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China: Doomed If You Do, Doomed If You Don't
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Whichever option China chooses, it loses.
Many commentators have ably explained the double-bind the central banks of the world find themselves in. Doing more of what's failed is, well, failing to generate the desired results, but doing nothing also presents risks.
China's double-bind is especially instructive. While there an abundance of complexity in China's financial system and economy, we can boil down China's doomed if you do, doomed if you don't double-bind to this simple dilemma:
If China raises interest rates to support the RMB ( a.k.a. yuan) and stem the flood tide of capital leaving China, then China's exports lose ground to competing nations with weaker currencies.
This is the downside of maintaining a peg to the U.S. dollar. The peg provides valuable stability and more or less guarantees competitive exports to the U.S., but it ties the yuan to the soaring dollar, which has made the yuan stronger simply as a consequence of the peg.
But if China pushes interest rates down and floods its economy with cheap credit, the tide of capital exiting China increases, as everyone attempts to escape the loss of purchasing power as the yuan is devalued.
This is the double-bind China finds itself in: weakening the yuan to shore up exports incentivizes capital flow out of China, forcing the central bank to torch reserves to mediate the flood tide of capital fleeing China.
But efforts to support the yuan crush exports based on a cheap currency, creating the potential for mass layoffs in sectors with razor-thin margins and convoluted black box financing. Nobody knows how many times the stuff in warehouses has been pledged as collateral, or how much debt is floating around the shadow banking system in China.
Forget the Fake Statistics: China Is a Tinderbox (August 10, 2015)
Doomed if you do, doomed if you don't: trash your currency and watch capital gush out of your economy and financial sector, or support your currency and watch your export sector's sales and profitability crater.
Whichever option China chooses, it loses. Doing nothing doesn't work, either, as the central planners' incompetence and cluelessness is now on display. The flood of money leaving China will pick up speed due to uncertainty and fear of central planning desperation, and attempts to support the yuan are the equivalent of a chemical fire burning down the export sector.
Life is tricky that way.
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After more than ten years of development, China's gold market has become the world's most fast-growing market with huge potential for growth. At present, China's identified gold resource has reached 9,816 tons, ranking world's second, according to a forum on gold and mining held recently.
http://en.people.cn/n/2015/0901/c90000-8944468.html
Its all tungsten dude just like the ghost cities.
China ? Losers. Me ? Winning. Make America Great Again !
Yes, all well said. But even further, China as an engine of global growth is dead due to negative demographics (bout to get much worse) and the popping of perhaps the worlds greatest credit bubble. The growth of the global market to export to is stalling and worthless digitally created fiat is all they get...and China's ability to become a consumer nation itself with a rapidly aging population is nil.
China is at a fork in the road and which way she'll turn, really nobody knows (likely among them the Chinese). Details in the link. http://econimica.blogspot.com/2015/08/the-chinese-mirage-no-different-than.html
And globally, the twin engines of population growth and credit growth are both failing...and no, African growth and consumption will not save us...link below
http://econimica.blogspot.com/2015/08/growth-now-and-in-2030forget-india-its.html
Costly wars are like fights are good for the young powerful nations but bad for the old nations.
China loses - everybody wins.
BTW Slave labor is not COOL.
Do you really think they would have an open of free market that allowed folks to take their gold? Heck no. China's gold just gets them addmission to the club.
LOL! Whatever, by the way, no one gets out alive...
When did the world become filled with so many cry-babies?
fuck em.
It's magic.
Entropy, know it, love it......
Go read the Russian/Syria thread. The Preppers were crying rivers.
I hope for EMP. Our bodies will still be intact for the domestic chores.
Tyler Durden: First you have to give up, first you have to *know*... not fear... *know*... that someday you're gonna die.
As the magicians tell their audience.
Focus on China while your wealth evaporates.
+1M
Wealth is already gone - time to get it back - just like what happened to Japan at the end of the 1980s.
Bitchezzzz.
The Fed finds itself in a similar predicament. It should be easing monetary policy as the economy weakens but it has used up that tool as interest rates are nearly zero.
So it does the opposite trying to show the strength of the US economy by relentless talk of a rate increase.
