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Guest Post: Welcome To The Future

Tyler Durden's picture




 

Submitted by NJBDeflator

Welcome To The Future

In May I wrote:

"The world econo-politocal paradigm is shifting, and it is shifting very rapidly due to the dire implications of a decade-long international financial crisis.  We can no longer rely on what were sound economics to lower unemployment and dissolve developed nation hunger problems.  We are entering the age of a world government, and an age of sovereign financial engineering, because these are the luxuries that political evolution have granted us.  It is already clear that the US Federal Reserve, the ECB, and the IMF have been running the world economy over the past decade (Greenspan's low rates brought us in, Bernanke/ECB/IMF are working to get us out), but what is not so clear, is what their role will be in the coming years." [May 19, 2012]
 
In the US and Europe we have slowly come to the realization that traditional accommodative economic policies leave, and have left, the real economy limp.  Wildly divided governments don't help, but beyond the fact that western decision making bodies are polarized, it is abundantly clear that the panacea for the global economy is not even on the table right now.  The western world has been thrown into a bout of sovereign game theory, and by the constructs of game theory itself, one country will "win," while everyone else will lose to varying degrees.  But that we are such a highly integrated global economy--the reason the whole world is heading towards recession right now--means that a solution must incorporate every economy around the world.  The current game Europe is playing is bound to fail because if one country gets their way, others lose by definition.
 
There is an exception to this paradigm, though.  And yes, you guessed it: it's China.
 
 
GDP growth rates since 1990.  Source: World Bank via Google graphs.    
 
Over the past two decades international GDP growth rates have essentially been flat, while that of China has nearly doubled.  Global growth rates (sans Greece) took a nose dive in 2008 and rebounded in 2009; China's remained steady at 10%.  Following the rebound in 2010, global GDP growth rates  started falling rapidly, with many (European periphery) heading into recession territory.  China is slowing at a much more controlled pace, and China's 2012Q2 GDP growth numbers came in at 7.6%, which is right in line with analysts' expectations and quells the notion of a Chinese "hard landing."
 
Unemployment paints a similar picture.
 
Unemployment rates since 1990.  Source: World Bank via Google graphs.
 
There are many reasons for China's economic resilience: rapid urbanization, accelerated growth from foreign inflows that befall all emerging economies, and a strong export sector, to name a few.  What seems to be the over-arching reason for China's strong ascent, though, is its government intervention: China's hybrid of proactive fiscal stimulus peppered with a rate cut and liquidity injection here and there has proven to be a winning combination for the world's second largest economy.  This government intervention--which harkens back to the interventionist days of Mao--is very appropriate for China.  Still classified by the CIA's World Factbook as a communist state, such government intervention is to be expected of China.  What is odd, though, is that no one really plays the communist card when it comes to the Chinese economy.  Americans are quick to the draw when a story of Chinese censorship hits international news wires, but withhold such judgement when it comes to economics.  I think this is because China's big government is frankly working.  They have taken their communist nature and applied it in the most pro-business, pro-economy, and pro-development way.  This is why Americans can't say the c-word when it comes to the Chinese economy; we are jealous of the Chinese story, so much so that we fear the Chinese yuan overtaking the US dollar as the global reserve currency.  China recently opening swap lines with BRICs and other trading partners ($100billion with Australia) does nothing to abate these fears and further illustrates a strong Chinese economy in years to come.
 
China is defining 21st century sovereign financial engineering, and it is working.  Granted stories of extreme excess production of Chinese airports, apartment buildings, and shopping malls abound the media, but something tells me that China has an answer for that.  If China is able to successfully engineer their way out of this financial crisis, we will see other sovereigns begin to engineer their economies (though it will never be called such a thing).  
 
As a global economy we have clearly hit some sort of economic wall.  The western world is trying to drill through it; China decided to build a ladder.
 

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Sat, 07/14/2012 - 21:50 | 2616635 Cabreado
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Patriots Wanted.

