host to a summit that would scarcely have been imaginable during the seven decades of communist rule. A new international political grouping consisting of Brazil, Russia, India, and China — and commonly referred to as BRIC — is meeting this week in Yekaterinburg to discuss the mutual interests of its members, with a special focus on common strategies to be pursued in the face of the global financial crisis.

Although the BRIC countries contribute less than 11% of the world’s GDP, they provide 42% of its population, and are a force to be reckoned with. In coming years the economic power of the four nations, particularly India and China, can be expected to increase, especially in relation to the waning hegemonic influence of the United States.

The primary concern of the BRIC group — and indeed of any country, corporation, or individual holding wealth denominated in dollars — is how to shift from assets based on the dollar to something less vulnerable to the coming inflation.

The Obama administration’s recent injection of liquidity into the global financial system — whether via bailouts or stimuli — has required additional borrowing on an unprecedented scale. Even though the prices of bread and shoes have not yet skyrocketed, it’s obvious that an inflation is well underway. There are now ten to fifteen times as many dollar-denominated assets spread throughout the global system as there are dollars in circulation.

If these obligations were somehow never called in — if investors continued to swap them among themselves and buy more, rather than converting them to another currency, gold, or silver — the global shell game could continue indefinitely. We could maintain the fantasy that all these dollars really mean something, that somehow the United States will be able to pay off its debts and keep the dollar strong and stable.

Unfortunately, it’s obvious by now that this is not going to happen. At some point major investors are going to stop betting that the dollar will maintain its value. The process of inflation can proceed gradually when ordinary people use dollars to buy gold, silver, or mining stock. But when sovereign nations or international mega-financiers like George Soros decide that the dollar is no longer safe, the gold rush will begin and the value of the dollar will plummet.

The large investors will play chicken with their dollar stocks, holding them as long as possible so as to milk the last drop from them. Then someone — China, Russia, Soros; who knows? — will go first. They will dump billions of dollars and buy gold or other inflation-proof commodities, and then the run on the dollar will begin in earnest.

When the time comes, what can the USA do besides print more money to meet its obligations? Except for defaulting on its enormous debts, it will have no other choice. The Great Inflation is all but inevitable. Sometime in the next two to five years, everyone whose assets and savings are tied up in dollars will become much, much, poorer overnight.

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The countries in the BRIC group are well aware of all this, and that’s the primary reason they met this week in Yekaterinburg.

They flexed their muscles by announcing in advance that they would be discussing the establishment of an alternative to the dollar as a reserve currency. Needless to say, as a candidate for the new international standard, the Russians prefer the ruble and the Chinese the yuan.
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But BRIC backed off from this idea just before the meeting convened. They emphasized instead the urgent necessity of reform in the global financial system. Well, duh — we all know that. The problem is how to do it without inducing catastrophic instability in the world’s markets. Extreme price instability, whether deflation or inflation, is a political depth charge. The results are inherently unpredictable, and could lead to war, revolution, regime change, and massive social upheaval. No country’s leadership — with the possible exception of Iran’s — wants to enter that territory voluntarily.

Obviously the BRIC group was unable to agree on which currency would have the privilege of replacing the dollar. Or perhaps the whole idea was a feint, a shot across the bow of the United States and the EU to drive the dollar down and provide a good initial bargaining position for future G8 and G20 meetings.

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In the end, the BRIC nations settled on a joint statement that called for a “more diversified international monetary system” without actually mentioning the dollar. But the dollar is the elephant in the room — the system can’t become more “diversified” without dethroning the dollar and choosing another currency to act a globally recognized reserve currency.

To do this will require quite a bit of ugly political sausage-making. And — to mix metaphors — someone’s oxen will inevitably be gored, while other oxen will be cosseted and well-fed when the new dominant currency finally emerges.

The primary issue is the decline of the United States as the pre-eminent world power. The rest of the world can feel the breeze blowing in the direction of the coming power vacuum, and the BRIC summit is one symptom of the changes that are now beginning:

A common thread running through the Shanghai Cooperation Organization (SCO) summit in the Urals city of Yekaterinburg, and the Brazil, Russia, India, and China (BRIC) meeting which followed it, was discussion about a new world order less dependent on the United States.

So what will an America-free New World Order look like?

That’s the big question. It must surely give pause to even the most hardened loathers of the Great Satan. Whether you love it or hate it, up until now you could count on the United States to intervene in certain ways in certain situations so that the international political system remained more or less intact, and the global engine of power, patronage, and commerce could keep on chugging along in its accustomed fashion.

But all that has to end, and we’re about to enter a period of turmoil at best, and violent chaos at worst, before a new system finally shakes out.

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Why BRIC? Why Brazil, Russia, India, and China?

What happened to Japan, the EU, and Canada?

The fate of all of these other economic powers is chained fairly closely to that of the United States. The euro and the pound are as deeply leveraged as the dollar, and the banking systems of the United States and Europe are fully intertwined. That’s why the federal government is bucking popular opinion to bail out European banks — the nabobs of high finance on both sides of the Atlantic will rise or fall in tandem.

So sterling, the euro, and the dollar are eventually going to be humiliated in the world’s financial markets. The bloated and sclerotic welfare states of Europe and North America will collapse soon afterwards, pauperizing millions of elderly and disabled dependants of the state almost overnight. After that — who knows?

China, India, and Russia would all like to come out on top, but none of them wants to see the USA or Europe become poverty-stricken economic backwaters. All of them depend to a large extent on the purchasing power of the American and European consumer. When that evaporates, so do their exports, and they will confront hundreds of millions of their own unemployed citizens, with all the political danger that entails.

Russia is already heavily in hock due to last year’s decline in the price of oil. The price has risen recently, and the coming political instability will tend to drive it even higher. Over the long term, however, with the United States economically moribund and the wheels of Indian and Chinese industry spinning ever more slowly, stagnant demand will inevitably force the price of oil back down into the cellar.

The USA will still have the world’s largest and best military, but will find it hard to wield it effectively when the dollar becomes worthless. What strength we have left will be tied up coping with Mexico, Nicaragua, Cuba, Venezuela, and all the other festering sores south of the border, which will be facing their own fiscal and political crises.

At that point the rest of the world will be up for grabs. If one of the larger powers covets the territory of its smaller neighbor, when its leaders make their political calculations they will no longer have to factor in the arrival of the Sixth Fleet or a sustained attack by the U.S. Air Force.

The result will be a huge incentive for all the smaller nations to acquire nuclear weapons. Poland, Latvia, Ukraine, Hungary, Turkey, Thailand, Ireland, and Colombia — any one of them might find it in its best interests to acquire nukes, and you can assume that Iran, Pakistan, and North Korea will be out there peddling the hardware and renting out the technicians.

Or there may be some other unforeseen condition that eventuates in the post-American World of Tomorrow.

One thing is for certain, however: things won’t stay the way they are. The existing system cannot survive the stresses that will face it in the near future. Whether it’s inflation, war, revolution, or general collapse — you will know changes soon.

We have made our bed, and we shall surely lie in it.


For the full articles cited above, see tonight’s news feed, and also the news feeds for June 12th and June 14th.

55 comments:

Zenster said...

Although the BRIC countries contribute less than 11% of the world’s GDP, they provide 42% of its population, and are a force to be reckoned with.

Speaking as a shameless capitalist, I will ask: For what reason? Save that they WANT what OTHERS have created. I am reminded of the old joke:

COMMUNIST WITH KNIFE AND FORK SEEKS CAPITALIST WITH STEAK AND LOBSTER DINNER.

There are now ten to fifteen times as many dollar-denominated assets spread throughout the global system as there are dollars in circulation.

Golly gee, why is that? Could it have something to do with how America, in its brief history, has witnessed the peaceful transfer of executive power more times than most other world powers COMBINED?

The large investors will play chicken with their dollar stocks, holding them as long as possible so as to milk the last drop from them. Then someone — China, Russia, Soros; who knows? — will go first. They will dump billions of dollars and buy gold or other inflation-proof commodities, and then the run on the dollar will begin in earnest.

