Financial systems the world over are collapsing under the weight of too much debt.
China has its share of problems but those are no worse than the West's.
There is zero chance of a Chinese black swan event, or a black swan event of any other major country anymore, the Fed's bailout policy over the last year has made sure of that.
The US "will never default" because it finances its own debt in dollars. China does the same in RMB. China has no foreign debt. What will happen in China is inflation from overheating, which the public has already discounted, not a systemic default.
I deplore China's human rights record as much as anyone, but that has nothing to do the subject in discussion here. Let's not get carried away by emotions.
Sat, 02/13/2010 - 16:01 | Anonymous
Somewhat shortsighted.
China is still a communist/socialist country. Imagine that they say today: "Enough." And start over, where the left at 1980s.
They now have hard currency reserves which they didn't have then. They now have the ability to produce plenty of consumer and industrial goods. They now have the transportation and energy infrastructure. They now have millions of housing units. In short, they now have a modern industrial country they didn't have then.
Based on solid evidence of history, even if the socialist economy proves again unworkable, they should be able to last at least 50 years on the basis of existing infrastructure. Many comments in this forum about the western economies and their current dynamic imply, that we may not have as bright future as that. That we face economic collapse before the 50 years.
Whatever else happens, China made a real economic progress during the time that US economy has declined and maintained standard of living by going in debt. Maybe we all should focus more on how to bring prosperity back and fix our government at home.
Sun, 02/14/2010 - 09:03 | Anonymous
they should be able to last at least 50 years on the basis of existing infrastructure.
except as far as I have seen , maintenance is never considered important - it does not have to work , only look like it does from the outside.
Funny how all those people bashing China here are probably going to head out to Wal Mart to buy cheap goods made in China. Let hypocrosy reign supreme!
Sun, 02/14/2010 - 01:13 | Anonymous
Don't know if "hypocrosy" is reigning supreme or not. But if some poor schmuck wants to work 16 hour days in a factory hell for $2, then sleep twelve to a room, with barely a hole in the floor for a toilet, god bless him. I'll gladly use the fruits of his labor while I kick back and watch some spectacle on my 46" flat screen LED HDTV, all the while sipping root beer and munching on Cheese Puffs, occasionally sending the peasant another box of brightly colored paper with pictures of dead white men on it. And I'll let him think he's winning.
Sat, 02/13/2010 - 11:46 | Anonymous
It truly amazes me that our government has allowed itself to be blindsided by the Chicoms regarding their economy.
In a country that mueders those who do not toe the party line, and tell the truth, I will not be surprised by anything.
There are more than a few examples to show how bad the crash will be when it occurs. They may have significant excess reserves, but what will it cost them to maintain the path they have chosen to walk? As the author said, hungry people do not complain, they riot.
Sat, 02/13/2010 - 07:56 | Anonymous
Chilling ... just referenced in my piece http://crisismaven.wordpress.com/2010/02/08/bloom-of-doom-v-we-have-cont... where I try to collect all catastrophic information on the sovereign default risks and possible [D I R E] consequences. Taking stock, I found myself quoting (or rather: referencing) more and more of zerohedge's always timely and factually correct material so I decided to ask for a user account; reading the instructions: I hope the vodka doesn't get into the way of vetting for too long :-)
Sat, 02/13/2010 - 02:58 | Anonymous
Ignorant pseudo-intellect trying to apply modern western theories and values to the oldest and largest civilization in the world. In the end, China will outlast all western nations and ideals.
Or not. Hubris almost always ends up being bitch slapped.
Sat, 02/13/2010 - 13:06 | Anonymous
Well, your comment added nothing to the debate. China has been under the same system for its "Glorious 5000 year history"? Overpopulation is an accomplishment to be praised? What are its "ideals" which will outlast all Western nations, other than the worship of money? It seems you got caught up in the Middle Kingdom hype.
With the near simultaneous introduction of Buddhism and Confucianism 2300-2500 years ago, China fell on kind of bad times and has only recently emerged because it began to piggyback off the innovation and discovery that blossomed in Renaissance Europe. Someone less kind would call it what it has been: theft. I'd gladly pit the accomplishments of the billions of Chinese who have walked this planet with the perhaps thirty million members of a particularly scorned group, and the David would most certainly trash that Goliath.
I bet you are the kind who actually believes the "Great Wall" is the only man made object visible from space (sic). Have you ever been to Byzantium? If you are either an engineer or an architect, after seeing Byzantium you will look at the Great Wall as just a pile of rocks any group of ten million slaves could throw together under some cretin's whip. Not to mention the much older pyramids of Egypt demonstrate an understanding of engineering that should embarrass the mandarins.
For the last 2500 years China has been its own worst enemy. I'm going with history and betting THAT is the real China and the last two decades of making poor quality products or being the world's source of low cost labor is the aberration. Black swan it is.