Sat, 07/14/2012 - 22:55 | 2616724 Dr. Engali
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 " We can no longer rely on what were sound economics to lower unemployment and dissolve developed nation hunger problems"

WTF has this guy been smoking ? When have we had sound economic policies ?

Sat, 07/14/2012 - 23:40 | 2616776 LowProfile
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Lol!

The rest of the comments here are pretty damned merciless as well (and funny!).

Well, at least he can't say he wasn't warned!!!  http://www.zerohedge.com/news/guest-post-does-central-bank-gold-buying-s...

Sat, 07/14/2012 - 23:56 | 2616789 Dr. Engali
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That's pretty funny.

Sun, 07/15/2012 - 00:02 | 2616799 LowProfile
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Reminds me of college when one of my friends had a ten or two too many and just HAD to bang that HAWT chick.

"Dude, I'm trying to help you.  Don't do it."

Next day, there he was with his arm chewed off because she fell asleep on it and he woke up first.

Sat, 07/14/2012 - 21:54 | 2616640 otto skorzeny
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other than the fact that China is a massive enviromental cesspool-everything is great

Sun, 07/15/2012 - 11:08 | 2617237 Tippoo Sultan
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Articles writ in this perspective are, quite frankly, dangerous.

Many read Zero Hedge...including many of the policy-making persuasion; make no mistake that such a central-planning, command economy vindicating article as this, to the statist, serves to embolden same.

Red China is a totalitarian state; true, the citizens' economic leash may have been let out a bit over the past decade, but it is by no means a free and model society.

Sun, 07/15/2012 - 12:43 | 2617533 Anusocracy
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As the Iron Curtain descends across the world.

 

That's what our power-crazed Lords and Masters want.

 

Freedom is so messy and unpredictable. So, so anti-control.

Sun, 07/15/2012 - 18:11 | 2618568 Maghreb
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According to GDP growth it is......

Sat, 07/14/2012 - 21:56 | 2616641 Paul Thomason
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Astrology and Technicals Say Markets At Risk Of High Speed U-Turn This Week! (article link here).

Before you dismiss it - don't forget much followed 'Bradley Model' and 'Gann Charts' are based on the 'stars'

Sat, 07/14/2012 - 22:47 | 2616706 TheFourthStooge-ing
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.

Before you dismiss it - don't forget much followed 'Bradley Model' and 'Gann Charts' are based on the 'stars'

Dismiss it? Why would anyone do that? Astrology deserves at least as much respect as economics. Paul Krugman dreams of a prediction record anywhere close to what Jeane Dixon had.

Sat, 07/14/2012 - 21:57 | 2616644 bobert
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 China's Yuan emerging as a (or the) world reserve currency may be the thing that is needed to get US Treasury rates to go up.

Sun, 07/15/2012 - 01:29 | 2616903 sethstorm
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Or mushroom clouds to go up in China.

Sun, 07/15/2012 - 11:07 | 2617235 old naughty
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only in China, you say?

We are no longer making them a worthy opponent?

Hummmmmmmm.

Sat, 07/14/2012 - 21:59 | 2616647 Yen Cross
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 Welcome to the past!  History, in all it's insanity!

Sat, 07/14/2012 - 22:05 | 2616652 world_debt_slave
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meh, as posted on here, GDP as a measure is garbage as an indication of true economic growth.

When the US stopped reporting M3, something is afoot that they don't want anyone to know about.

Sat, 07/14/2012 - 22:08 | 2616656 rufusbird
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There is a lot they don't want anyone to know about...

Sat, 07/14/2012 - 22:46 | 2616703 surf0766
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Spring 2006 was when they stopped reporting it. That was almost a full 6 months after the housing data was showing a beginning crash. M3 > where the big boys play or so I heard someone quote it like that some years ago.

Sun, 07/15/2012 - 00:08 | 2616804 jimmyjames
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When the US stopped reporting M3, something is afoot that they don't want anyone to know about.