When the time comes, what can the USA do besides print more money to meet its obligations? Except for defaulting on its enormous debts, it will have no other choice
.

For all the living Hell it has wrought in this world, I suggest that America should tell the Chinese, "Level the trade deficit playing field or find out that your US Treasury Notes are just so much paper". Honor everyone else's, just not theirs.

Besides those street corner whores―otherwise known as our politicians―no one has done more to destroy America's industrial infrastructure than Uncle Mao's All-You-Can-Buy discount labor trough.

Let them eat $h!t.

PatriotUSA said...

Zenster Said:

For all the living Hell it has wrought in this world, I suggest that America should tell the Chinese, "Level the trade deficit playing field or find out that your US Treasury Notes are just so much paper". Honor everyone else's, just not theirs.

Besides those street corner whores―otherwise known as our politicians―no one has done more to destroy America's industrial infrastructure than Uncle Mao's All-You-Can-Buy discount labor trough.


How true the above words are. Betweeen our f--ked up politicians
who have raped this country for their own well being and status to the yellow shores of China, the USA
as our fathers and grandfathers knew it, is rapidily sinking into the setting sun. As if the past was not greedy enough, along comes an administration that is hell bent on driving the crazy train of our economic engine completely off the cliff. The debt that we, our children and their children have been burdened with is fodder for the rest of the world. A level trading field would be great but that is not going to happen. We are on the verge of inflation like we have not seen since the perhaps the Carter days.

I think we will see all of what Baron mentioned, inflation, war, revolutions and a global collapse that may come down to has the best and strongest military on the globe. The air of supremecy and riding to world's rescue(and being able to do that, over and over) is being sucked out of the swamp with the ushering in of the mullah obamaham and his crooks. The previous administration's spending
pales in comparison to what and will be spent by the Obama clan and his Chicago style of shuckstering the American people.
There is plenty of blame to go around. It way past the time to be
casting blame and pointing fingers.
Those in power are offering nothing but paper solutions and all it takes is one spark to start and fire and there goes your paper.
No wonder our enemies are drooling and salavating.

Henrik R Clausen said...

Zenster, before you rave against the Chinese, please notice how much *stuff* you buy from them.

They are winning in fair and square competition. 0bama and his Wall Street comrades are doing everything they can to undermine the capitalist system through inflation, and the dollar is thus headed the way of the ruble. I encourage respect for the true capitalists, for they do a good job.

I'm currently reading Rothbard's book on the Great Depression. It's scary how monetary mismanagement (like the British pursuading the Federal Reserve to "level the inflationary playing field") not only contributed to the 1929 crash, but outright created it. The book is very detailed and well documented, and is encouraged for everyone. And it's free. The publisher decided that copyright is stupid, and abolished it. You can grab a PDF above.

As for BNP, it's a meaningless indicator favored by politicians and finance, due to the reason that it includes their irrelevant monetary transactions as 'wealth'. Some better indicator is needed.

EscapeVelocity said...

They are winning in fair and square competition. -- Henrik

This is of course false....float the yuan.

EscapeVelocity said...

BTW, having the Euro be the new reserve currency would in fact help the US and its people....straighten up and fly right...make the US ultimately stronger.

It would also eviscerate the European nations manufacturing base and economy.

I welcome the change. Of course it isnt going to happen, because Europe is Islamizing and will become unstable.

However its likely that world war or massive global instability occurs first and the new security arrangements are likely to be net winner for the US economically and politically.

I wonder when China and Russia are going to fight for Eastern Russia. Russias population keeps dwindling, and all China has to do is lift the one child policy.

Henrik R Clausen said...

float the yuan.

Good point. I'd prefer all currencies to float.

'Reserve currency' is a stupid idea. It just means that people elsewhere accumulate undue amount of your currency, permitting you to do more inflation than would otherwise be possible. For a while. For when those chickens come home to roost, the currency can very well collapse.

Islamization is based upon ursurping the wealth of others. If there's no wealth, or that wealth is solidly defended, it doesn't get very far. Even in Spain, where border controls are notoriously lax, immigration is stopping for a simple reason: There are no jobs.

I think we need more currencies, not more monetary unification. Then the market can respond effectively to stupid policies in any given country, and it will be clearer what is sensible and what is not.

Snouck said...

"The Obama administration’s recent injection of liquidity into the global financial system — whether via bailouts or stimuli — has required additional borrowing on an unprecedented scale. Even though the prices of bread and shoes have not yet skyrocketed, it’s obvious that an inflation is well underway."

Well Baron. This makes sense. But inflation is not happening. And maybe it is not going to happen. The bail outs are now on the books of the banks who can lend the money to businesses and consumers at interest.

But this is not happening. Businesses and especially consumers are deep in debt and they have to service the interest. This diminishes their disposable income. Until 2007 this was solved by borrowing more, but both the banks on one hand and businesses and consumers on the other hand have stopped that. Americans are now reducing their debt in order to avoid being crushed by their interest payments. This is good, because it brings much needed balance in the nation finances.

It is also bad because it reduces demand. With demand dropping unemployment rises. The failed stimulis was meant to protect employment. In fact banks are already starting to give back part of the TARP funds because the interest THEY have to pay cuts in THEIR bottom line.

The situation is comparable to what happened in Japan in the 90ies. Stagnation.

No collapse, but stagnation.

Rather than inflation what we are seeing is deflation. Apart from a few commodity bubbles prices of shares, houses, commercial real estate, cars, computers and many other things are dropping.

Deflation is the only thing that makes sense in this situation. People are bloated on debt. They have to service the interest. Of course their disposable income is low and of course bloated values must fall.

Deflation only happens every sixty years or so. This is one of those times it is happening. Google for Kondratieff.

Snouck said...

Baron,

I agree that the position of the USA is greatly weakened. And that this poses enormous dangers for international stability. The warrior creed Fascism was ascendant when the British empire stagnated and was not able to keep in check regional tensions accross the world.

Agressive and expansionist creeds will fill the security void that the USA is leaving. Especially if they can back it up with growing populations. Those who hate the Great Satan will get what they wished for and many of them will be dissapointed.

What is weird is that the American elites are totally oblivious of their empire's clay feet. If Obamunist's speeches are anything to go by they still wants to take on more international security duties. Worse than the Bush administration!

"So I have known Islam on three continents before coming to the region where it was first revealed. That experience guides my conviction that partnership between America and Islam must be based on what Islam is, not what it isn't. And I consider it part of my responsibility as President of the United States to fight against negative stereotypes of Islam wherever they appear."

Where Bush wanted to spread democracy worldwide (survival of Liberty at home depends on spreading Liberty abroad), the new administration vows to fight negative stereotypes globally.

The entire political system of the USA is as disfunctional as the EU political system.

Regards,

Snouck

Henrik R Clausen said...

Snouck, there's a fallacy here you're giving in to. Inflation is not really rising prices, it is rising money supply, or money supply rising more than the value of nationwide assets, by another definition.

Inflation *is* happening. It is hidden, though, by falling prices. That cannot go on endlessly, and I'm expecting the dollar to plunge heavily as the Federal Reserve does 'Open Market purchases' of the debt that the Federal Government cannot sell to anyone else. Those 'Open Market purchases' constitute printing of dollars, pure and simple.

Snouck said...

Hendrik R. Clausen:

"I'd prefer all currencies to float."

Floating currencies devastates international trade. Currency risk is very bad for exporters, importers which means it is bad for the total economy of small nations such as Denmark and The Netherlands and even medium sized countries like France and the UK. This is the reason why the EU created the Euro.

Politicians will tend to favour inflationist and devaluationist policies in order to "stimulate the economy" at the expense of savers and neighbouring countries respectively.

With fiat currencies (money created by national banks at will) political pressures will tend to destabilize the value of money. Money must be stable to be usefull.