Sat, 02/13/2010 - 14:48 | Anonymous
What is the "system" that China has been under for its 5000 year history? This is about ultimate survival, not about GDPs, currencies and even forms of gov't. It's about the survival of the Chinese people. From the historical perspective, America is just a burning man party in the middle of the desert where people from other places come to gather for a couple of hundreds of years. What does it mean for "American people" to survive? Does that term go away when the current form of government goes away...and it will...
You mock overpopulation yet it's the their consumers that American businesses desire most, and it's the size of the army that American military fears, and it's the population and their progress that's going to overwhelm western societies. They have more honor students than there are students in the US. Even now, Chinese hackers are already running circles around America's best and brightest engineers at Google. And like the idiots, America's top technology companies have moved their R&D capabilities to China (and India).
Today China is building an infrastructure that will allow them to leverage and grow the capabilities of their population. With a more modern infrastructure for food, energy, education and to some extent communication, they can expand the productivity of each individual tremendously AND even allow its population to grow. China stopped the growth of the population because its infrastructure could not handle the growth. Does the rest of the world have that discipline, let alone the perspective?
And now they are building shelter, hoarding key materials, and building their gold reserves so they can survive the next 100 years. Are empty cities a bad thing? For the western Just In Time pseudo-intellect getting ready for the Just In Time demise. What's America's survival plan for the next 100 years?
Sun, 02/14/2010 - 01:05 | Anonymous
If empty cities are not a bad thing, then I guess America's glut of unsold residences is our seedcorn and we should honor the shadow inventory rather than worry about it.
I will admit there is one thing where China tops the US: its complete lack of morality in terms of honoring intellectual property. A few years back a couple of Microsoft executives were in Beijing. One happened to have a copy of the Windows source code with him. While on an official dinner, PLA operatives broke into his hotel suite and stole it. Thus was China's software industry born. China's other industries, to the extent that any of them possess modern technology, were "grown" the same way. Perhaps that is Darwinian Socialism at work. Perhaps we should sink to China's level, if and when China ever develops any cutting edge technology on its own, and steal whatever they produce.
Having spent a few decades in Asia, I fail to be impressed by what they have accomplished given their percentage of the total human population. Neither am I impressed if they have more honor students than they have empty office space, as their education system once seen from the inside is not especially remarkable. And what price their so-called "miracle" growth? The country is a cesspool, a dump, where one's eyes burn and one's nose is offended merely by going outside. And since they destroyed most everything cultural during the oddly named Cultural Revolution, China's gaudy new culture is even more vapid and banal than anything the Fox Network can imagine. Yes, it's been a long time since Gershwin or Copeland enhanced the US cultural milieu, but the dearth of anything with staying power from the Middle Kingdom spans millennia.
China may be taking a slightly different path than the US, but they are still a competitor in a race to the bottom. In the end, their fantasy is not going to work out any better than ours, maybe worse. For 2500 years China has done little more than survive, while the world has uncovered 99.99999% of all the knowledge the species possesses. China is a beneficiary of someone else's sweat and ingenuity, as well as being a beneficiary of someone else's willingness to spend savings and take on debt. When we all collapse, China might survive, but they will not climb out of the hole until someone else figures out how. Whatever they once were, they are no more. They are different now, and in no way better. For old and ancient cultures, I'll take India or Egypt or Mesopotamia, or Rome and Athens. China leaves me wanting.
While I also suspect China may be frothing a bit, consider this: Bears like Bill Fleckenstein were warning about U.S. bubbles in 1994. They mighta been correct fundamentally, but they missed a redonkulous ride. Hard to fight an inflationary Fed shitshow. Same with China, hard to fight a dragon with $3 trillion.
In my IRA, I still want China exposure. And like The Onion, I demand another bubble to invest in:
I know a little bit about China having visited there multiple times since 1980. I agree that it looks like a bubble but I have a couple of minor disagreements with this post.
First there has been a net migration of workers from urban areas back to the farms since the economic slow-down. The out migration was during the boom. After losing their jobs many returned to family farms. There has not been millions of unemployed workers going hungry in the cities (so far).
On official economic statistics. In 1980 when I worked at an academy of sciences research institute one of the stories I heard over and over again is how incorrect economic numbers contributed directly to the economic calamities known as the great leap forward (1959) and the cultural revolution (ca 1966 - mid 70s). Both technocrats and Party leaders insisted that this problem would be fixed. Though they still tend to too much secrecy I think their numbers are fairly accurate. This doesn't mean that they don't have multiple bubbles building up. Prices of urban real estate, especially in condominiums, have seemed ready to collapse at least since 2005.
Here is a comment from Australia re China and reserve controls:
From The Eureka Report:
About last night…
Last night’s action was all about China and its decision to increase the reserve requirements on Chinese banks to rein in liquidity – it’s their method of tightening monetary policy, and is much more direct than our hopelessly convoluted cash rate targeting.
The way it works here is that the RBA trades in the money market to “target” an overnight cash rate, which may or may not flow through to bank rates. If it does, that lowers the confidence and spending power of borrowers, while lifting the confidence and spending of savers. So in the democratic world monetary policy works as a net result of the fact that there are more borrowers than savers and the cash rate usually does get passed on in lending rates, and the RBA usually can influence the cash rate by buying and selling money.