************

What is it about M3 that has everyone so suspicious?

M3 data is easy to gather and just as easy to build a chart for-otherwise how does shadow stats/now and futures etc. report M3?

M3 is basically a useless chart that's filled with so many different components that it really tells you nothing-

It does not accurately track money supply or credit supply-it contains MZM+M0+M1+M2+ time deposits+savings

Here is the original now defunct M3 makeup-

http://research.stlouisfed.org/fred2/categories/28

Sat, 07/14/2012 - 22:12 | 2616653 ACP
ACP's picture

Really? Anyone living in the US should know how blatantly obvious China's number-fudging really is, with all the experience watching the fudged numbers in the States.

Mainland China screwed themselves. The financial engineering is doing no more than masking the truth, much like everyone else who tries financial engineering. I say China should be encouraged to continue their efforts, being that it only accelerates the path to their doom (the doom of the government, that is).

Not saying the US or European models are better, but I must say that Madman Bernanke, as bad as he is, has far more control over his illegal activities in the US than most other industrilized countries. Not only that, but the pace at which China is destroying their own environment is the equivalent of cramming 100 years of industrialization into a 20 year span. Not to mention the shoddy quality of the products they produce, even with stolen technology. At least when the Soviets stole US techonolgy, the quality was nearly comparable to the US, when they decided to dedicate the resources to such projects.

China is only a worry because of their human resources, and that is crumbling like a sand castle in a tidal wave.

Edit: 100 years ago, China was the second largest economy, and was all downhill from there. Who wants to bet this is not a "double-top"?

Edit edit: How long until China violates its contractual obligations with Hong Kong and begins confiscating the wealth that is harbored there?

 

Sat, 07/14/2012 - 22:19 | 2616670 francis_sawyer
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Exactly ~

"China is an 'exception' to game theory"?... what a crock of shit... Even if it were true, the only resulting destination is to simply toss everyone back into the 'infinite & exponential growth' paradigm, which, by it's own definition, is a panacea for fools...

Sat, 07/14/2012 - 23:41 | 2616777 LowProfile
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Someone even attempted to bring it to his attention pre-submission!  http://www.zerohedge.com/news/guest-post-does-central-bank-gold-buying-s...

...Ah, well...

Sat, 07/14/2012 - 22:47 | 2616705 surf0766
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China is a communist country.

 

PLay the game and learn what that brings you to?

 

Got milk?

 

http://www.abs-cbnnews.com/lifestyle/07/13/12/polands-communist-monopoly...

 

 

Sat, 07/14/2012 - 22:07 | 2616655 LetThemEatRand
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If you define success by developing a society of industrial slaves producing consumer items for a previously successful but now dying Western model of hybrid capitalism and socialism which engendered a huge middle class that is shrinking due to abundant slave labor, they are kicking some ass.

Sat, 07/14/2012 - 22:12 | 2616660 otto skorzeny
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2 snaps up. the chinese have a history of shooting themselves in the foot(ironically-they invented gunpowder)

Sat, 07/14/2012 - 23:33 | 2616763 LowProfile
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...And paper fiat money.

Sat, 07/14/2012 - 22:14 | 2616664 Cabreado
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"I think this is because China's big government is frankly working."

It is working in the context of a defunct US Congress, a society of greed and a culture of entitlement.

And, China's government is not big.

The articles neglecting the obvious are disconcerting, and are helping us towards hell.

Sat, 07/14/2012 - 22:16 | 2616666 risk-reward
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InterNational Corporations have driven China from nothing to something while moving jobs from here to there.  Percentage increases are easy in that environment.

Sat, 07/14/2012 - 22:25 | 2616677 Apostate2
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Where to begin? This article is historically sophistic and economic claptrap based on false assumptions. Until 1978/9 the Chinese government was the economy. After the reforms that 'liberalized' the economy (reduced the public sector) and allowed for a market the economy took-off. The west has increasingly allowed the 'free' market to be controlled/interfered with by government with a corresponding growth of the public sector. Depends on your starting point and the direction you are moving. Guess which direction wins?