The alternative is pegging money's value to gold, the ultimate commodity. When nations peg their currencies to gold international trade benefits and prices stabilize. Savings become secure. It requires quite a bit of discipline to do this. No more political fiddling with money.

Also the national and commercial banks will stop manipulating money and become boring. Many of their staff functions become superfluous.

The world operated on such a standard between 1934 - 1944 under the Tripartite Agreement and therafter under the Bretton Woods Agreement. Now Bretton Woods is the real reason why the USA was victorious in the Second World War.

As the industrial base of the USA was increasingly duplicated by Europe and parts of Asia and the welfare state was created under Pers. Johnson the USA could not keep it up anymore in the late 60ies. This is why Pres. Nixon disconnected the USD from gold in 1971. Since then we have had floating currencies, growing banks, and international financial instability.

IMO the way out is a new Bretton Woods. The best way would be with the USA joining a kind of BRIC-agreement.

But this would mean ending the welfare state, withdrawing from the Middle East, stopping porculus ...er stimulus. And the Americans would have to eat some humble pie. Finally it would also take care of Asian currency rigging.

It would be the sane thing to do.

Do not count on sanity happening though.

Regards,

Snouck

Snouck said...

Hendrik R. Clausen:
"Inflation is not really rising prices, it is rising money supply, or money supply rising more than the value of nationwide assets, by another definition."

This is right. You have to ask yourself a question.Is the MONEY supply really rising?

What is rising is not a supply of money. But a supply of debt. What went to the banks under the bail outs was debt. The banks have to pay interest on it. They have to pass the debt on to willing borrowers. At a slightly higher interest. They earn their income on the difference, the spread.

Prices are decided on the market where supply and demand meet. So there is supply. Not of money. Supply of debt. BUT THERE IS HARDLY DEMAND FOR DEBT.

*climbs off the pulpit* :-)

Look at a current economics textbook as they are used at universities everywhere. They say in the chapter about banking that debt and money are the same. But they are not. On debt you pay interest. So your spending power decreases if you stop taking on more debt. The same happens is a whole nation stops borrowing. Hangover time.

The fallacy is in confusing debt with money. Once you see the difference and see how it operates the whole picture gets into focus again.

Regards,

Snouck

Czechmade said...

Henrik

do not forget all our stolen patents.

We live in a big nest visited regularly by the Chinese cuckoo.

And remember Stalin was czarist secret agent. In aftermath he perfected something launched by the czars.

Baron Bodissey said...

Snouck --

Henrik’s right. Deflation will be limited and quite temporary. It would have been much worse had the Fed not pumped up the money supply to its current hypertrophied level, in an attempt to prevent (among other things) a disastrous deflation.

The long-run result will be a disastrous inflation. The only way it can be avoided is if American productivity doubles or triples over the next five years, so that the old T-bills can be redeemed and even more new ones issued without outstripping the GDP which has to back up their value.

Unfortunately, in addition to borrowing, Obama is socializing the American economy as fast as possible. Government interference in private enterprise is a time-honored guarantor of a lowered GDP. Productivity will not increase. We will not be able to grow our way out of this. We will not have enough new GDP to back up all the value of those new T-bills.

At some point the old Treasuries will come due and there won’t be enough customers lined up to buy new ones. Investors are smart enough to smell a bad risk, and the short-term Treasuries will eventually be downgraded to junk status.

At that point, in order to pay off the debt, the government will have to create more currency, and the current inflation will finally be reflected in rapidly rising consumer prices.

It’s only a matter of time.

But I agree with you about the gold standard — if only sanity would prevail…

Baron Bodissey said...

Snouck --

Regarding debt.

Debt instruments are currently being created, traded, and valued as if they were commodities, as if they had real commercial value like iron ore or pork bellies.

The market value of a debt instrument depends on two things:

1) The expected future interest rate on the debt, and

2) The expected value of the asset — a house, for example — used as collateral for the debt.

The repeated swapping of debt instruments required that their expected value continue to increase, to cover the transaction costs of each exchange and make the investment worthwhile.

Unfortunately, interest rates can only rise so much, and the collapse of the housing bubble removed any notion of increased value from much of the existing debt.

In the meantime, the instruments of debt had been monetized — that is, the SEC and other regulators allowed them to become the same as money in the current banking system.

That’s why we’re definitely in an inflation — overvalued monetized mortgage securities are out there clogging up the money supply alongside currency and other forms of actual money. At some point the false value ascribed to them will have to be resolved, and we will enter a true inflationary period.

Homophobic Horse said...

BRIC is the reason why America has allied itself with radical Islam and had it's intelligence agents and media create and disseminate the Barack Obama phenomenon. The man who has presented a positive image of America to the Muslim world and has the charisma to pass off an alliance with Iran and Turkey. The key to Pax Americana is to prevent any strong power emerging on the Eurasian plate that could challenge American supremacy. The three candidates for that are Russia, India, and China, Russia and India of which are immediately threatened by Islamic powers, Pakistan for India, Afghanistan and the so far moderate Central Asian 'stans. By collaborating with the radical Muslims dream of a revived caliphate and a chain of controllable green states in Eurasia from Bosnia to Afghanistan America can potentially hem in Russia, India, and China and their local strategic interests with aggressive Jihadist states.

Zenster said...

Henrik R Clausen: Zenster, before you rave against the Chinese, please notice how much *stuff* you buy from them.

I buy as few Chinese goods as possible, in fact. I purposefully boycott "big box" stores like Wal-Mart and reduce my consumption patterns in many ways. I often buy older American or European made goods―such as my cook pots and kitchen utensils―at thrift shops and wear Levi jeans. The used items I buy are not only less expensive but their quality is orders of magnitude greater than the Chinese garbage being sold.

They are winning in fair and square competition.

For someone as intelligent as yourself, I find the previous statement to be exceptionally naïve.

China manipulates its currency, purposefully maintains a devastating trade deficit with the United States, ignores the need for costly pollution controls―16 of the world's twenty WORST polluted cities are in China―while practicing the very worst sort of oversight and regulation of the frequently toxic or shoddily constructed goods shipped from its shores.

The Chinese government routinely uses foreign semiconductor fabrication lines as on-the-job-training for engineers who are then harvested for positions in their military research laboratories.

Chinese companies have some of the worst work safety records while the low wages and poor living conditions of their workers are legendary. The death toll of Chinese miners is astronomical.

China's Henan province is home to THE WORLD'S LARGEST MEDICALLY CAUSED HIV/AIDS EPIDEMIC.

Reports on HIV/AIDS in the official Chinese media tend to highlight intravenous drug use and unprotected sex as the main causes for the spread of the virus. A less well-publicized factor has been the operation of blood-collecting stations in many parts of China during the late 1980s and 1990s, particularly in several villages in Henan and other central provinces. Many of these were run by local government health departments, while others were illegal blood banks known as “blood heads” (xuetou). They were established rapidly due to a highly profitable global demand for blood plasma. The blood-collection centres failed to implement basic safety checks in handling the blood, and as a consequence of the centres’ poor practice, infections soared. According to UNAIDS, estimates of the number of people infected in Henan Province alone through their use of such facilities range from 150,000 to over one million.

China's initial response was to conceal all information about this malfeasance and arrest any doctors who came forward about the epidemic.

Once things were entirely out of control, the Chinese government then proceeded to BLACKMAIL large Western anti-viral drug manufacturers by demanding their products at sharply reduced prices under threat that China would ignore international patents and pirate the manufacturing processes to produce knock-offs of their painstakingly researched and tested compounds.

Thankfully, Merk, Pfizer and Lilly all gave China the collective finger. This resulted in China attempting to pirate the drug recipes for production in their own facilities. China's subsequent home-grown anti-virals were of such low quality that they often caused side effects even more agonizing than the illness itself.

This cheapskate effort saw patients voluntarily declining treatment which only exacerbated the spread of HIV/AIDS in China.

For all the untold BILLIONS OF DOLLARS the Chinese government reaps from its unfair trade practices one would think they might have sprung for reliable drugs to treat the people they helped to infect with HIV/AIDS.

