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Why China Is So Desperate To Blow The Most Epic Stock Bubble
Over one and a half years ago we put in perspective the amount of money creation by China compared to the the liquidity injection by the Big 3 "developed world" central banks. The result was stunning.
This was as of November 2013.
Since then both the Chinese money machine, as well as those of the central banks has kept on pumping in injecting liquidity (in the process withdrawing liquidity from markets as Citi's Matt King pointed out three weeks ago). A quick update comparing just China with the US shows that as of the most recent period, Chinese banks now have just shy of $30 trillion in assets, compared to almost 50% less for US banks.

To be sure, China's gargantuan, unprecedented debt-issuance spree is nothing new: we have covered it extensively over the years...

....noting all the way back in 2012 that "If one takes the chart above showing the absolute level in Corporate debt, and assumes this is a valid proxy for total leverage growth across all other sectors, one can say, with a straight face, that if all Chinese debt on and off the books, including shadow leverage, were to be pooled, it would make America's grand consolidated debt (excluding the $100 trillion in entitlements) of 345% appears quite modest."
Three years later, McKinsey agreed:
And here also, three years later, is Goldman admitting that China's "Credit-led growth has created one of the biggest debt build-ups in recent years." This is how Goldman explains what happened in China to launch this massive debt-funded growth:
... after the onset of the global financial crisis and the collapse in world demand, exports collapsed. The Chinese government’s response involved large infrastructure outlays via bank financing. This led to a notable increase in China’s credit intensity, as investment growth is a more credit-intensive than exports and consumption, with heavy borrowing requirements and long payback periods.
This can be seen from the growth in China’s nominal GDP and in total social financing (TSF), which is an aggregation of credit in both the banking and non-banking sectors. As shown in Exhibit 1, nominal GDP fell sharply in 2008, but rebounded strongly in 2009 following the sizeable increase in TSF. We then saw TSF growth slowing in 2010/11, although nominal growth held up as exports rebounded sharply. As export growth fell in 2012 and TSF growth slowed, nominal GDP dipped in 2011/12. We then saw TSF growth reaccelerate in 2012H2 to support growth. Since early 2013, TSF growth has decelerated again, as has nominal growth. This deceleration has continued in 2015, accompanied by additional loosening measures.
Then something changed: China realized that alongside record debt comes record bad debt.
We noted as much in the summer of 2013 when we reported that as China scrambled to intercept the relentless surge in non-performling loans, it would moderate its hollow, debt-funded growth. This was part of the new Politburo's stated directive of reorienting the Chinese economy away from being entirely reliant on debt issuance to depend on more conventional growth catalysts; it also explains why China's growth rate has plunged in the past 2 years and has officially dropped to a level just around 7% ...
... and unofficially to just above 1%.
China did this almost entirely by choking off the growth of its most opaque funding sector residing within China's "shadow banking" system: trust issuance, non-discounted bills and local government debt. These are the highlights we noted in November in "China's Shadow Banking Grinds To A Halt As Bad Debt Surges Most In A Decade"
[W]hat is the main culprit for the contraction in China's all important credit formation? In two words: shadow banking... as China finally reveals little by little the true extent of its gargantuan bad debt problem, it is also slamming the breaks on the shadow banking system that for years what the sector where marginal credit creation, and thus growth as well as bad debt formation, was rampant.
If the shadow banking collapse virus has finally jumped to China, there is no saying just how far Chinese GDP can drop if it is now constrained on the top side by surge in bad debt. One thing is certain: Japan's paltry, in the grand scheme of things, expansion in its own QE will barely be felt if the record Chinese credit creation dynamo is indeed slamming shut.
Six months later, others caught on: first it was RBS, whose Andrew Roberts recently said China accounted for 85% of all global growth in 2012, 54% in 2013, and 30% in 2014. This is likely to fall to 24% this year. “If there is only one statistic that you need to know in the world right now, this is it."
In other words, without China's rampant credit creation, without an out of control shadow banking sector, not only is China's growth doomed to a long period "secular stagnation", to use a popular term these days, but so is the entire world.