None of that sort of fiddling around in China, no sirree: it just takes money away from the banks, which it did last night.
As a result of that, plus the fact that New Zealand retail sales were weaker than expected, US stocks fell this morning. But as Dave Rosenberg of Gluskin Sheff remarked in his daily email: “When investors are three inches from their screens awaiting New Zealand retail sales then you know this is a market ready to react to anything —
Lifting the reserves might take money away from the banks but given the volumes of money flowing through the system, it'll only take away the froth but still leave a barrage of funds freely flowing into more unproductive ventures. It wouldn't surprise me if the Chinese government tops up any lending so to cover any excess reserve requirements in order to keep the economy pumped.
Their bust will have a severe effect on commodities... like that shiny metal so many people in this forum covet unreasonably.
Deflation, here we come. Especially after this bust happens. It could be a while though. Look at how long it took the Soviets to finally collapse!
Speaking of "gold bitchez" - tomorrow will be a day that I don't make fun of the goldbugs or say "gold bitchez" once. I consider it a community service to this great community to which I belong, and am happy to oblige my fellow posters.
Yeah, I see your "scenario". Global commodities deflation coupled with massive deleveraging due to a super Asian financial flu, thus KO'ing an already zombie US financial system.
The monetary base will collapse here and abroad and governments the world over will cry "rats!, we're outta slag to handout to the masses. Sorry folks, cupboard's bare!".
Yeah. I'm sure that'll go over real well. And the gubbmint will "just let it happen" because it's a force majeure.
There is an alternative you know. It's called hyperinflationary monetary expansion. Letting deflation happen is political suicide.
Printing, and causing subsequent monetary debasement too is political suicide.
BUT, it's at least an attempt to kick the can.
Government's don't close up shop. They fold. And they do it kicking and screaming.
Inflation, not deflation, is the real long-term threat.
Obama is weeks away from having to go on television to explain ... "Sorry folks, but all that money you've been investing all these years in stocks, bonds, insurance policies, annuities, and in your home ... Well, the money is gone. You got tricked fair and square, and now its time to move on. And, by the way, if you owe any money to a bank or to the IRS, you still gotta pay. Good night, and have a pleasant tomorrow"
The banking system of the West is fundamentally incompatible with the Internet. Too many people now understand what is happening for this charade to continue. More pain, deflation, collapse ... will lead to more and more anger and finger pointing. More bankruptcies, more foreclosures, more special prosecutors, more congressional hearings.
A mobilized "root cause analysis" - triggered by a lasting global depression - will lead inexorably to the truth. When Government=Banks x Corporations, this is what happens.
To avoid being arrested, tried in the courts for high treason, and then drawn and quartered on some diabolical new reality show, they've got no choice but to hyper-inflate. It might not be an overnight elimination of fiat value, but it will happen. The idea that fiat continues to strengthen as a result of the collapse of the financial system is absurd.
The banking system of the West is fundamentally incompatible with the Internet. Too many people now understand what is happening for this charade to continue.
Very interesting point. Another reason to believe that the relatively free flow of information on the internet has been and will continue to be a game-changer. I have to believe that the-powers-that-be are working on a solution to plug the flow and return to the glory days of 'managed' news - something more effective than the approaches of China and, more recently, Iran.
Either that, or the joke is on us - the double-edged sword aspect of the internet is that (unless you are very careful) you lose anonymity with respect to the information you consume. Maybe TPTB are just sitting back documenting who reads what and who posts what so that when the time comes they know who to collect up for 'processing' and 're-education'.
I see why hyperinflation would be a concern, but I think that there will be too much political pressure to salvage the deficit problems for hyperinflation to trump deflation.
Especially given the current political climate... the party of "no" isn't about to hand out more money, and it's likely that they're going to win (for whatever reason) in November and beyond. I can't understand it myself, but people like retarded people that are just like them. That fits Palin a lot better than Obama.
I still say that the US is going to realize that they're out of monetary options soon and will let nature run its course. Of course, that'd be the prudent thing to do.
As to gold, I'm loathe to buy assets that are selling at a premium due to abnormally high demand.
Wed, 02/17/2010 - 23:24 | Anonymous
*sword
Wed, 02/17/2010 - 23:23 | Anonymous
It doesn't matter . The inflation has already been created via derivatives. All they can do now is like they did in 2008 shuffle the illegitimate credit by the US of derivatives to cycle into US debt. Eventually the unwinding of the bubble will be so great that a creditor nation of the US will go bankrupt and be forced to liquidate their fx reserves destroying the treasury market and the irs market sending yields soaring. It is the end of the line for the US. A cut in entitlement spending would lead only to more saving and thus kill the consumer economy even quicker, it is a double edged soured.
Sat, 02/13/2010 - 00:00 | Anonymous
1 oz. of gold = 2 AK47s and 2000 rounds of 7.62x39
Decisions, decisions......