Zenster said...

Czechmade: do not forget all our stolen patents.

Henrik, do you really need a lecture on China's institutionalized and government condoned policy of piracy, be it patent violations or theft of intellectual property?

Sometimes MAJOR AMERICAN MOTION PICTURES COME OUT IN CHINA ON DVD BEFORE THEY EVEN REACH THEATERS IN THE UNITED STATES.

There are areas of China known as "one-disk" provinces because a single copy of software is purchased and then illegally copied for use at all other locations.

Were China to implement the pollution abatements, workplace safety measures, product inspection and regulation, quality controls and other LAWFULLY ENFORCED Western business practices, their astronomical profits would disappear overnight.

Instead, major Chinese firms are held by high ranking officers or their relatives and routinely get run into the ground through poor business practices. These PLA owners then go to their banking cronies for loans and extensions. All of these corrupt business practices have contributed to what may be ONE TRILLION DOLLARS IN BAD CHINESE BANK DEBT.

Systemic economic waste, bank lending practices, political patronage and the survival of a one—party state are inseparably intertwined in China. The party can no longer secure the loyalty of its 70 million members through ideological indoctrination; instead, it uses material perks and careers in government and state—owned enterprises (SOEs). That is why, after nearly 30 years of economic reform, the state still owns 56 per cent of the fixed capital stock. The unreformed core of the economy is the base of political patronage.

Government figures show that, in 2003, 5.3 million party officials held executive positions in SOEs. The party appoints about 80 per cent of the chief executives in SOEs and 56 per cent of all senior corporate executives. Recent corporate governance reforms, Western—style on paper but not in substance, have made no difference. At 70 per cent of the large and medium—sized SOEs ostensibly restructured into Western—style companies, members of party committees were appointed to the boards. Painful restructuring appears to have spared this elite. China has shed more than 30 million industrial jobs since the late 1990s but few party officials have become jobless
.

So, please do not attempt to characterize China as "winning in fair and square competition."

Nothing could be farther from the truth.

Zenster said...

Henrik: 0bama and his Wall Street comrades are doing everything they can to undermine the capitalist system through inflation, and the dollar is thus headed the way of the ruble.

Here, you are on the mark. You will note that I routinely precede all mention of China's treachery with a note about our political whores who benefit from inaction on this issue. America's industrial manufacturing base is being sold down the river by a bunch of short-selling profiteers who could care less about our nation.

Soon they will discover that industrial capacity represents a STRATEGIC RESERVE. A good example is DRAM computer memory chips. Widely used in all computing applications, these inexpensive chips are almost entirely fabricated in China, Japan and Korea.

In our increasingly network centric warfare system, the supply of these DRAM chips represents an issue of NATIONAL SECURITY. Even textiles and other innocuous materials could become significant issues. Ask Napolean about winter uniforms sometime.

I encourage respect for the true capitalists, for they do a good job.

Yes they do. Capitalism is the only socio-economic system that telescopes between the individual and market in a fair way. However, capitalism is like a gun. It is amoral and its effects depend upon how it is wielded. Government and industry soft pedaling on corruption continues to do major damage to how free market economics are perceived.

BHO is capitalizing on this to socialize America's once great free market system. For that, all of these greedy swine should rot in Hell.

PRCalDude said...

Does anyone have any graphs showing how the value of gold beat the rate of inflation in the 1930s and the period since the 1970s when the US went completely off the gold standard?

If no one can produce such a graph, then buying gold is about as worthless as keeping your money in the dollar.

The bottom line is that if there is hyperinflation, there will be widespread shooting. I hope that doesn't happen.

EscapeVelocity said...

I just wanted to say, that the US exported much of its prosperity to the world...Pax Americana will be the good times, that people miss.


BTW, Levis are made in China, Wrangler sold at Walmart are sown in Central America and the denim is made in the US. That is what I wear.

EscapeVelocity said...

Great last post their Zen.

Henrik R Clausen said...

Wow. I won't be able to comment in detail on all the interesting stuff posted here...

China manipulates its currency.

So what? The Fed has been doing exactly that with the US currency through nine decades. That (along with the policies of Hoover/Roosevelt) gave rise to the Great Depresssion, for one, and has later been used to give the US an undue influence on matters worldwide. But that has created a very dangerous situation of huge dollar reserves outside the US. If those reserves are thrown back on the market at once, the dollar dies.

The US government is probably content with the manipulation, for it can only take place through massive purchases of US 'Securities', which keeps the dollar afloat. That is good for the government, bad for the citizens.

What is rising is not a supply of money. But a supply of debt.

That is the same... I agree with the textbooks about fractional reserve banking and the creation of money. Money is a mirror image of debt, and is created through lending, with the extremely low interest rates from the Fed being a prime engine for that.

Interestingly, the money being created flows into the banking system and the government. It doesn't get evenly distributed, and it takes quite a while to reach the people who produce stuff. Actually, inflation constitutes 'stealing by stealth' from those who produce and save.

For a more honest assessment of inflation, the money supply numbers published by the Fed - M2 in particular - are probably the best statistics we can get. It shows an increase at the level of 6-8 % a year. That is probably quite close to the real inflation rate. Others have quoted 8-10 %, so a compromise at 8 is probably a qualified guess.

Inflation is evil. It discourages thrift and saving, encourages all kinds of reckless behaviour, speculative bubbles (housing market, anyone?) and financial mischief. It has caused the US (and much of Europe, too), to live in the illusion that we had a healthy economy, which we don't.

Probably the most misleading statistics is the Gross National Product, GNP (I think I used the Danish spelling BNP somewhere), which just shows how much money is being shuffled around, not how much productive work is done. Even the term 'Product' is misleading.

That GNP growth, when taking into consideration the growth in money supply, has been negative for years on end. And that's a bad indicator in the first place. Looking at factory output, container shipments and other real indicators of production and trade are more honest - but I have yet to find a useful indicator for the health of a nations' economy at large.

As for patents, I have a different opinion about the whole idea of "Intellectual Property". I think it's economically unsound and not a good reason to complain about 'stealing' ideas. We have been forced US-style draconian copyright legislation, and in loyalty to our good US friends adopted it. But I think it's a bad idea that will undermine the respect for the Rule of Law. I think we need a radical relaxation of those laws.

I also have been looking at avoiding Chinese products. But working in the computer business, it's not really possible. I'd like to see a 'Buy Danish' campaign, but the European Union most certainly would not permit that.

Henrik R Clausen said...

Interesting about the bad Chinese loans. The current crisis just might wash out some of that bad debt.

But the reality is this: China has a huge manufacturing base, which everyone else is depending upon. This is a strategic risk of a magnitude unprecedented in history.

0bama will only make matters worse, for his bailouts causes non-productive enterprises to out-compete those that produce real stuff - and the cheap credit makes it very difficult to run a profitable business.

Only when this huge money-pump stops will it be possible for the US economy to return to the grand tradition of real production.

Baron Bodissey said...

PRCalDude --

The problem with tracking the price of gold in the 1930s is that FDR outlawed the possession of gold by private citizens, for the express purpose of preventing a run on the country's gold reserves. Thus a comparison with current events is difficult to make.

I expect the Obama administration to do something similar when the inflation really starts -- stop minting gold eagles, and outlaw private ownwership of other bulk forms of gold.

PRCalDude said...

Baron,

So what the is the point of owning gold, if the government has outlawed it? Will you be able to own it, but not possess it physically, or will you not be able to actually buy it on the commodity exchange?


If the latter, then are you supposed to buy it now and then offshore it somehow ahead of time?

Baron Bodissey said...

PRCalDude --

I don't know what will happen with existing privately-held gold if the government makes its possession illegal. I'm sure that you will be required to sell it back to the government, but how will the feds find all the owners? Absent a registration requirement when a purchase is made, I don't see how they can enforce compliance.

Back in the 1930s an exception was made for numismatists, and I presume it will be the same this time.

PRCalDude said...

So the possession of it was illegal, but not the purchase?