But sky-high US debt will not permit a rate increase.
So the Fed just lies and hopes for a way out
No rate normalization during my lifetime Bernanke
I think you answered my question before I asked it. Impressive. So I guess it's NIRP and ZIRP that's got them boxed in ???
Just a little suicide bombing...InshaKeynes!!!!!
"The American economy" - what is this?
Where have you seen "American economy"?
You mean the economy of infinite consumption in debt, which mathematically impossible to return?
Excuse me, but this is not the economy. This is called a pyramid of debts or a Ponzi scheme.
Main export item in the structure of US exports - is the export of dollars.
The so-called US economy, without an exclusive right USA to generate new US dollars, is the economy of the Great Depression.
The one thing I don't get (actually one of 100k). Is hasn't this always been the case throught the past.
So Why is it only since 2008 that these damn if you do. Damn if you don't situations are popping up more and more quickly. And now no one knows what move to make ????
They've artificially accelerated economic growth for the past few decades (turbocharged since the 80s) with credit expension - IOW pulling demand forward. But it's an exponential function, and that curve can't turn up forever.
Look at a chart of total debt in the US since the 40s; you can see that it's an exponential chart, and that in 2007/8 we broke the trajectory. We've gained some footing on that chart through 0% interest rates, subprime auto, and student loans, but there's no way we can push it up any further and it's on fumes. We've destroyed demand, real incomes, and collateral value - this really is the end game at least in terms of credit.
The banking mafia have stressed the global financial system so much that even small things can trigger big problems.
Freemarket capitalism requires that firms be exposed to both sides of the boom-and-bust cycle, which rewards innovation on the upside and punishies obsolescence on the downside.
Under crony captialism, by contrast, the politicos want to take the credit for the upside but, waking up from their nightmares in the wee hours, they know that they'll get the blame for any downside.
They have convinced themselves that their cronies among the banksters and private firms -- however bankrupt those cronies would be if exposed to a free market -- can protect them from all downsides. When actually all the cronies can accomplish is to paint the economy into the corner of a liquidity trap.
That's the place where you're damned if you do or don't. And we're in one helluva one, worldwide now.
As far as the liquidity trap goes, here's a good description of it from Denninger:
Bone-Smoking Nonsense
Just doom me.
Consider yourself Doomed.
"My greatest flaw. I surround myself with idiots."
- Victor von Doom
call me a skeptic, stupid, or what the fuck ever u want but how does anyone invest in a market where:
1. they halted 1/2 the stocks so that they are NOT allowed to sell
2. they prohibited large/institutional investors for selling for 6 months.
3. they are shooting short sellers
4. they are arresting journalists for reporting on financial news, stock market daily results
5. they may have possibly detained/arrested the head of chinese equities for 1 of the largest funds in the world
i watch these guys from fidelity, jpmorgan asset, etc. come out on CNBC & preach the case, thesis they have, but how the fuck can any logical person say they have ANY handle on what the shit is going on over there OR what their bogey result is intended to be? how do they justify their "channel checks", research, etc.? JMO but chanos is looking more right by the nano-second. obama should invite him as his "special guest" when xi jinping comes next month cuz outside of jim chanos talking to him, its nothing more than a photo opp.
Regarding #1 ... Are those stocks still halted?
Charles - really????
"Nothing is ever the fault of the “exceptional” United States. It’s not our fault that we have to spend trillions containing the evil terrorists in the Middle East while we steal their oil and occupy their countries.
And of course it’s China’s fault that the U.S. stock market is all of a sudden finding the gravitational pull of economic, financial and political fundamentals.
China must be the reason that the U.S. stock market has been bought up the highest p/e ratio in history. Note: I’m using a p/e ratio based on the way earnings were calculated using GAAP 20 years ago – not today’s garbage GAAP which enables companies to manipulate their accounting to an extreme degree.
I guess it’s China’s fault that almost every public and private pension fund in the U.S. is extraordinarily underfunded.
It’s probably even China’s fault that U.S investors and pensions gobbled up shale oil industry junk bonds like they were going out of style on the assumption that oil would stay above $100/barrel forever.