Sat, 07/14/2012 - 22:26 | 2616678 Yen Cross
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  China is the oxymoron , of  ( Global Finance)  At least I can spot a LIAR!

Sat, 07/14/2012 - 22:27 | 2616681 GernB
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The game all economies have been playing is "with the right central bank policy we can grow forever." now the economy wants to contract and we are in the final stages of the real economy contracting vs central banks. I dont see how central banks can win. You cant stave off contraction forever.

Sat, 07/14/2012 - 23:58 | 2616711 Dr. Engali
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I hardly know where to start with this garbage. I guess I'll start with the total misallocation of resources that central planning has created. Any economy can grow at a rapid clip if they are busy building empty cities. My question is what are they going to do with them? Or maintain them? How about the fact that they have finance their trading partners so the west can buy their cheap trinkets. They give us crap and in exchange we give them toilet paper. Maybe the U.S is envious of the sweat shops that provide the slave labor to make the cheap Chinese trinkets. I could go on but I don't feel like typing any more on my little Chinese made phone.

Sat, 07/14/2012 - 23:04 | 2616734 Jam Akin
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This post is simultaneously a steaming pile of bullcrap and positioned to provoke much opposing commentary! 

Sat, 07/14/2012 - 23:10 | 2616743 r00t61
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It's MDB, writing under a pen name.

Sat, 07/14/2012 - 23:51 | 2616782 AurorusBorealus
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China has grown because greedy Western corporate CEOs made a pact with the Chinese government to exploit cheap Chinese labor to line their own pockets.  In effect, China has stolen the industry of the West, especially the United States.  China is not a center of innovation and cannot be.  Chinese growth will slow rapidly, and there will be a hard landing, as there are fewer and fewer productive endeavors to steal from America and her endless supply of greedy CEOs, whose only strategy to boost bottom-line numbers is to find cheaper labor.  This China is utopia nonsense is nothing but charlatanism.  One cannot look at a few aggregate numbers for a 15-year period of history and make some grand pronouncements about the wonders of totalitarian government.  Stuff this bullshit up your university-educated ass.

Sat, 07/14/2012 - 23:52 | 2616783 fpcallc
fpcallc's picture

Hey, China's done a lot of things right, I get that. But, to me, central planners will ALWAYS get it wrong, and China's no exception. I'd be really surprised if all is really as rosy over there as the Chinese government would like everyone to believe.

I mean, first of all, does anybody REALLY believe any of the numbers that come out of there!? Should I believe anything coming out of a Communist central-planning government, anymore than I should believe anything coming out of a Crony-cratic central-planning government? Truthfully, I give more credence to anecdotal impressions from those on the ground over in China than I do the Government-reported numbers. Call me a skeptic.

Secondly, pump a bunch of money into into the economy and manipulate interest rates and subsidize the private sector to basically "build" a country and you'll get GDP growth, but China's efforts to migrate people from it's rural areas and into the cities to find jobs so they can become the "middle class" is running into stumbling blocks. From what I've read and seen in news reports, things are slowing down over there to the point where now it's getting tougher to for these people to find jobs, so they can't pay for housing, so there's now a housing glut. I read that there's over 3 MILLION vacant homes in Beijing alone vs 2 million in the entire US!! I saw a report that showed what seemed like small cities of vacant apartment buildings over there. Building after building. A while back Kyle Bass, commenting on the Chinese housing bubble, said that the the number of new loans made for housing in China had skyrocketed and that at the time, the delinquency rates were very low, like only a couple of percent. However, they were traditionally 19% and that if this ever reverted to the norm, then watch out. Seems like it's only down hill from here for the Chinese economy, with Europe in deep trouble and with our economy hitting stall speed (again).

No, this time as sh*t and fans come together, in country after country, no economy will be able to avoid the effects. It's way too big and our economies all way too inter-dependent, so I'll believe in a soft landing for China's economy when I see it. But.......they're still way better off than us.