The real value of gold during periods of HI is that it protects your savings. You are essentially pegging your savings assets to a gold standard because the government refuses to do so. As a medium of exchange, it's probably no better than anything else. ACtually, it's probably worse. I would suspect that alcohol, cigarettes, and other things that make a prison economy work would be of far more value as a medium of exchange.

Baron Bodissey said...

PRCalDude --

Private ownership of more than X amount of gold was made illegal, with exceptions allowed for jewelry and coin collectors. One of my late relatives was able to keep the gold coins in his coin collection.

I don't know how (or how much) the law was enforced.

Some commodities are a safe bet, as is most mining stock, assuming that the current legal/fincancial system that will allow continued ownership survives.

Perishables such as alcohol, tobacco, cocaine, and marijuana are undoubtedly good investments, too. But they are bulky and don't have an indefinite shelf life.

Precious metals -- gold, silver, platinum, etc. -- are the best bet.

Also uranium, if you have the lead-lined storage facilities for it. There's going to be a lot of demand for it in the next few decades.

Zenster said...

Henrik R Clausen: But the reality is this: China has a huge manufacturing base, which everyone else is depending upon. This is a strategic risk of a magnitude unprecedented in history.

If our political whores had an ounce of spine, this could be turned against China in a heartbeat. A temporary boycott of Chinese manufactured goods would see their whole house of cards collapse.

Instead, we continue to allow our own industrial base to be eroded which only increases our dependency upon China's bubble economy.

As always, there will be Hell to pay, but only by us little guys.

Baron Bodissey: Also uranium, if you have the lead-lined storage facilities for it. There's going to be a lot of demand for it in the next few decades.

I agree. The uranium maket is going to heat up something fierce in the next couple of dozen years.

Baron Bodissey said...

Takuan Seiyo is in a situation where it is difficult fro him to post a comment, so he sent the following for me to post.

----------

As I am posting this from places so faraway that Google forces me to sign in in Chinese characters, I'll ask the Baron to post this for me.

As the resident quasi-Oriental here I want to say that I agree completely with the Baron's geo-economic-political analysis. I am writing Chapter 13 of Meccania- Atlantis based on the same premise.

I also agree with Zenster et al. concerning Chinese perfidy etc. But I disagree with the way blame has been apportioned in this discussion. The U.S. has screwed itself; it won't do to blame the Chinese. To see how different their moral outlook is from the West's, take a look at one of my source materials that I'll comment on in said chapter.

Google "36 Stratagems" and read them, slowly, so that the meaning sink. It's those stratagems that have been the basis for Chinese conduct in the marketplace and at war for thousands of years. The U.S. went in there like a bunch of greedy yokels, understanding nothing of what would INEVITABLY and 100% predictably come.

Second, this forum being presumably populated by free market people, we tend to go easy on the "capitalist" side and tend to blame the socialists and the pols. But it's our capitalists who wove the silk rope with which the cradles of capitalism -- otherwise known as the "Anglo-Saxon model" -- will be hanged. Lenin is doing cartwheels in his grave, for he has predicted it.

The outsourcing of the Anglo-Saxons' industrial capacity to China has been voluntary, and the cult of globalization has been the MBA religion. And it has had disastrous effects in every area you care to think about, not only the dollar-reinbi flow and exchange rate.

It's American-British capitalism itself that should have been transformed, by the capitalists themselves. They have failed to even notice such a need, drunk on easy phantom money. So now an African socialist is doing it for them. The disastrous results will be ultimately their fault, not his.

I wrote all this up a year before the tumble began. Alas, people with our kind of politics have no access to MSM, so it was published in a British DT publication for 10k subscribers only. But for those interested, you'll find it web republished at the New English Review. Title is "Kapital as Kapalit."

-- Takuan Seiyo

Zenster said...

Takuan Seiyo: I also agree with Zenster et al. concerning Chinese perfidy etc. But I disagree with the way blame has been apportioned in this discussion. The U.S. has screwed itself; it won't do to blame the Chinese.

While I concur that American multinational corporations are responsible for a lot of the damage being done at home, China still bears some of the blame.

No one is forcing China to crank out lead-coated toys. No one is forcing them to add melamine to pet foods and dairy products. This is the 21st century and not 200 years ago when product testing and quality control was unheard of.

To see how different their moral outlook is from the West's, take a look at one of my source materials that I'll comment on in said chapter. Google "36 Stratagems" and read them, slowly, so that the meaning sink. It's those stratagems that have been the basis for Chinese conduct in the marketplace and at war for thousands of years.

The "36 Stratagems" may as well be Sun Tzu's cheat sheet. They are also the product of a time and culture so different from even Greco-Roman mentality―not to mention the age of European enlightenment―that the Chinese way of thinking continues to baffle even well-educated business operators of today.

However, this does not exonerate the Chinese regarding their attempts to wage economic war. Post WWII Japan―having endured military defeat―went on to wage a rather successful economic war against America. While it is impossible to disregard the rampant collusion between Japanese government and their corporations―much like China today―at that time simple hamfisted greed was largely responsible for Detroit's inability at responding to even marginally innovative redesigns and marketing concepts being presented by the Japanese.

For a modern example of this, look no further than the American car companies' addiction to fleet sales. Their bulk deliveries to car rental companies consist of stripped-down zero-option cars that ride like a spavined nag. In contrast, Japanese auto manufacturers provide full-featured vehicles that showcase their automotive products in the best light possible. Yet, Detriot continues to wonder why foreign manufacturers are eating their lunch seven days a week and twice on Sundays.

There is a long-term and incremental aspect to Chinese strategy that is almost alien to the more linear and Newtonian―as in action/reaction―way of Western thought. It is the origin of how Asian culture has always been deemed "inscrutable" by Occidentals. One of the few useful tools to comprehend this notion is the concept of High Context and Low Context cultures.

This difference is a major reason why most Westerners cannot relate to the Muslim mentality as well.

The U.S. went in there like a bunch of greedy yokels, understanding nothing of what would INEVITABLY and 100% predictably come.

Of this there can be no doubt. As one Avon marketing manager put it: "Imagine a country of half a billion women who do not wear eye liner!" It was also the mentality of large scale manufacturers who entered the Chinese market expecting to retain their intellectual property and exclusive marketing agreements.

I hinted at this by mentioning "one copy" provinces where a single software CD is purchased and then duplicated for the entire region's offices. China is, essentially, a "one copy" nation. Any design or product introduced will be―sometimes slavishly―imitated, but imitated it will be. (To be continued)

EscapeVelocity said...

Authoritarian capitalism....aka Chinese capitalism....aka fascism may be the wave of the future. Obama is buying government controlling shares in US businesses.


Anyways, here is the thought for the day.

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.” -- Vladimir Lenin

Henrik Ræder said...

But it's our capitalists who wove the silk rope with which the cradles of capitalism -- otherwise known as the "Anglo-Saxon model" -- will be hanged.

Actually, I disagree. Let me explain.

They have failed to even notice such a need, drunk on easy phantom money.

This is to the point. The culprit here is inflation, and the creator of inflation, the Fed.

Easy credit (that's another word for 'inflation') has gotten us so addicted to fake wealth that we've forgotten the underlying virtues of the Anglo-Saxons' success:

Production and trade. Free.

The inflation process, encouraged by the dollar being the 'reserve currency' and being absorbed and used anywhere, is central to this. But also our politicians, who failed to tell us in time that we need to produce more and consume less, are to blame - to the extent that I could imagine a few of them getting hanged (no, I DO NOT endorse that! Killing is bad).

It's a mess, but a return to free markets, realistic interest rates and (hopefully) honest money should get us going again.

A temporary boycott of Chinese manufactured goods would see their whole house of cards collapse.

Sorry, no. They have the money, they have a huge population, and will merrily sell their things to each other instead of to us. We'd be in dire straits, as we do not have the manufacturing base to supply us with computer equipment, tools, nor even bags and clothes.

This is going to get worse before it gets better. No easy way out.