Goldman agrees:
China’s policy response to the global financial crisis created one of the largest debt buildups as a share of GDP seen anywhere in the world over the past 50 years. Cognizant of the risks of such a large credit buildup, since early 2013 (when the current Chinese leadership took over), we have seen a notable shift by policymakers to make credit provision more transparent and productive. As discussed above, there was a notable rebound in TSF in 2012/2013 as GDP slowed. That TSF growth was, to a large extent, driven by the growth in trust financings, an area we have highlighted as one of the riskiest segments within China’s credit market. To control risks, policymakers made several attempts at curbing the growth in trust financings. In June 2013, 7-day repo rates spiked to as high as 28% intraday, as interbank rates were pushed up in an attempt to reduce the funding to the trust sector; and in mid-2014, the Chinese banking regulator adopted a number of measures, including restrictions on the informal securitisation of certain credit products and reiterating prudent risk management requirements. These measures successfully reduced the growth in trust financings, with net new trust financings (i.e., new issuance less redemptions) hovering around zero over the past ten months (Exhibit 2).
China succeeded in crushing its shadow banking sector, but at the expense of growth:
The administrative measures discussed above have been successful in controlling the riskiest elements within China’s credit markets, as both trust financing and LGFV financings have been contained. However, they have also had the effect of reducing the overall growth of TSF. In our view, these risk control measures have had the impact of not only controlling credit supply, but have also compounded the effect of weak growth in dampening credit demand.
We are confused why Goldman is confused by this: if rampant, out of control credit creation led to a burst of economic growth (built on hollow, non-performing loan foundations), it is only logical that as the flow from the shadow banking conduit is eliminated, so is a major portion of China's GDP.
Sure enough:
Risk control measures and weak credit demand have dampened credit growth since the beginning of 2013, leading to a slowdown in GDP growth. To revive GDP growth, policymakers have undertaken a broad range of monetary easing measures, including lower interest rates, a reduction in the RRR, and other types of liquidity injections into the banking system, such as open market operations.
Here, however, China encounters a unique problem: unlike other central banks who will gladly crush their currency to boost exports and to stimulate corporate profits of multinationals, in China outright currency devaluation has been largely taboo for one main reason: the PBOC is terrified of capital outflows. In fact, as we showed recently when charting the combined Treasury holdings of China and "Belgium", China appears to have been selling USD-denominated paper to fund the tens of billions in recent reserve outflows.
Note: the above capital flight has taken place even as the PBOC has kept the value of the Renminbi roughly flat, and in fact the CNY has appreciated drastically in recent months after declining in the early part of the year. One wonders how this chart would look like, and what would happen to US bond yields, if Chinese outflows accelerated in earnest, and China's selling of US paper followed suit.
And since China is also contemplating whether to join the IMF's Special Drawing Rights basket, which would require a stable currency, China has found it is next to impossible to devalue its way to growth: unlike the BOJ, the PBOC and the Fed in the past 7 years where currency debasement has been the only source of "growth", albeit fading judging by the accelerating plunge in global trade volume (we ultimately believe that China will find it has no other option than to engage in Western-style QE before too late).
But while in addition to currency devaluation QE far more importantly also leads to soaring stock markets, also known as the "wealth effect" transmission channel, China can bypass all the unpleasantness of capital flight and currency devaluation and skip straight to the desert: a massive stock market surge, built on absolutely nothing but hopes of even more central bank interventions: a surge so big in fact China's Shenzhen market is up 100% in 2015. Which is precisely what happened overnight.
But wait, that would mean that for China reflating the stock market bubble, which is far more shallow and penetrated by the domestic population than its comparable in the US or any other western nation, has become a policy mandate, same as in the US and every other western nation.
Bingo.
Goldman explains:
The equity market now plays an important role in terms of both the short-term policy objective (i.e., delivering this year’s growth target) and structural reform ambitions. Policy makers appear to have taken a largely benign view of the equity market rally, which, if sustained, can boost GDP by 0.5pp on our estimates through trading-related financial activities, and could add another 0.2pp or so through a rise in consumption from market wealth generation. We also see further potential benefits from ‘equitisation’ as it helps to replace debt with equity financing.