I haven't seen an AK for less than 400, which means that the .762 ammo would have to be 150 per 1000.
I need to come ammo shopping with you!
Sat, 02/13/2010 - 12:25 | Anonymous
J & G Sales 2 cheap AKs $700. and 2 700 round packs of 7.62 $400. (ammo prices up a little in past two months, I was buying for $240/1K). You can still do it with 2 AK74s $860. and 2160 rounds of 5.45x39 @ $300. no sales tax outside AZ just shipping. Should be about $1200.
Forget the AK's. Not accurate beyond 30 meters anyway. "One bullet, one kill" does not work when you are badly outnumbered.
Go with a Mossberg 500 Persuader. Mine is a 20 gauge pump action. Very effective versus multiple "soft targets" at close range.
Sat, 02/13/2010 - 21:29 | Anonymous
Try telling that to the families of our fallen soldiers in Iraq and Afghanistan. The AK has proven itself on battlefields around the world. I have a nice AR15, too. When TSHTF, I'll grab the AK.
BTW, your 20 gauge pump shotgun better be loaded with slugs, otherwise it is only good for killing doves, quail and clay targets.
Who controls a fractional reserve fiat currency banking system has no effect on the timing or results of a bubble. To the extent they act in a more intelligent manner the end will come sooner rather than later since only by inflating the supply of money and credit at ever increasing rates can the bubble be prolonged. Since they're already showing signs of putting on the brakes the odds of a delayed collapse are dropping rapidly. Increasing reserve requirements is something the US bozos have afraid to use for decades.
The one advantage is many people use no leverage whatsoever in funding their businesses (which will keep them in the game longer) and are more or less black market, both of which should provide a higher floor for the level of economic activity to fall to when the end comes.
Their "guanxi", guido-style system of business is faily corrupt. McDonalds tried to sue after some local business said, "You go now.", and lost. Contracts, shmontracts. Who cares about business plans - can you sweeten the deal?
Great piece and something I have been suspecting for a while but as mentioned in a totalitarian society the party in power can say and do anything to maintain their contol. 6% GDP growth, hell lets make it 15% or 25% or whatever we want.
Chinese banks, whether at the national, provincial or municipal level, are all state-owned (although some of the larger financial institutions have sold minority interests to foreign banks).
This is not the forum to delve into the details but to say that these large bureaucracies are efficient would be a lie. The country's largest by total assets (Industrial and Commercial Bank), for example, has over 300,000 employees.
As would be expected in a command economy, most of the loans made are to support government policy, primarily in infrastructure. Planning is inefficient: just witness China's biggest airport recently built in Guangzhou; it competes with four other newly built facilities of similar size in Zhuhai, Shenzhen and--within 60 miles--Macau and Hong Kong. The Pearl River Delta has enough airport capacity to last a century.
These airport projects, as well as The Great Mall of China and Ordos City--are all the result of government officials trying to meet GDP growth targets and financed courtesy of the municipal, provincial and national banks. Which is to say that the Non-performing Loan Portfolio of China, Inc. is in far worse shape than you can imagine and it is this drain on the financial sector's cash flow that is the "Black Swan." [It's not a black swan because it should never be a real surprise by now.]
Will state ownership of the banking sector prolong the bubble? I don't think so because from what I read, it appears that the Chinese central authorities are desperating trying to gently deflate. Actually, it's probably too late.
Chinese government lies..LOL....not like the US government which always tells the truth! Sounds like you can't face the fact that China is kicking your asses and teaching the capitalists in the West a thing or two about real capitalism, communist China style. If your thesis pans out, then the world is about to experience decades of deflation. I don't buy the China is overheating thesis, and strongly believe Chinese solar shares are going to take off in a huge way:
Why are you getting flagged as junk by so many readers here? FWIW, I enjoy reading your contrarian reflections, but be sure to have a bottle of SPF 40 sun tan lotion if by chance your solar stocks flare up and cause sun burn.
Leo, I'm sure that the wizards behind the curtain have tied us, (America), at the hip, to the Chinese. You have to understand that America was built on land grabs, genocide, slavery, and a enormous bounty of resources, resources that we have consumed faster than a stick of dynamite stuck up the time line of man. One morning, one of these wizards arose from his fabulous, mahogany veneered caves and realized, much to his chagrin, that there was no more land to grab, indigenous natives to wipe out, and most importantly, dwindling natural resources coupled with overpopulation. So, what we are seeing, in my opinion, is the consolidation of the entire planet by the wizards, in preparation for the end game, therefore, we are all tied at the hip.
Financial systems the world over are collapsing under the weight of too much debt.
China has its share of problems but those are no worse than the West's.
There is zero chance of a Chinese black swan event, or a black swan event of any other major country anymore, the Fed's bailout policy over the last year has made sure of that.
The US "will never default" because it finances its own debt in dollars. China does the same in RMB. China has no foreign debt. What will happen in China is inflation from overheating, which the public has already discounted, not a systemic default.