Snouck said...

Henrik R. Clausen,

previously I misspelled your Christian name. Apologies.

"the money supply numbers published by the Fed - M2 in particular"

The link you provide is to a French report on Zones Urbain Sensibles (ZUS).

Never mind. I know about the expanding M. Btw, the FED stopped publishing M3 in 2005. Because it was "too expensive".

Regards,

Snouck

Henrik R Clausen said...

Oops... While ZUS's are an important issue as well, better stay on the subject.

There's a fairly good article about it on Wikipedia, with some nice, exponential graphs (check India, for one), but a couple years old.

For the US, here are stats on Open Market Operations (an important source of inflation), money supply in general, and the M1/M2 charts.

M2 growth rate varies between 4 % and 10 % year-to-year.

Here's the Consumer Price Index (CPI). Here it is again, including a fudge, excluding food and energy (who'd need that?). Here's another fudge, Core CPI inflation. Why 'fudge'? Because removing food and energy (for 'volatility' reasons) bears little relevance to what citizens experience, and because taking out those items makes other items, wher prices are actually falling, get greater significance.

If the CPI is to be used to gauge inflation, at least use the one that consumers actually experience, not some useless abstraction. I still hold that M2 is significantly more relevant, though.

Baron Bodissey said...

Henrik --

They [the Chinese] have the money, they have a huge population, and will merrily sell their things to each other instead of to us.

Sorry Henrik, but that's not true. I don't have any links, alas, but I have read about their domestic demand. It is insufficient to keep their plant up and humming at anywhere near full employment. Already 30-60 million new unemployed, with more to come, because of the export crash.

Higher unemployment means lower domestic demand, creating a vicious circle.

The Chinese are in for hard times, too.

Henrik R Clausen said...

The Chinese will adopt. Like by floating the yuan, which will go up. Then selling to domestic consumers will become relatively more attractive than exporting.

Yes, the adjustment is hard, also for the Chinese. But they do have the upper hand.

Henrik R Clausen said...

Or, to be a bit more nuanced than above, the adjustment will depend on how much the Chinese government (Communist party...) will permit the citizens to take a share in the wealth of the country.

So far, it looks like they're taking the 'Public Spending Route' instead, though. That, indeed, will cause hardship for everyone.

Afonso Henriques said...

The Chinese cannot sold to themselves.

But they can sold to the Third World like the Soviet Union did. And the third world is richer now than ever.

And it's a vicious cycle, by impoverishing the First World and enrinching the third one, you end up with more equality.

For instance, Brazil+Mexico = the U.S.A. in population.

However, Americans have more economical power than those 300 million Bramexikillians.
But, if the First World gets impoverished and the the Chinese have some success in developing a little bit more the third world, then maybe if you add Peruvians, Kenyans and Thais to the Brazilians and Mexicans, it will be as rentable as dealing with the United States.

It will be bloddy interesting. And bloody. But particularly interesting. Or bloody...

Graham Dawson (Archonix) said...

The south americna economies could well grow out of this. Brazil is an oil producer, Paraguay has silver and gold, Argentina is a huge economy just sitting waiting for something to happen. China could sell to them if... if... if only they could get past being second-world socialist statist cr*pholes.

islam o' phobe said...

TS,

"Second, this forum being presumably populated by free market people, we tend to go easy on the "capitalist" side and tend to blame the socialists and the pols. But it's our capitalists who wove the silk rope with which the cradles of capitalism -- otherwise known as the "Anglo-Saxon model" -- will be hanged."

Yes. Thank you for bringing up this neglected subject.

During the Napoleonic Wars if you were set against an enemy one of the first things you did was "destroy his commerce". So if you were an English Captain in the Royal Navy you wouldn't be shy of sailing into a French port and blasting it to bits with cannons.

Nowadays it doesn't matter if some Iranian religious lunatic is threatening to nuke you - you mustn't dare contemplate limiting trade. Anyone who has the dignity to refuse to do business with base and immoral people can always be slurred as a protectionist or some similar nonsense.

Free trade has been sold to people everywhere as a moral imperative. I'm all for making money but there is nothing inherently virtuous about money-making.

Zenster said...

The heart of these conflicts, be they economic war or terrorist jihad upon the West, lies in the concept of transparency.

Among High Context cultures, transparency is not just a foreign notion but an utterly alien concept. Why on earth would anyone reveal or needlessly expose their true motivations for all to see?

The modern Western embodiment of this is "disclosure"―in its legal sense―and it remains a sticking point in international trade and, especially, patent negotiations.

Clearly, this idea receives short shrift when dealing with our Eastern counterparts. China's idea of a patent is something that they can carbon copy at will while Japan's conception is one that must circumvent protection at any length save excessive costs. In light of Japan's endemic collusion between government and industry (e.g. MITI), even excessive costs can be absorbed without undue penalty.

While the same distorted economic model applies to China, there is another even more corrosive force in effect. Please recall how―much like with supposedly non-communist Russia―the PLA (People's Liberation Army), has retained majority control―be it overt or covert―over the country's largest economic institutions.

Again―as with Russia's current quasi-communist government―China's Politburo, through intentional delegation of oversight to its political elite, retains disproportionate control over the economy. In fact―as can be seen with the Henan HIV/AIDS epidemic―this control continues to be wielded regardless, and even contrary to, the public weal.

A simple question reveals all of this in stark relief. Who is more to blame for this epidemic of malfeasance, China's government or its low-level corporations? Does anyone honestly think that small Chinese companies could have spewed out an endless parade of contaminated and toxic products without having at least some sort of tacit government permission?

For those who wish for more proof, please consider how China's own population is frequently fed even more lethal food products and goods containing even more flagrant violations of accepted manufacturing standards. Eggs dyed with horrendously toxic industrial chemical dyes. Baby formulas―which infants STARVE TO DEATH ON―that amount to nothing more than water colored with chalk dust. Automobiles with all the impact resistance of a cardboard box.

Now, consider the market pressures that even HONEST Chinese businesses endure. Imagine the constraints and forces imposed upon even the most legitimate Chinese enterprises as they attempt to survive the arbitrary and damaging pseudo-regulations that their hyper-corrupt government imposes upon them. Bribes? Aren't they a way of life? Graft? Isn't that the usual routine? (To be continued)

Zenster said...

Here is where we return to transparency. For the Politburo, transparancy is total anathema. Their hidden agenda of theft and manipulation on a grand scale cause them to behave in ways that―to external observers―can just as easily appear whimsical or arbitrary. Again, imagine trying to do business in an environment where the rules can change overnight, where law enforcement is a matter of political will and not any form of justice.

Enduring these sort of mercurial market conditions literally forces medium and smaller businesses to engage in corrupt practices, if only to compete against those privileges and favortism shown to the larger government-held corporations.

This is where China's government must accept direct responsibility for the endless torrent of low quality, poisonous, pirated knock-offs that flood Western markets. The Politburo's selective enforcement and partiality are the Root Cause of China's endemic marketplace transgressions.

If one is to accept that they place their signatures on trade documents with the unstated intention of cheating on those agreements at every opportunity, then their word is nothing by a Sinological form of taqiyya. Much like Islam's credo of "War is Deceit", so then does it seem that China subscribes to Sun Tzu's position that "All War is Based on Deception".

Just as taqiyya irrevocably damns Islam so must China's underhanded manipulations and hidden agendas identify them as dishonest players worthy only of boycotts. When China's main intention is to defraud all other participants, then they are criminals whose word means nothing and all contractual law is rendered meaningless as well.

It requires supreme self-delusion or unparalleled greed to think that doing business with the Chinese will have even a remotely favorable long-term outcome. That America's government is considering the sale of GM's Hummer unit to China is unfathomable. A hopped up version of this vehicle platform would appear in their military within days.

The short-sightedness of all who do business with China is symptomatic of how a rarified strata of elite within our world's global economy have become immune to public opinion or economic crisis. These supra-national players have no loyalty, patriotism or sense of duty to those countries that spawned their original fortunes. While this epidemic of fecklessness may not entirely be China's fault, the Politburo is prime facilitator and willing participant in this demolition of Western industrial manufacturing.