It’s China’s fault that student debt and auto loans have hit an all-time high in this country. When housing prices crash again that will be China’s fault too."
http://investmentresearchdynamics.com/blame-it-on-china/
@kaisersousa - im not saying here in the U.S. that everything is all roses but at least the accounting is what it is. you may not agree with the financial engineering (and i sure as hell don't) but at least u know what the #'s are. at least the dividends & interest you recieve on a stock or bond are real here.
as for the politics/central banks - i agree with u 100%. i laugh when people talk about the PBOC pegging the yuan, manipulating the currency, etc. we wrote the friggin book (especially the last 7 years).
what im referring to is the sheer logistics of how the stock market is supposed to function. companies like SBUX, JPM, GS, JNJ, MRK, UTX, etc. are REAL companies with earnings that can be calculated. the dividends can be banked, the interest on their corporate debt can be quantified.
again, as for the central-bank part of the conversation, u and i are on the same side; these guys are gonna get us all killed. i don't fault the executives at the major companies here in the U.S. for doing what their doing (issuing debt, buying back stock) because when u have a fed that has pinned rates at 0% and a congress/president who ONLY know how to project uncertainty (no balanced budget, not even bringing simpson-bowles to the floor for a vote) which leads to anemic growth, what else are these guys supposed to do? they try to pump out the best product/service & then of course they are going to use every trick in the book (ie. borrow $$$ at 0, buy back stock, issue dividends) because their competitors are & these guys are graded on both an absolute & relative basis. gotta change the rules (ie. clip the debt, normalize rates & that takes away the extra measures these guys enact. again, i may not agree with CEOs borrowing at 0% to issue additional dividends, buybacks, but at least we can see what they are doing.
tumblemore below provides an explanation of my perspective...
China will in due time implement changes based on the "golden rule"...and we know they have most of it and the US provided it...
time will tell...
USA ... USA .... USA .... USA!
Oops - wrong blog.
;->
Rather than steal from their suppliers, customers, employees and the future profits of their own company, corporate management can stop borrowing and buying back their stock and begin to lower their prices, raise wages and reduce dividends to reasonable levels, thereby encouraging real recovery.
There is no "corporate management" that can do the grand things you suggest. There are only individual companies, boards and CEOs who are going to make the best decisions for their individual entities. Once one company engages in a legal behavior that gives it a competitive advantage all the others MUST follow suit of die. It's a series of feedback loops that severely limit what can be accomplished through individual action.
Even though I'm a "small l" libertarian, I support a minimum wage (though implemented through a negative income tax Milton Friedman style) and serious shareholder protections and disclosures. You have to have stuff like this along with banking protections like Glass-Stegal otherwise capitalism eats itself. A perfect world of free market capitalism has not and will not exist anywhere other than Ayn Rand's wet dreams. Without some forms of regulation and consumer protections capitalism will decay to fascism every time.
watching the constant falling numbers
constant updating ZH for new updates
porkchop express
The banking mafia unbalanced the global economy by moving the supply to the east while keeping the demand in the west and pocketing the difference in eastern wage costs vs western consumer prices. However that could only work temporarily because western demand was being artifically maintained with ever increasing debt.
So currently China is tied to a doomed US.
China can detach itself from this doom by shifting it's export economy to a domestic one which means paying Chinese workers more and letting the Yuan rise - basically turning itself into 1950s America and letting America sink.
However this is a lot easier said than done.
Two things they'll want/need to do in the process are:
1) find an excuse for dumping US treasuries that doesn't look like a financial attack
2) find a way to prevent US corporations moving their China factories to lower wage locations as China lets Chinese wages grow to provide the demand they need
#2 is pretty much irrelevant as there are no Americans working in those factories anyway and the Chinese now POSESS all the technology they need.
Remember when fraud is the status quo possession is the law.
I wasn't clear. I'm saying the Chinese have to prevent US corporations moving their factories in China out of China to cheaper locations.
The last I knew, China has a 51% ownership of all those joint ventures. So, US corps will have to build new wherever they may go. China thanks us for our charity(stupidity), in advance! /sarc
So currently China is tied to a doomed US.
As is the American middle class: You choose, you lose.
There are no choices, we’re in a financial boxed canyon and the Fed is guarding the exits.