I deplore China's human rights record as much as anyone, but that has nothing to do the subject in discussion here. Let's not get carried away by emotions.
Somewhat shortsighted.
China is still a communist/socialist country. Imagine that they say today: "Enough." And start over, where the left at 1980s.
They now have hard currency reserves which they didn't have then. They now have the ability to produce plenty of consumer and industrial goods. They now have the transportation and energy infrastructure. They now have millions of housing units. In short, they now have a modern industrial country they didn't have then.
Based on solid evidence of history, even if the socialist economy proves again unworkable, they should be able to last at least 50 years on the basis of existing infrastructure. Many comments in this forum about the western economies and their current dynamic imply, that we may not have as bright future as that. That we face economic collapse before the 50 years.
Whatever else happens, China made a real economic progress during the time that US economy has declined and maintained standard of living by going in debt. Maybe we all should focus more on how to bring prosperity back and fix our government at home.
except as far as I have seen , maintenance is never considered important - it does not have to work , only look like it does from the outside.
Funny how all those people bashing China here are probably going to head out to Wal Mart to buy cheap goods made in China. Let hypocrosy reign supreme!
Don't know if "hypocrosy" is reigning supreme or not. But if some poor schmuck wants to work 16 hour days in a factory hell for $2, then sleep twelve to a room, with barely a hole in the floor for a toilet, god bless him. I'll gladly use the fruits of his labor while I kick back and watch some spectacle on my 46" flat screen LED HDTV, all the while sipping root beer and munching on Cheese Puffs, occasionally sending the peasant another box of brightly colored paper with pictures of dead white men on it. And I'll let him think he's winning.
It truly amazes me that our government has allowed itself to be blindsided by the Chicoms regarding their economy.
In a country that mueders those who do not toe the party line, and tell the truth, I will not be surprised by anything.
There are more than a few examples to show how bad the crash will be when it occurs. They may have significant excess reserves, but what will it cost them to maintain the path they have chosen to walk? As the author said, hungry people do not complain, they riot.
Chilling ... just referenced in my piece http://crisismaven.wordpress.com/2010/02/08/bloom-of-doom-v-we-have-cont... where I try to collect all catastrophic information on the sovereign default risks and possible [D I R E] consequences. Taking stock, I found myself quoting (or rather: referencing) more and more of zerohedge's always timely and factually correct material so I decided to ask for a user account; reading the instructions: I hope the vodka doesn't get into the way of vetting for too long :-)
Ignorant pseudo-intellect trying to apply modern western theories and values to the oldest and largest civilization in the world. In the end, China will outlast all western nations and ideals.
Or not. Hubris almost always ends up being bitch slapped.
Well, your comment added nothing to the debate. China has been under the same system for its "Glorious 5000 year history"? Overpopulation is an accomplishment to be praised? What are its "ideals" which will outlast all Western nations, other than the worship of money? It seems you got caught up in the Middle Kingdom hype.
With the near simultaneous introduction of Buddhism and Confucianism 2300-2500 years ago, China fell on kind of bad times and has only recently emerged because it began to piggyback off the innovation and discovery that blossomed in Renaissance Europe. Someone less kind would call it what it has been: theft. I'd gladly pit the accomplishments of the billions of Chinese who have walked this planet with the perhaps thirty million members of a particularly scorned group, and the David would most certainly trash that Goliath.
I bet you are the kind who actually believes the "Great Wall" is the only man made object visible from space (sic). Have you ever been to Byzantium? If you are either an engineer or an architect, after seeing Byzantium you will look at the Great Wall as just a pile of rocks any group of ten million slaves could throw together under some cretin's whip. Not to mention the much older pyramids of Egypt demonstrate an understanding of engineering that should embarrass the mandarins.
For the last 2500 years China has been its own worst enemy. I'm going with history and betting THAT is the real China and the last two decades of making poor quality products or being the world's source of low cost labor is the aberration. Black swan it is.
What is the "system" that China has been under for its 5000 year history? This is about ultimate survival, not about GDPs, currencies and even forms of gov't. It's about the survival of the Chinese people. From the historical perspective, America is just a burning man party in the middle of the desert where people from other places come to gather for a couple of hundreds of years. What does it mean for "American people" to survive? Does that term go away when the current form of government goes away...and it will...
You mock overpopulation yet it's the their consumers that American businesses desire most, and it's the size of the army that American military fears, and it's the population and their progress that's going to overwhelm western societies. They have more honor students than there are students in the US. Even now, Chinese hackers are already running circles around America's best and brightest engineers at Google. And like the idiots, America's top technology companies have moved their R&D capabilities to China (and India).
Today China is building an infrastructure that will allow them to leverage and grow the capabilities of their population. With a more modern infrastructure for food, energy, education and to some extent communication, they can expand the productivity of each individual tremendously AND even allow its population to grow. China stopped the growth of the population because its infrastructure could not handle the growth. Does the rest of the world have that discipline, let alone the perspective?