Wait a minute: isn't it rising GDP that boosts stocks, not the other way around? Or did Goldman just invent the world's first financial perpetual engine? Does that also mean that should the S&P crash back to its ex-$22 trillion in central bank liquidity fair value of ~400 that US GDP will be some 20, 30 or more percentage points lower (on any seasonally adjusted basis)?
Rational thought aside, what Goldman just confirmed is the following:
- China's credit growth in the Lehman aftermath was the dynamo that kept the world afloat from 2009 until 2012/13
- Starting in 2013 China realized it has a big problem due to its nearly 300% in debt/GDP, and a soaring bad debt problem which threatens to metastasize into a default domino wave.
- In mid-2014, Chinese shadow banking effectively ground to a halt, leading to a sharp contraction in both Chinese and global GDP (this explains the collapse in US Q1 GDP, just don't tell anyone at the Fed which is too busy fabricating seasonal adjustment factor to account for all of the above).
- Also in mid-2014 the Chinese relentless stock market rally started, which rose by 50% in 2014 and is up another 50% since then.
In other words, as China's shadow banking bubble burst, China's stock market bubble was given the Politburo's official blessing.
This explains why despite what is quite clearly the world's biggest and most visible asset price bubble since Nasdaq in the year 2000, China will do everything in its power to keep the bubble growing, massive - and pervasive - stock frauds such as Hanergy notwithstanding.
Which is fine, however now the fate of not only millions of Chinese habitual gamblers...
... but suddenly the fate of China's economic prosperity, and that of the entire world, is in the hands of the Shanghai Composite, which needs to keep growing at about 2-3% each and every day just to keep the illusion of China's growth, and preserve the illusion of global economic expansion.
It also means that now the credibility of each and every single banks will depend on maintaining the world's biggest coordinated stock market blow off top: should the pace of expansion slow down, it would mean loss of faith and confidence in central planning, and thus in the very foundation on which the "recovery" of the past 7 years, both in capital markets and the underlying (or is that overlying) economy rests.
Said otherwise, when the Chinese stock bubble bursts, the shockwave will be heard around the globe, but at least it will unleash even more comedy from America's weathermen-cum-economists, such as triple- and quadruple-seasonally adjusted data. Because even though the answer for the global slowdown is staring everyone in the face...
... one must always fabricate stories to "explain" why the world's biggest experiment in central planning, where now even China is all in, is failing one limit up stock at a time.
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The US has plenty of problems, but China has its fair share as well. I am not so sure China is going to roll over the US in the inevitable upcoming monetary shift like so many are convinced. Possible, sure, but not the given that many seem to think.
Greatest con game in history: Capitalism.
You bolded your text so you must be right. /s
As if these bubbles have anything to do with capitalism. Go try somewhere else.
I signed in just to upvote you. You performed a piledriver on that comment, very well stated. What the central banks are doing is the exact opposite of capitalism.
what the central banks are doing are signs of the peak maturity of capitalism ... it is capitalism in its dying stages
Peak maturity of capitalism? The US has already demonstrated that capitalism doesn't need a central bank to flourish -- in fact, capitalism is much better off without one. Central banks short circuit the necessary creative destruction requried to keep a capitalist society healthy.
The same can't be said for socialism; a central bank is the only way to enable the statists' Utopian agenda.
"...when charting the combined Treasury holdings of China and "Belgium", China appears to have been selling USD-denominated paper to fund the tens of billions in recent reserve outflows."
so where are the reserve outflows gone to? Not to fund all the "Hanergy(s)" in HKSE?
Gold, roubles, and other EM currencies (and loans to EM countries who are actually in crisis, i.e. Argentina, Brazil, various African countries, etc.). so there has been little in "outflows", but rather a recomposition of reserve assets.
regarding the "bubble", the HSCEI (i.e. the investable China index for most of the world) is at a stratospheric P/E ratio of... wait for it... 10. Analogous A-shares (i.e. big-caps) have P/E of around 11... i.e. they are at a slight premium. Even at an 11 P/E, they are not expensive by historical or cross-country comparitive metrics. They have simply been beaten down for so long by western hedge funds and ignored for so long by domestic investors (in lieu of property); domestic investors are very cash-rich and have to deploy their money somewhere. Chinese big-caps could easily double before being considered fairly-valued along most valuation metrics, and could easily triple given how much cash the Chinese have... remember they save ~60% of income.