Sun, 07/15/2012 - 14:19 | 2617873 Anusocracy
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All central planning will be exposed for the failure that it is.

 

The questions are how soon, and at what cost to the public.

Sun, 07/15/2012 - 00:12 | 2616814 HungrySeagull
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So solly, no dollar Only Yuan.

Sun, 07/15/2012 - 00:48 | 2616868 0z
0z's picture

Why the Fuck is that article on Zerohedge?

Sun, 07/15/2012 - 11:09 | 2617240 Winston of Oceania
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Because when you open your eyes you see ALL things, both truth and fiction...

Sun, 07/15/2012 - 00:52 | 2616869 Lore
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Painful.

Go long spell checkers and style guides and anything published by the Mises Institute.

Sun, 07/15/2012 - 02:46 | 2616941 New American Re...
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Can I still say IMBECILE and still be objective?   I think so.   This guy is an imbecile.   The only reason China is throbbing is because they have their currency pegged so low they are ultra competitive, and the way they do it is to functionally condemn entire sections of its population into virtual slavery.   China is a paper tiger.   The supremacy of the military and political elite is wearing very thin, and if America ever pulled its head out of its ass and recommit to a foreign and domestic policy based upon Liberty, America would collapse the entire structure by simply inhaling.

China is an illusion.  And I'll tell you why tomorrow at www.electanewcongress.com.  I'll even send it along to Tyler, but I don't think he'll print it, so you'll have to come to Elect A New Congress, which incidently, is also a new Super Pac.  That's right, we're takin on the big boys.   But, we're confident of winning, because we have chosen the side of Liberty, which is kind of like signing up with God, not to be mistaken for Lloyd Blankenfein's god.

Serfs Up America!

Sun, 07/15/2012 - 07:41 | 2617041 Tom Green Swedish
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CHina is actually quite pathetic except for a couple things (I am not going to count the cheap labor because that doesn't really count, but is the main reason why their GDP is high).  They can copy other's designs well and they can put a building together like you wouldn't believe.  Besides that China is worthless. 

Sun, 07/15/2012 - 08:31 | 2617062 DavidC
DavidC's picture

The solution is simple. Stop meddling, let the (super)cycle do its work and clean out the system, deflate instead of trying keep blowing the balloon up even further and let things TAKE THEIR NATURAL COURSE.

Iceland hasn't been doing as badly as the rest has it?

DavidC

Sun, 07/15/2012 - 11:07 | 2617233 Winston of Oceania
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Exactly. Remarks like "a solution must incorporate every economy around the world", come straight from the mouths of the likes of Krugman. We do not need to create a one size fits all Gub'ment, end the fed. www.mises.org

Sun, 07/15/2012 - 08:55 | 2617081 Ricky Bobby
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There is a free lunch, it's different this time, the perpetual motion machine by golly trees can grow to the sky.

Sun, 07/15/2012 - 12:06 | 2617383 Donlast
Donlast's picture

Your average Chinese worker is a slave in a controlled society but he has many strengths.  He works hard, he expects to work hard.  He does not trust the government or anyone connected to the government.  He trust only his close family. He saves hard because he knows that is the only way he can gain security.  He does not expect entitlements.  They are survivors and their work ethic ensures their survival and ensures China's growth because they are adaptable, flexible and will accept whatever wage the market offers them. 

Sun, 07/15/2012 - 18:02 | 2618522 PulpCutter
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Further, US total debt/GDP has been dropping since 2010. 

Sun, 07/15/2012 - 18:06 | 2618523 PulpCutter
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NJB, your charts only deal with US GDP to 2010; basically the results of the Bush years.  US GDP resumed it's upward course in 2010 - so you may want to revise your theory.

http://www.usgovernmentspending.com/spending_chart_2000_2012USb_13s1li011mcn__US_Gross_Domestic_Product_GDP_History

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