And now they are building shelter, hoarding key materials, and building their gold reserves so they can survive the next 100 years. Are empty cities a bad thing? For the western Just In Time pseudo-intellect getting ready for the Just In Time demise. What's America's survival plan for the next 100 years?
If empty cities are not a bad thing, then I guess America's glut of unsold residences is our seedcorn and we should honor the shadow inventory rather than worry about it.
I will admit there is one thing where China tops the US: its complete lack of morality in terms of honoring intellectual property. A few years back a couple of Microsoft executives were in Beijing. One happened to have a copy of the Windows source code with him. While on an official dinner, PLA operatives broke into his hotel suite and stole it. Thus was China's software industry born. China's other industries, to the extent that any of them possess modern technology, were "grown" the same way. Perhaps that is Darwinian Socialism at work. Perhaps we should sink to China's level, if and when China ever develops any cutting edge technology on its own, and steal whatever they produce.
Having spent a few decades in Asia, I fail to be impressed by what they have accomplished given their percentage of the total human population. Neither am I impressed if they have more honor students than they have empty office space, as their education system once seen from the inside is not especially remarkable. And what price their so-called "miracle" growth? The country is a cesspool, a dump, where one's eyes burn and one's nose is offended merely by going outside. And since they destroyed most everything cultural during the oddly named Cultural Revolution, China's gaudy new culture is even more vapid and banal than anything the Fox Network can imagine. Yes, it's been a long time since Gershwin or Copeland enhanced the US cultural milieu, but the dearth of anything with staying power from the Middle Kingdom spans millennia.
China may be taking a slightly different path than the US, but they are still a competitor in a race to the bottom. In the end, their fantasy is not going to work out any better than ours, maybe worse. For 2500 years China has done little more than survive, while the world has uncovered 99.99999% of all the knowledge the species possesses. China is a beneficiary of someone else's sweat and ingenuity, as well as being a beneficiary of someone else's willingness to spend savings and take on debt. When we all collapse, China might survive, but they will not climb out of the hole until someone else figures out how. Whatever they once were, they are no more. They are different now, and in no way better. For old and ancient cultures, I'll take India or Egypt or Mesopotamia, or Rome and Athens. China leaves me wanting.
While I also suspect China may be frothing a bit, consider this: Bears like Bill Fleckenstein were warning about U.S. bubbles in 1994. They mighta been correct fundamentally, but they missed a redonkulous ride. Hard to fight an inflationary Fed shitshow. Same with China, hard to fight a dragon with $3 trillion.
In my IRA, I still want China exposure. And like The Onion, I demand another bubble to invest in:
http://www.theonion.com/content/news/recession_plagued_nation_demands
I know a little bit about China having visited there multiple times since 1980. I agree that it looks like a bubble but I have a couple of minor disagreements with this post.
First there has been a net migration of workers from urban areas back to the farms since the economic slow-down. The out migration was during the boom. After losing their jobs many returned to family farms. There has not been millions of unemployed workers going hungry in the cities (so far).
On official economic statistics. In 1980 when I worked at an academy of sciences research institute one of the stories I heard over and over again is how incorrect economic numbers contributed directly to the economic calamities known as the great leap forward (1959) and the cultural revolution (ca 1966 - mid 70s). Both technocrats and Party leaders insisted that this problem would be fixed. Though they still tend to too much secrecy I think their numbers are fairly accurate. This doesn't mean that they don't have multiple bubbles building up. Prices of urban real estate, especially in condominiums, have seemed ready to collapse at least since 2005.
India is not far behind:
http://debtsofanation.blogspot.com/2010/02/debts-of-lenders-indias-centr...
India is not far behind:
http://debtsofanation.blogspot.com/2010/02/debts-of-lenders-indias-centr...
This was simple and direct, easy to understand. The Starbucks set up was a good lead in. Thanks.
+1
I saw it in person here in Seattle.
Here is a comment from Australia re China and reserve controls:
From The Eureka Report:
About last night…
Last night’s action was all about China and its decision to increase the reserve requirements on Chinese banks to rein in liquidity – it’s their method of tightening monetary policy, and is much more direct than our hopelessly convoluted cash rate targeting.
The way it works here is that the RBA trades in the money market to “target” an overnight cash rate, which may or may not flow through to bank rates. If it does, that lowers the confidence and spending power of borrowers, while lifting the confidence and spending of savers. So in the democratic world monetary policy works as a net result of the fact that there are more borrowers than savers and the cash rate usually does get passed on in lending rates, and the RBA usually can influence the cash rate by buying and selling money.
None of that sort of fiddling around in China, no sirree: it just takes money away from the banks, which it did last night.
As a result of that, plus the fact that New Zealand retail sales were weaker than expected, US stocks fell this morning. But as Dave Rosenberg of Gluskin Sheff remarked in his daily email: “When investors are three inches from their screens awaiting New Zealand retail sales then you know this is a market ready to react to anything —
Lifting the reserves might take money away from the banks but given the volumes of money flowing through the system, it'll only take away the froth but still leave a barrage of funds freely flowing into more unproductive ventures. It wouldn't surprise me if the Chinese government tops up any lending so to cover any excess reserve requirements in order to keep the economy pumped.