This can't be.
Zero Hedge reminds its readers daily as to how China and Russia are so much healthier economically, militarily & socially than the U.S. or most other nations daily.
There can't be a Chinese stock Ponzi market...China is destined to rule the world.
"This can't be...
China is destined to rule the world."
You're assuming their QE (for the sake of global economic expansion) would blanket the non-performing loans blow up?
Central bank is not capitalism, it is distorted socialism -and by distorted I mean as opposed to "society" as a whole owning a central authority it's the banking cartel that owns the central authority which dictates interest rates. In capitalism markets dictate the interest rate, and by markets I mean borrowers and lenders negotiate amongst themselves as to what interest the borrow should pay and the interest that the lender should collect based on fundamentals.
"... but suddenly the fate of China's economic prosperity, and that of the entire world, is in the hands of the Shanghai Composite, which needs to keep growing at about 2-3% each and every day just to keep the illusion of China's growth, and preserve the illusion of global economic expansion."
So Fed raising rates will help the equity bubble...and preserve the illusion of global economic expansion, no?
Capitalism is just the natural dealings of men. It is self interest (and no, not to the exclusion of charity etc). Socialism is the scam of political force capturing the wealth created by others to benefit the political inner circle while promising a bit to the little people.
Capitalism was just a name given to a process for the industrial revolution. It is a great boogeyman for those who can't or won't produce on their own. It is a cry of envy. If man were not motivated to create wealth the species would have never moved out of the trees.
Socialism is about to end. Marx was wrong at fundamental levels. When the promise of cradle to grave security is finally seen to be a scam it will die along with all the other fantasies of utopia.
I'd want to see the SSE's cock too if it gave me 100% returns
I am sending my wife to China to give birth.
Zero hedge?
But they have all of those purty ghost cities.
1. They're into Extreme Capitalism, giving us a glimpse of the unvarnished version of actual modern Capitalism, not the piexi-dust Capitalism they teach in 'Merican schools.
2. TYLER, now show us the UNFUNDED LIABILITIES of the same countries. Betcha that China has a LOT more 'flexibility' than does the West, before you have a civil war on your hands.
Everyone knows Asians are good at copying. They saw what Greenscam and the Berstank did and got right to work. Plenty Chop-chop.
Desperate to attract investment inflows, as the trend has been net outflows for a few quarters now.
"Look at our bubble! Doesn't it look enticing?"
What happens to all of this if the fed raises rates? Will it crush China? If so, I think they'll do it.
Right. The Fedgov, and WS, have already started grabbing Japanese pensions. This would stampede more Chinese money into the US to take it's place.
it's only clown-yuan
Right on schedule.
1. Soak up all the Phys-processing
2. Destroy the worlds fiat currencies-processing
3. Ban phys/outlaw cash-processing
4. Introduce NWO currency for checkmate.
5. Eat raw new born babies at satanic festival-Scheduled
Chinese are great copiers - but totally lack independent critical thinking.
I've heard this tale before. Remember when the Japanese were going to take over the world? Today the Japanese wish they could forget.
Selling Westerners crap they didn't need for money the West didn't have was never a sustainable business model. Not for Japan, not for China.
Starting in 2013 China realized it has a big problem due to its nearly 300% in debt/GDP, and a soaring bad debt problem which threatens to metastasize into a default domino wave.
The key to proper management of any Medium of Exchange (MOE) is to assure that "all defaults are mitigated by equal interest collections" as they occur.
This article mentions a "soaring bad debt" problem. But the article does not show the bad debt problem at all. It just keeps mentioning it in passing.