I agree it doesn't look like the US has a way out apart from an overthrow of Wall St. and as America is too diverse for a revolution that only leaves a coup. It's just possible the MIC can see that the banking mafia are taking them all down but it currently seems unlikely.
Option #3: start a war.
China’s is doomed if it does or it doesn’t; and the Fed is doomed because it did. A financial war is on its way. The Chinese are a proud people who don’t wear insults well and patience is their trump card. Here’s Jim Willie on the “oil card is the flash point,” August 31:
“Events of the last two or three weeks could not be more disruptive, dangerous, or ominous. The IMF refused inclusion of the RMB in their currency basket, clearly feeling threatened. In response, expect China to hasten its efforts to dislocate the USDollar from its perch in trade and banking. Expect extreme pressures to accelerate the increasing required usage of Chinese RMB in trade settlement. The Chinese are even more motivated after the strategically important Tianjin business center and logistics data center was converted into a crater. Langley finger prints might soon be found. Almost a full decade has passed for setting up the widespread usage of Yuan Swap Facilities for bilateral trade between nations with China. Expect a major step toward coercing the Saudis to accept RMB currency for payment in oil shipments, a movement sure to spread to all Gulf Emirate nations. The oil card is the flash point.
In time, expect an eventual refusal by Eastern manufacturing nations to accept USTreasury Bills in payment. The IMF reversal decision assures this USTBill blockade in time, and might accelerate the timetable. The United States Govt cannot continue on five glaring fronts of gross violations. These violations have prompted the BRICS & Alliance nations to hasten their development of diverse non-USD platforms toward the goal of displacing the USDollar while at the same time take steps toward the return of the Gold Standard. The violations are:
1) to import finished goods and crude commodities, paying with IOU coupons
2) to commit multi-$trillion bond fraud in its big banks, done without legal prosecution
3) to do QE bond purchases in applied hyper monetary inflation, monetizing debt
4) to rig all major financial markets in favor of the primal USDollar
5) to engage in numerous regional wars to support the USDollar.
The key step upcoming is the Gulf Emirates soon to accept RMB for oil payment from all Eastern & Asian countries, the major flash point. Such event will sound the global alarm. Coupled with broadbased RMB trade settlement and more purchase of Chinese Govt debt securities, the movement will be on to finally initiate the grand dump of USTreasurys from Eastern banking systems. Then later the entire world (except for England and Canada and certain Western European coulee nations) will diversify out of USTBonds in their banking systems. The result will be then a forced reaction by USFed and USDept Treasury to launch the New Scheiss Dollar, which will at the outset have a phony gold foundation. A formal international audit process will break down the fraudulent basis, and lead to a series of painful New Dollar devaluations. Then comes the import price inflation, the supply shortages, and the civil disorder."
REPO Window Hidden $Trillion QE Monthly Volume | Market Oracle
http://www.marketoracle.co.uk/Article52082.html
The RMB is more manipulated than the $USD. The $USD is a bad bet. It is also the safer bet.
First, hand the baton of the petro dollar to China as oil bottoms. Then we can blame the eeeville Chinese for the next round of rampant inflation.
Since all else will fail. Yep, I think war sounds about right.
Gerald Celente does too https://www.youtube.com/watch?v=l0WW7XbBknk
"My greatest flaw. I surround myself with idiots."
- Victor von Doom
CHS- an armchair expert, a one-man show, on global finance, politics, and economics.
China lost because it tried to follow down the path of western capitalism at a late stage in the game.
All those free factories built with the savings of gullible Westerners who were too busy staring at themselves in the mirror(FaceBK). What's not to love?
One day we are going to wake up and the OTC derivatives will have locked up the entire world wide trading system. Trillions gone in the blink of an eye. Your ATM's and credit cards will not work. This is the Great Reset coming to a bank near you......
Just waitin' for today's report of another big explosion somewhere in AJPC
Gotta keep them broken windows comin'
The Supply Side Economics (SSE) did us all. Yes. Under this benign name the SSE represent an extreme radical and dangerous ideology based on the unfounded (or rather borrowed) believe that "If we build, they will come" supply side fantasy that implicitly assumes that the real demand (nominal demand minus debt incurred) needs not be of any concern to the economic, financial and political decision makers, spelling the decades of doom to the people who work for living and created a paradise for the parasitic rent seekers, financial oligarchs and their government cronies.