Thank you Vitaliy....I enjoy your posts and insights and appreciate your efforts.
Their bust will have a severe effect on commodities... like that shiny metal so many people in this forum covet unreasonably.
Deflation, here we come. Especially after this bust happens. It could be a while though. Look at how long it took the Soviets to finally collapse!
Speaking of "gold bitchez" - tomorrow will be a day that I don't make fun of the goldbugs or say "gold bitchez" once. I consider it a community service to this great community to which I belong, and am happy to oblige my fellow posters.
Yeah, I see your "scenario". Global commodities deflation coupled with massive deleveraging due to a super Asian financial flu, thus KO'ing an already zombie US financial system.
The monetary base will collapse here and abroad and governments the world over will cry "rats!, we're outta slag to handout to the masses. Sorry folks, cupboard's bare!".
Yeah. I'm sure that'll go over real well. And the gubbmint will "just let it happen" because it's a force majeure.
There is an alternative you know. It's called hyperinflationary monetary expansion. Letting deflation happen is political suicide.
Printing, and causing subsequent monetary debasement too is political suicide.
BUT, it's at least an attempt to kick the can.
Government's don't close up shop. They fold. And they do it kicking and screaming.
Inflation, not deflation, is the real long-term threat.
Got gold, bitch?
That's right Pete.
Obama is weeks away from having to go on television to explain ... "Sorry folks, but all that money you've been investing all these years in stocks, bonds, insurance policies, annuities, and in your home ... Well, the money is gone. You got tricked fair and square, and now its time to move on. And, by the way, if you owe any money to a bank or to the IRS, you still gotta pay. Good night, and have a pleasant tomorrow"
The banking system of the West is fundamentally incompatible with the Internet. Too many people now understand what is happening for this charade to continue. More pain, deflation, collapse ... will lead to more and more anger and finger pointing. More bankruptcies, more foreclosures, more special prosecutors, more congressional hearings.
A mobilized "root cause analysis" - triggered by a lasting global depression - will lead inexorably to the truth. When Government=Banks x Corporations, this is what happens.
To avoid being arrested, tried in the courts for high treason, and then drawn and quartered on some diabolical new reality show, they've got no choice but to hyper-inflate. It might not be an overnight elimination of fiat value, but it will happen. The idea that fiat continues to strengthen as a result of the collapse of the financial system is absurd.
Very interesting point. Another reason to believe that the relatively free flow of information on the internet has been and will continue to be a game-changer. I have to believe that the-powers-that-be are working on a solution to plug the flow and return to the glory days of 'managed' news - something more effective than the approaches of China and, more recently, Iran.
Either that, or the joke is on us - the double-edged sword aspect of the internet is that (unless you are very careful) you lose anonymity with respect to the information you consume. Maybe TPTB are just sitting back documenting who reads what and who posts what so that when the time comes they know who to collect up for 'processing' and 're-education'.
I see why hyperinflation would be a concern, but I think that there will be too much political pressure to salvage the deficit problems for hyperinflation to trump deflation.
Especially given the current political climate... the party of "no" isn't about to hand out more money, and it's likely that they're going to win (for whatever reason) in November and beyond. I can't understand it myself, but people like retarded people that are just like them. That fits Palin a lot better than Obama.
I still say that the US is going to realize that they're out of monetary options soon and will let nature run its course. Of course, that'd be the prudent thing to do.
As to gold, I'm loathe to buy assets that are selling at a premium due to abnormally high demand.
*sword
It doesn't matter . The inflation has already been created via derivatives. All they can do now is like they did in 2008 shuffle the illegitimate credit by the US of derivatives to cycle into US debt. Eventually the unwinding of the bubble will be so great that a creditor nation of the US will go bankrupt and be forced to liquidate their fx reserves destroying the treasury market and the irs market sending yields soaring. It is the end of the line for the US. A cut in entitlement spending would lead only to more saving and thus kill the consumer economy even quicker, it is a double edged soured.
1 oz. of gold = 2 AK47s and 2000 rounds of 7.62x39
Decisions, decisions......
Damn homey, where you getting your ammo?
I haven't seen an AK for less than 400, which means that the .762 ammo would have to be 150 per 1000.
I need to come ammo shopping with you!
J & G Sales 2 cheap AKs $700. and 2 700 round packs of 7.62 $400. (ammo prices up a little in past two months, I was buying for $240/1K). You can still do it with 2 AK74s $860. and 2160 rounds of 5.45x39 @ $300. no sales tax outside AZ just shipping. Should be about $1200.
One 1oz gold eagle about $1150.
Gold is for optimists.
Forget the AK's. Not accurate beyond 30 meters anyway. "One bullet, one kill" does not work when you are badly outnumbered.
Go with a Mossberg 500 Persuader. Mine is a 20 gauge pump action. Very effective versus multiple "soft targets" at close range.