The proper way to illustrate this is to provide time series of outstanding "promises to complete trades" and "failures to deliver on trading promises". To be meaningful, this should be shown in absolute terms as well as a ratio (promises broken to total promises made). If "broken promises" are growing fast but at a rate lower than growth in "promises made" that's good ... not bad. This likely just means more people are using money to complete simple barter trades over time and space. That's what money does. The article does not give us this perspective.
And with a properly managed MOE, there is "no domino effect".
Good luck getting that data from China.
Good luck getting the data from the USA.
For the ones who didn't get his status-quo-supporting euphemism:
"all defaults are mitigated by equal interest collections" means all defaults are to be socialized!
"all defaults are mitigated by equal interest collections" means all defaults are to be socialized!
Right ... just like insurance claims are socialized.
Managing money is just like managing insurance. You underwrite trading promises (like underwriting casualty risk) using actuarial techniques to arrive at interest collections (like insurance premiums).
Under proper insurance management, CLAIMS = PREMIUMS and the income is the investment income. High risks pay high premiums. Low risks pay low premiums. Social stratification.
Under proper MOE management DEFAULTS = INTEREST and there is "no income" ... just a small administration fee which shows up as a very small (orders of magnitude smaller than default interest mitigation) interest collection on everyone. Deadbeats pay high interest. Responsible traders pay low interest. Social stratification.
Under our improper MOE management, fees are astronomical; high risks (governments ... they default on everything) pay low interest; low risks pay high interest; no records are kept (as reported time series) of defaults so actuarial analysis is impossible.
You can try all you want to twist the logic:
1. Insurance in the original meaning, is a choice.
Putting money into riskier investments should stay one too.
2. False choice: Just because equal socializing is a tic better than only the poorer 99.9% taking the losses, doesn't mean it's a good solution, much less the best possible one.
'"all defaults are mitigated by equal interest collections" means all defaults are to be socialized!'
No - all defaults are to become losses, or reduced profits, of the owners of banks, who risk their wealth to engage in a profitable business.
The job of banks is to insure the value of the money which they create. If the borrower doesn't sell something of value to obtain the money needed to repay the loan, the bank's owners' financial capital is destroyed instead.
It's only when the banks are allowed to continue operating when insolvent (fewer assets than liabilities) that defaults become losses to anyone else. That's why the (thoroughly-ignored) Prompt Corrective Action mandate of the FDIC is so important.
No - all defaults are to become losses, or reduced profits,
Are you talking the present system or a properly managed system. Today banks charge in interest what the market will bear and use this now to create their business cycle farming operation. If banks worked in our MOE correctly, interest collections would exactly equal defaults ... all the time, everywhere ... instantly. In other words, it's the deadbeats ... not the depositors ... that pay the interest. In a properly managed MOE, there are "no" depositors.
Banks ... today and throughout history ... risk none of their own wealth. Start a bank with $1M. Make 4% on your spread. Loan out 10x as much money as you put in for 2 years yielding 40% return. 40% doubles in two years. Pull your $M back out and leave the other $1M ride. You have "none of your own skin in the game" after that. Too bad we all can't be bankers. In a properly managed MOE we all could be and the world would be a much better place.
Banking today is "not a job". It's an exploited opportunity. Traders create "real" money ... not banks. When "you" buy a house with a mortgage, "you" create the money ... not the bank. It's traders who pay back the money when they complete their trades. If they default, other traders make up the default with higher interest collections. If the bankers do a poor actuarial job and don't collect enough interest to cover defaults, the bankers and depositors should lose ... but really, the central banks just counterfeit money to cover the loss. If the depositors lose, they pull their money and you have the "run on the bank" which immediately destroys the system. Under proper MOE management, that "can't" happen.
So maybe you're kind of right ... the "Prompt Corrective Action" of the FDIC is important. But they're using the wrong input data. They're using the wrong technique. The corral is completely empty by the time they see the gate is open. They are improperly managing our MOE.
And notice ... the FDIC is an insurance company, funded by depositors and borrowers. It's "not" the manager of our MOE.
Are you talking the present system
Yes - the present system.