The China's case is very instructive.
The Chinese SSE extremists in concert with the western Oligarchs were building all their fantastic economy out of this fallacy for decades, supported solely by the well preprogrammed “miracle” of the debt fueled western world demand for the Chinese useless widgets while the real demand (except for 100 millions of the gluttonous courtiers to the China’s corporatist regime) stemming from the 1.2 billion of Chinese population remains low due to the historical “long economic outlook and savings culture” and actually enhanced by the increased instability after 2008.
Now when the process of the overleveraging and pauperization of the western working and middle classes nears completion, China’s rulers find themselves confused by the past prophets, disciples of the SSE (graduates of the CSE) searching for some support for the real demand within the Chinese economy and not surprisingly, not finding it.
Now the Chinese political leadership has to face the same fate for their own population as they observed with satisfaction in the west for decades i.e. permanent collapse of the standard of living of the working people and later the middle class, a (nominal) deflationary economic death spiral driven by the collapse of the people’s income and hence collapse of the demand for commodities, services and basic economic activities.
And the Chinese seem to be going exactly on the same road to hell as the Japanese, Europeans and the US by pondering the destruction of the Chinese population savings via a ZIRP like economic holocaust, being unable to invest at home anymore, without blowing another bubble, seeing the way out through the export of the capital instead via the AIIB and dedolarization exactly as the US did after WWI and WWII. But as a nationalistic totalitarian regime, Chinese have an ace in their sleeves, namely “9/11” type event that would redirect the attention of the nation from their catastrophic economic plunder toward the outside enemy but this time not Al-Kaida but the Japanese militarism, ironically the US and Japanese plays into their hands.
More on the China’s mess and the US economy from truly independent perspective can be found at:
https://contrarianopinion.wordpress.com/economy-update/
This means Waaar, but they have the factories.
https://www.youtube.com/watch?v=S72nI4Ex_E0
It's funny how much the young arrogant prick(Charles) resembles a young Lindsey Graham. Same cast, different war.
_________(Insert Global Debt Based Fiat System Corporation Name Here): Doomed If You Do, Doomed If You Don't
Unfortunately almost everyone hasn't done enough forward thinking strategically and delivering to that plan. So now there is no easy transition for any of us fast enough out of the inevitable foreseeable failure of this system without incurring serious consequences.
We're all in a similar boat. And anyone going it alone is almost assuredly going to sink hard and fast in the planned financial storm. The sooner everyone realizes this the greater the chance we all have to avert a disastrous financial outcome and what awaits after this.
As I pointed out before taking the national or regional approach is a hedge and a losers game. You'd be focusing your efforts on minimizing the impacts of what you should have already seen coming and had in place. Is there any government that isn't guilty of this? After all if they haven't properly planned for these events then you'll just need them more when they fail. Or someone on the other side of failure will be waiting with a ready made solution. And you'd better believe anyone that planned more than a government for a solution isn't waiting with your best interests in mind. Have you ever wondered why a few preppers are such a threat to governments?
The fall back and disaster recovery plan should have already been prepared before anyone moved forward. But as with all (100%), and I rarely use absolutes, of the corporations I've ever worked with these are afterthoughts or minimized and not part of full planning and delivery.
The more effort each country puts into the fall back plan and disaster recovery now at this late date the less will be put into finding creative ways to motivate everyone to work together. And the more likely we'll go forward right into the planned outcomes. I'm not going to entertain anyone by providing more dates or antagonize those that also know and have planned both the dates and events. Those responsible are welcome to confess and contribute to everyone's success any time.
It should be possible to find a happy medium and reasonable compromises in the US/China dialogue. But for that to happen, is is necessary for the participants and commentators to put aside the propaganda, demagogy and chauvinism that has characterized this dialogue so far. This seems very unlikely to happen. Let us begin by acknowledging that the recent devaluation of the yuan was necessary to offset the rapid rise in the exchange rate of the dollar: dollar up 17%, yuan down 4%.