Try telling that to the families of our fallen soldiers in Iraq and Afghanistan. The AK has proven itself on battlefields around the world. I have a nice AR15, too. When TSHTF, I'll grab the AK.
BTW, your 20 gauge pump shotgun better be loaded with slugs, otherwise it is only good for killing doves, quail and clay targets.
When given a choice, take both!
Great post, VK ... tour de force.
Who controls a fractional reserve fiat currency banking system has no effect on the timing or results of a bubble. To the extent they act in a more intelligent manner the end will come sooner rather than later since only by inflating the supply of money and credit at ever increasing rates can the bubble be prolonged. Since they're already showing signs of putting on the brakes the odds of a delayed collapse are dropping rapidly. Increasing reserve requirements is something the US bozos have afraid to use for decades.
The one advantage is many people use no leverage whatsoever in funding their businesses (which will keep them in the game longer) and are more or less black market, both of which should provide a higher floor for the level of economic activity to fall to when the end comes.
When this one blows up...it's gonna be absolutely fabulous!!!
A bus with 1.3 billion people on it. AWESOME.
Their "guanxi", guido-style system of business is faily corrupt. McDonalds tried to sue after some local business said, "You go now.", and lost. Contracts, shmontracts. Who cares about business plans - can you sweeten the deal?
Leo you are always good for a laugh and still pushing solar stocks! Must have been a Tin man in another life.
Good luck with the solar stocks.LOL
I think solar is a great LONG-TERM play.
Long term. Like post-financial armageddon.
har har har har
Great piece and something I have been suspecting for a while but as mentioned in a totalitarian society the party in power can say and do anything to maintain their contol. 6% GDP growth, hell lets make it 15% or 25% or whatever we want.
Good job, Vitaliy. Nice work.
Here's the part I'm confused about ...
I've heard it said that virtually all of China's banking - whatever it may appear on the surface - is state-controlled.
And I've heard it said that China largely used public banking - something sort of like this.
If true, that would presumably allow China to keep the bubble inflated longer than in a nation with private fiat banking.
I haven't been able to verify whether or not that is true. Does anyone know one way or the other?
Chinese banks, whether at the national, provincial or municipal level, are all state-owned (although some of the larger financial institutions have sold minority interests to foreign banks).
This is not the forum to delve into the details but to say that these large bureaucracies are efficient would be a lie. The country's largest by total assets (Industrial and Commercial Bank), for example, has over 300,000 employees.
As would be expected in a command economy, most of the loans made are to support government policy, primarily in infrastructure. Planning is inefficient: just witness China's biggest airport recently built in Guangzhou; it competes with four other newly built facilities of similar size in Zhuhai, Shenzhen and--within 60 miles--Macau and Hong Kong. The Pearl River Delta has enough airport capacity to last a century.
These airport projects, as well as The Great Mall of China and Ordos City--are all the result of government officials trying to meet GDP growth targets and financed courtesy of the municipal, provincial and national banks. Which is to say that the Non-performing Loan Portfolio of China, Inc. is in far worse shape than you can imagine and it is this drain on the financial sector's cash flow that is the "Black Swan." [It's not a black swan because it should never be a real surprise by now.]
Will state ownership of the banking sector prolong the bubble? I don't think so because from what I read, it appears that the Chinese central authorities are desperating trying to gently deflate. Actually, it's probably too late.
Chinese government lies..LOL....not like the US government which always tells the truth! Sounds like you can't face the fact that China is kicking your asses and teaching the capitalists in the West a thing or two about real capitalism, communist China style. If your thesis pans out, then the world is about to experience decades of deflation. I don't buy the China is overheating thesis, and strongly believe Chinese solar shares are going to take off in a huge way:
http://finance.yahoo.com/q/cq?d=v1&s=csiq,jaso,ldk,sol,solf,stp,tsl,yge
Keep an eye on these Chinese solars and be highly skeptical of the "Chinese bubble about to burst" theme that many here are convinced of.
Leo,
Why are you getting flagged as junk by so many readers here? FWIW, I enjoy reading your contrarian reflections, but be sure to have a bottle of SPF 40 sun tan lotion if by chance your solar stocks flare up and cause sun burn.
Good Fucking Lord Leo.
The ZH fleas here don't get it, read my last comment above on China and America being tied to the hip.
Leo, I'm sure that the wizards behind the curtain have tied us, (America), at the hip, to the Chinese. You have to understand that America was built on land grabs, genocide, slavery, and a enormous bounty of resources, resources that we have consumed faster than a stick of dynamite stuck up the time line of man. One morning, one of these wizards arose from his fabulous, mahogany veneered caves and realized, much to his chagrin, that there was no more land to grab, indigenous natives to wipe out, and most importantly, dwindling natural resources coupled with overpopulation. So, what we are seeing, in my opinion, is the consolidation of the entire planet by the wizards, in preparation for the end game, therefore, we are all tied at the hip.
http://www.youtube.com/watch?v=BpAxV6uUxsM
http://www.cafepress.com/shovelbums/630201
Rusty