If banks worked in our MOE correctly, interest collections would exactly equal defaults ... all the time, everywhere ... instantly
The losses are always going to be spread out somehow, like in insurance. If the banks knew in advance exactly who would default, they would not lend to them, just like if insurers knew in advance whose house would burn down, they would never insure them.
Banks ... today and throughout history ... risk none of their own wealth. Start a bank with $1M. Make [$2M profit]. Pull your $M back out and leave the other $1M ride. You have "none of your own skin in the game" after that.
You could say the same of any business.
When "you" buy a house with a mortgage, "you" create the money ... not the bank.
I'd say it was created jointly by the bank and the borrower. The bank notes that it owes you $250,000 (you have that much deposit), and that you owe it $250,000. You then buy your house by transferring that deposit to someone else, so that the bank owes the previous house owner $250,000.
You then have to sell something worth $250,000 to pay back the loan, in the process taking that much money out of circulation. It is then given to the bank, and then destroyed when the loan is removed from the bank's books.
I agree with you that when the losses are too high, the central banks worked with the governments to hide the losses via so-called QE, essentially socialising the losses. And it should not happen - I don't see the difference between that and theft, the only difference being that by borrowing the difference to bail out the banks, the decision as to who will suffer the losses is delayed.
I do think that Prompt Corrective Action, where the FDIC is supposed to seize and liquidate a bank before it gets too close to becoming insolvent, is a reasonable solution. It just needs the assets to be fairly valued - not mark-to-fantasy. As long as it is prompt, the only losses will fall on the owners of the banks.
I agree with you that when the losses are too high, the central banks worked with the governments to hide the losses via so-called QE, essentially socialising the losses. And it should not happen - I don't see the difference between that and theft, the only difference being that by borrowing the difference to bail out the banks, the decision as to who will suffer the losses is delayed.
It's not theft. It counterfeiting. The effect is inflation. A properly managed MOE has zero inflation.
I'd say it was created jointly by the bank and the borrower.
The key difference is "what happens with defaults". With the current system, the banks are supposed to pay the defaults. They do this through their interest collections (which are unnecessarily high because they charge what the market will bear and pocket the difference). In a properly managed MOE, defaults are immediately reclaimed by equal interest collections. As "traders promises" heat up, defaults begin to appear with market saturation; interest collections go up; traders promises become more realistic. It's an automatic negative feedback system ... just like insurance premiums and claims.
I agree with you that when the losses are too high, the central banks worked with the governments to hide the losses via so-called QE, essentially socialising the losses.
The problem with the current system it that when losses are too high, MOE manager counterfeiting begins to avoid taking money from depositors. If they take money from depositors, the depositors flee ... and the house of cards falls down. Money creation becomes totally counterfeit.
In a properly managed system that reacts instantly (or proactively using advanced actuarial concepts), DEFAULTs always are exactly equal to INTEREST collections. There is always perfect balance between supply and demand for money (it's the nature of a trade and money is "a promise to complete a trade").
Defaults are virtually all covered by interest collections except when it comes to governments. Governments never deliver on their trading promises. They just keep rolling them over and rollovers are defaults. Since they pay the lowest interest of all, that segment of the market causes INFLATION. INFLATION is a form of taxation that predominates government financing. Direct taxation barely pays the interest.
Join the fun...buy YINN - triple leverage bliss...
Sum Tin Wen Wong...It's all his fault!
Xi doesn't seem all that concerned. They're buying shit everywhere - and making 'sand castles' in their spare time...
It seems competitive, like they are not working together. If there is competition instead of cooperation then we would expect to see one system outdoing the other. In other words it is a financial war that both systems print to get to a point of dominance in tech and in power over the other. It could work out ok 1000 years after the bombs go off.
Yawn... here's a much more accurate description of Chinese debt absent the scaremongering
http://www.forbes.com/sites/kenrapoza/2015/05/21/china-debt-bomb-more-li...