China's trade-related actions represent nothing less than intentional destabilization and active compromising of America's national security and therefore should be regarded as hostile and seditious in nature.

Zenster said...

Henrik Ræder: Sorry, no. They have the money, they have a huge population, and will merrily sell their things to each other instead of to us. We'd be in dire straits, as we do not have the manufacturing base to supply us with computer equipment, tools, nor even bags and clothes.

I disagree. There is no way in living Hell that China can maintain such a bloated industrial base and hypertrophied manufacturing capacity along side the obscene $256.3 billion trade deficit they intentionally impose upon America, their single largest trading partner, America.

Baron Bodissey: Sorry Henrik, but that's not true. I don't have any links, alas, but I have read about their domestic demand. It is insufficient to keep their plant up and humming at anywhere near full employment. Already 30-60 million new unemployed, with more to come, because of the export crash.

Again, to have expanded their industrial manufacturing base without anything even remotely approaching balanced trade with their principal trading partners means only one thing:

CHINA'S IS A BUBBLE ECONOMY.

Either we burst that bubble now or―after enduring a few more years of increasingly fatal erosion to our manufacturing base―have the bubble burst later when, as Henrik Ræder noted; “We'd be in dire straits, as we do not have the manufacturing base to supply us with computer equipment, tools, nor even bags and clothes.”

Our factories may be shuttered but they have not yet been torn down. Wait much longer and they will be torn down and there will be little chance of restarting a functional national economy. Remember, there are only THREE WAYS of CREATING WEALTH:

Mining, Agriculture & Manufacturing.

That's it. All other industries are service-based and do not generate wealth but merely shuffle it around in a grand shell game. Our government is chockablock with lawyers who―operating in a service-based economy themselves―see nothing wrong with converting our entire nation over to a service-based economy. As one noted economist observed:

America's economy cannot grow merely by having its citizens taking in each others' washing.

The clock is ticking down fast with respect to the impact of China's illegitimate trade practices. In my next comment I will go over some previous points and introduce a few new ones as I profile what I like to call, “China's Perfect Storm”. (To be continued)

Zenster said...

The bubble is ready to burst. China is sailing into a Perfect Storm under full steam.

1.) During China's recent privatization, the vast majority of government-run big business was essentially handed over to the PLA's military elite at fire sale prices; Who promptly proceded to run them into the ground. All the while consuming massive loans from banking cronies to prop up these over-staffed and under-equipped enterprises.

END RESULT: This has left China with an estimated $500 billion to $1 trillion worth of bad debt that their own prohibitions on foreign majority bank ownership prevents any bail-out of.

There exists pandemic official corruption that is tacitly accepted by the government resulting in substandard civil engineering and a host of other dangerous or counter-productive practices.

2.) These same industries have historically operated with total disregard for environmental impact or pollution laws due to their immunity through contacts within the PLA. Examine the near-total absence of significant prosecution for the constant coal-mining fatalities and egregious lack of mine safety.

END RESULT: Massive damage to vital natural resources, air quality and some of China's most precious historical locations or archaeological sites.

3.) China's "one family - one child" policy has led to endemic gender based abortion and female infanticide. This lopsided demographic is already beginning to affect Chinese society with the "Little Emperor" syndrome of intensely spoiled male children.

END RESULT: Extreme potential for a major upswing in male homosexuality. Complicated by:

4.) China's medically caused HIV/AIDS epidemic is the largest in world history. Henan province plasma buyers re-injected aggregated red blood cells back into similar type donors, thereby spreading the virus like wildfire. Corrupt government officials more concerned about covering up their connections to these plasma buyers, did little to quarantine or contain the crisis, allowing infected individuals to migrate into large urban centers.

END RESULT: A time-bomb of gigantic proportions that may be facilitated through a host of other societal factors including heavy discrimination against HIV positive people, intense shame over homosexuality and government suppression of publishing any medical statistics regarding this as being damaging to China's image.

5.) China's ratio of urban versus rural earning power is incredibly lopsided. Conservative estimates place 1995 rural earnings at 40% of that paid to urban workers. The global figure for that time was 60%. Other estimates place China's earnings gap at seven to one and even an astounding ten to one ratio. This disparity encourages migration to city centers in search of higher pay. Mao's promise to break all chains binding peasants to the land was a tremendous lie that found farmers imprisoned by even more intense poverty than before.

END RESULT: Breakdown in agricultural productivity and lack of regulatory oversight in the haste to avoid food shortages. This creates vast potential for tainted goods, which has already manifested in dead infants killed by being fed fake baby formula, fake rabies vaccines and eggs injected with toxic industrial dyes.

All of the above factors are converging to combine into an onslaught of destructive forces that bode exceptionally ill for China's future. Such internal pressures may drive China to territorial aggression in order to relieve demand for dwindling resources, marriageable women or simple living space. Taiwan, Eastern Russia and Southeast Asia all fall under the shadow of China's looming crises.

EscapeVelocity said...

Good stuff from everybody.

Regarding this point....Im with Henrik.

Zen said...

"I disagree. There is no way in living Hell that China can maintain such a bloated industrial base and hypertrophied manufacturing capacity along side the obscene $256.3 billion trade deficit they intentionally impose upon America, their single largest trading partner, America."

The point being made is that China by not floating the yuan in which case its value would rise, which would then increase the spending power of Chinese workers, which would increase their domestic consumption. Its exports would go down, but its internal consumption would rise offsetting that, indeed more than offsetting that giving the current state of imbalance of their currency. Of course the government doesnt want to empower the workers who would then start demanding more workers rights and labour protections as well...and challenge the governments power.

The Chicoms much prefer fascism, and the industrial military complex.


And whoever said it, yes the logical place for the Chinese to expand is Eastern Russia, contiguous with China proper, lots and lots of land and resources, tiny and dwindling population and weakening dwindling Russia....vs military, technology, industrial giant with huge population and funky demographics, plus all they have to do is kill the one child policy for a population explosion.

Russia cant compete with that, but they can nuke them.

Buy uranium futures.

Henrik Ræder said...

China is not 'forcing a trade deficit' on anyone. Trade is voluntary. Manipulations of currency is part of the game, but what matters most is production. For production, not wages, is the foundation of prosperity.

The US government (and Federal Reserve) could, if it wanted, reverse the deficit by stopping the pervese inflation of the dollar, and permit the dollar to fall to a natural level (probably around $2 = €1 or something). Since that does not happen, a full rout from the dollar is a distinct possibility.

China today is in a position where it can decide to let the wealth in foreign currency flow into the country. That just might cause democratic reforms. Or it can stick to its command economy, where people work like crazy for little money, and keep the division between internal and external market. But even in the latter case, there's no reason it should not sell its goods to India, Russia (when she recovers), Brazil, Canada or whoever else has real money.

Rescuing the US manufacturing base and infrastructure would follow logically from a steep drop in the dollar - simply because imports become unaffordable.

Zenster said...

Henrik Ræder: ... there's no reason it should not sell its goods to India, Russia (when she recovers), Brazil, Canada or whoever else has real money.

Some figures pulled off of the Internet. Correct them if you feel thery are wrong.

Value of imports from China:

Brazil = $48.48B
Canada = $21.79B
Russia = $28.48B
India = $17.46B

USA = $337.8B

The imports of BRI-Canada equal little more than ONE THIRD of America's purchases from China.

Where are BRI-Canada EVER going to find additional buying power to create another over TWO BILLION in trade?

As I said, China's economy is totally lopsided and represents a hypertrophied industrial bubble that is about to burst. Already, some European companies are withdrawing their Chinese manufacturing ventures.

China is headed for a major crash. It has sown the seeds of its own destruction. Continued purchase and upgrading of their military points towards an expansionist phase which bespeaks only misery for elsewhere in Asia.

PRCalDude said...