A bit like the "Russia appears to be doing alright - but you just wait - it is DOOMED" meme, for the last ten years we have been warned of the impending crash of Beijing, Meanwhile, the Chinese economy has more than doubled overtaking that of the US - and for those of us who play these games, it has been highly profitable,
I think data from China should be discounted as the real test will come after July 1 when the RMB will go partially convertible. Lets see where China's corporate cash will go as well as its exchange rate. My instincts tell me that it is going away from China at the moment which will compound the issues with Chinese growth that are directly related to environmental issues of living "under the dome"
do you swear to tell the truth
the one located at Wall & Broad, right?
How about the con-man UPOS (Unidentified Piece Of Sh*t and his insatiable Mooch) squatting in the white mosque on Pennsylvania Avenue. masquerading as POTUS.
The Democraps have waged war upon the American populace and nearly destroyed the nation, without firing a shot.
Yet the secret cabal that gives orders to Obysmal is responsible for the destruction of not only life in America but the whole world as well. Since November 1963.
The Democratic wing of the Noodleman/Neocon party is hardly any worse than the Republican wing.
They both sing out of the same song book while the MSM compliantly nods along.
"Today nobody seriously considers possible alternatives to capitalism any longer, whereas popular imagination is persecuted by the visions of the forthcoming ‘breakdown of nature’, the stoppage of all life on earth– it seems easier to imagine the ‘end of the world’ than a far more modest change in the mode of production, as if liberal capitalism is the ‘real’ that will somehow survive even under conditions of a global ecological catastrophe."
— Slavoj Zizek, Mapping Ideology
"The fact is, capitalism penetrates much more deeply into our existence. That system, as it was established in the nineteenth century, was obliged to elaborate a set of political techniques, techniques of power, by which man was tied to something like labor - a set of techniques by which people’s bodies and their time would become labor power and labor time so as to be effectively used and thereby transformed into hyperprofit. But in order for there to be hyperprofit, there had to be an infrapower [sous-pouvoir] . A web of microscopic, capillary political power had to be established at the level of man’s very existence, attaching men to the production apparatus, while making them into agents of production, into workers. This binding of man to labor was synthetic, political; it was a linkage brought about by power. There is no hyperprofit without an infrapower."
- Michel Foucault, Truth and Juridical Forms
"The infant capitalism of the late feudal and absolutist periods had grown to adolescence at the end of the 18th and beginning of the 19th centuries. By the early 20th century it was entering maturity in Western Europe and North America. As such, it showed many of the features of the society we live in today. One consequence was that people began to take these features for granted. In the early industrial revolution, people had been shocked by the transition from rural life to industrial labour. They had often looked to the past for some remedy for their ills—as when the Chartists set about a scheme of establishing small farms. The sense of shock had gone by the beginning of the 20th century. People could still be amazed by individual innovations, like the motor car or electric light. But they were not shocked any more by a society built on competition, timekeeping and greed. Capitalist society was all that people knew. Its characteristic forms of behaviour seemed to be ‘human nature’. People no longer realised how bizarre their behaviour would have seemed to their forebears."
- Chris Harman, A People’s History of the World
Great article.
WE ARE FUCKED
THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
The global cluster fuck ahead of us. Can't wait to see this movie.
Greenspan blew bubbles.
Bernanke blew up many many more
Yellen is busy with handling all these bubbles and more.
But somehow all these bubbles have not burst.
Now the Chinese are fed up since these bubbles have not burst.
And decided that the only way to burst Wall St bubbles is to make one big bubble of their own and burst it at a time they decide.
The Chinese finger is pointed up Yellen's ass.
You're imputing too much centralized agency in the China stock market bubble... (you say " for China reflating the stock market bubble...has become a policy mandate"). the rise in Chinese stocks can't compensate for the bursting of the shadow banking bubble. it can't and won't stem capital flight. what could make you think this? Chinese authorities are likely very aware that such an equities bubble only adds further risk to their stumbling economy, since what goes up must come down... you think this culture that thinks on a very long-term basis would suddenly put all its eggs in the (short-term) equities basket, just to shine up its GDP by an extra half point? especially after seeing what kind of crashes come out of the West? You're forcing it, here, Tyler.
Rather the Chinese are most likely trying desperately to shore up their currency in order to have an alternative to the dollar when the West crashes -- trying to do this despite and in the face of all their headwinds including the stock market insanity.