Zenster,

Where is the money to fund our trade with China coming from? I can never figure that out myself. We're running a trade deficit. We're running a huge budget deficit. We're selling T-bonds back to China for our dollars. When we can't pay back the principal + interest on those bonds, we sell more. Are we selling enough goods and services to other countries besides China to make up the trade deficit?

Seems to me that the entire US is being run like California, which is not working out for California right now. I know. I live here.

China's got its problems, many of which are huge. What you say about manufacturing hypertrophy is true. My father-in-law manufactures there and is moving a lot of it to Thailand, and I know many more businesses are moving to Vietnam, Thailand, and the rest of southeast Asia.

But our problems are just as bad. We have no room to criticize "widespread corruption" in China at this point, when our "government" is basically a collusion between the banksters and politicians, both of whom see themselves as "too big to fail."

Henrik R Clausen said...

Zenster, as PRCalDude asks:

Where is the money to fund your trade with China coming from?

Deficit and inflation, that's what. When that bubble bursts, the US imports are going to fall away, and the Chinese will have to sell to whoever offers something of value for their goods. They'll probably manage.

What will be interesting is how the Chinese thugs-in-chief will handle this. Currently, a good part of the wealth created by the hard-working Chinese sits in banks, not reaching the citizen who earned it. Will they permit their citizens to gain control of that? What of the political power that comes with it?

For the US, I think it's time that the citizens ask some critical questions to the Fed and the government, like:

1) When will you stop expanding the money supply?

2) How can the government possibly take on that much risk on behalf of the citizens?

3) Just exactly is the current debt going to be repaid?

Finally, I have to tackle a fallacy that came up here: Wealth doesn't come from 'purchasing power', it comes from production and trade. The idea that 'purchasing power' has anything to do with it comes from the crazy days of the Great Depression, where everyone talked about preseving the 'purchasing power' of the workers, by fixing wage levels (thus *increasing* real wages), leading to bankruptcies and the endemic unemployment that marred the 30's.

"Purchasing power" is a Keynesian red heering. The concept leads to bad decisions and bad results, like more inflation.

Zenster said...

PRCalDude: But our problems are just as bad.

NO THEY'RE NOT!

Please understand that you may be indulging in Cultural or Moral Relativism. I'm concerned that Henrik might be doing the same thing.

Please examine this map of world corruption.

Notice how America is nowhere near the levels of Chinese corruption?

Please scroll down to the ratings index. Notice how China rivals some of the more corrupt nations on earth?

In reality, compared to America's world ranking as the № 18 least corrupt nation in the WORLD, China is a meager № 72. What do these figures mean?

Take a moment to assess the "Confidence Range" of America's rating―registering as some 6.7 to 7.7, on a scale of TEN― as compared to China's rating of―3.1 to 4.3―ON THE SAME SCALE.

Now, compare America's ranking―in terms of overall standing compared to China in terms of actual GDP (per the CIA factbook - actual exchange rate):

China = $4.222 Trillion

USA = $14.33 Trillion

REMEMBER THIS:

We have a country (i.e., communist China) whose corruption transparency veracity is rated at ABOUT HALF of America's and whose GDP is rated about LESS THAN A THIRD of the USA.

Let do some rough math.

This means that China's ACTUAL GDP could be anywhere as low as ONE SIXTH (i.e., $2.4 Trillion) of the USA.

Remember, China's transparency rating is some 1/2 that of America's. What does that tell you? What does that say about China's reliability in terms of accurate reporting and actual accountability?

China is SH!T in terms of being an honest player on the world stage.

So far, all respondents in this thread have declined to address this central and significant point.

How is the world supposed to interact with a major "trade partner" who is clearly using the Sinological equivalent of taqiyya in all of their outside dealings?

China is nothing more or less than the exact same sort of geopolitical gangster that Soviet Russia was during its heyday. Why should China's Mandarins be treated any differently?

More importantly, why Should China be treated as anything less than the sort of enemy that Islam currently presents to America and the West?

China is a cesspit of corruption and graft that makes America look like a pristine example of transparent, legal conduct.

I challenge anyone to prove otherwise.

Again, we ARE being FORCED into an unfair agreement by China signing its name to all sorts of supposedly legitimate trade agreements when, quite clearly, they have ZERO intention of keeping any such contracts.

How is America responsible for the fact that China (evidently), has absolutely ZERO intention of keeping its trade agreement promises? If these b@stards do not want to comply with International law, then they should keep the Hell of our world's economic stage.

Aside from strict boycotts, how are more legitimate business partners supposed to maintain fair trade relations with such criminals?

Henrik R Clausen said...

Zenster, it doesn't matter with corruption, as long as they produce stuff we want to buy, and give them our money for. Corruption is an internal problem, not our problem.

We can't claim moral superiority on the basis of their corruption. If you want them to have less power, do something to make the US competitive again.

China plays tough in their own interests. So did Reagan in US interests. Bush pretended to do so, but didn't. 0bama doesn't even pretend.

The European Union pretends to pretend, but never gets down to it.

PRCalDude said...

NO THEY'RE NOT!

Please understand that you may be indulging in Cultural or Moral Relativism. I'm concerned that Henrik might be doing the same thing.

Please examine this map of world corruption.


Corruption of public officials isn't my only metric of the extent of a country's problems. We've got plenty of our own.

I agree that we need to stop being Dudley Do-Right (as Steve Sailer put it) when it comes to the agreements we've signed with China, as they clearly have no intention of holding up our end of the bargain. But that, also, speaks to the depravity of our leaders: they fail to look out for our national interests. They're more interested in international interests. Our republic wasn't founded by a bunch of guys that thought we should entangle ourselves in international affairs and intrigues. The problem we have with the Chinese is the same problem we have with the Arabs: they horse trade our politicians. We saw Obama practically {insert crap I can't write on this blog} King Abdullah on his latest trip to Saudi Arabia.

Zenster said...

Henrik R Clausen: Zenster, it doesn't matter with corruption, as long as they produce stuff we want to buy, and give them our money for. Corruption is an internal problem, not our problem.

Only if you do not give a damn about human rights and crimes against humanity.

Robert Mugabe is a prime example. He took one of Africa's most productive nation's and turned it into a basket case. Special Forces should have offed his sorry @$$ long, long ago.

Corruption is responsible for a vast amount of human suffering in this world. One cannot simply sit back and say we must accommodate the fact that China's is an abusive regime that has committed genocide on a large scale against its own people.

It is in the same way that free countries cannot sit back and indulge those nations which implement shari'a law and its gross violations of human rights.

Active measures must be taken against these hyper-corrupt regimes. We have an almost moral obligation to free people from communism and Islam.

I say "almost" because we FIRST have an obligation only to ourselves. But that does not change the nature of how evil super-corrupt regimes are.

From that juncture, I will then agree with both of you that America's leaders have so willingly appeased even the most corrupt regimes that it becomes difficult to distinguish between them at times.

However, that does not change the fact that, collectively, America leads by example and therefore has some reasonable expectation that others can do the same.

Unfortunately, the whore politicians we have simply cannot take their hands out of the (fortune) cookie jar long enough to pen legislation that would bring about constructive change.

Henrik R Clausen said...

We have an almost moral obligation to free people from communism and Islam.

I differ. We had to deal with Communism because it was an active threat to the free world for decades. Likewise, we need to deal with Islam because it's a threat to freedom worldwide. We have no obligation to free people from their harmful ideologies.

That said, it is useful to be a good example, and with current information technology it's easier than ever to tell people in repressive systems that better alternatives exist. We can support and encourage change, but it can never be a direct obligation to implement 'regime change' in various countries where the culture does not support democratic mindsets.

Chinese corruption and authoritarian rule is primarily a Chinese problem (there's Tibet and Taiwan too, of course), but it poses no threat to us in the West.

What we need to do is to stop wasting money and ressources on useless activities, and increase our competitiveness to eliminate the trade deficit.

BTW, projected deficits for 2009 and 2010 in Denmark and other European countries look downright scary :(