Tag: economics

The China train is NOT fine

David Stockman foresees some grim deflationary bubble-popping out of China:

The truth is, the 25 year growth boom in China is just a giant, credit-driven Ponzi.  Any fool can run a central bank printing press until it glows white hot.

At the end of the day, that’s all the Beijing suzerains of red capitalism have actually done. They have not created any of the rudiments of viable capitalism. There are no honest financial markets, no genuinely solvent banks, no market driven allocation of capital and no financial discipline which comes from the right to fail as well as succeed.

There are, for instance, 287 million equity trading accounts in China, most of them opened within the last year and overwhelmingly held by retail punters with sub-high school educations. In less than 12 months they took down upwards of $1 trillion of margin debt through official brokerage channels and a massive network of shadow banking sources including dodgy peer-to-peer lending arrangements.

So fortified, they clambered after a stock market bubble that expanded by $3 trillion in just 60 trading days ending on June 14, and then broke into a panicked selling stampede that liquidated that very same $3 trillion of bottled air in hardly 20 trading days thereafter.

The problem is that the impact of the Chinese deflationary collapse is not likely to be limited to China, and will likely render all of the Western central banks’ efforts to keep the Western economies afloat through zero interest rate policy moot. The central bankers are counting on the Chinese to respond to a popped bubble like they do, with a flood of liquidity propping up the financial gangsters. But the Chinese government is much more likely to jail and shoot the lot of them.

The latter is the Achilles Heel of the whole Ponzi. To arrest capital flight they will have to do the opposite of what they have done for the last 20 years. That is, they will have to shrink the domestic money supply and banking system in order to sell dollars and euros rather expand domestic credit in order to sequester dollar liabilities (i.e. treasury bonds) in the PBOC.

In due course, China will be aflame with campaigns against corruption and enemies of the state as it seeks to cope with its collapsing financial bubbles and endless herds of economic white elephants. Chairman Mao’s axiom as to where state power really comes from——that is, the barrel of a gun—-will become the increasingly evident modus operandi of the communist party rulers.

The resulting deflationary spiral will suck the global economy into its vortex. And Wall Street will go down for the count because this time the Fed will be utterly powerless to reverse the tide.

Just remember, even when the paper money and the digital wealth evaporates, you’re not actually any worse off materially than you were the day before.

The preference cascade

Glenn Reynolds makes a connection between the Trumpening and #Brexit:

In America, Donald Trump — who many of the experts thought had no chance — is dominating the polls. In Britain, meanwhile, much of the public seems to be mobilizing in favor of exiting the troubled European Union — a British Exit, or Brexit.

Writing in The Spectator, Brendan O’Neill puts this down to a class revolt on both sides of the Atlantic. And he’s right as far as he goes, but I think there’s more than just a class revolt. I think there’s also a developing preference cascade. O’Neill writes: “In both Middle America and Middle England, among both rednecks and chavs, voters who have had more than they can stomach of being patronised, nudged, nagged and basically treated as diseased bodies to be corrected rather than lively minds to be engaged are now putting their hope into a different kind of politics. And the entitled Third Way brigade, schooled to rule, believing themselves possessed of a technocratic expertise that trumps the little people’s vulgar political convictions, are not happy. Not one bit.”

Well, that’s certainly true. Both America and Britain have developed a ruling class that is increasingly insular and removed from — and contemptuous of — the people it deigns to rule. The ruled are now returning the contempt.

Robert Prechter predicted this more than a decade ago. It’s also happening in other European countries. This is what happens when the social mood changes. The blithe, mindless optimism that permits the populace to be used and abused by the financial elite is gone. People are seeing more clearly now, and they are beginning to recognize what was done to them, and by whom.

There will be a reckoning. There will be many reckonings. And unfortunately, not all of them will be pretty, or even civilized.

When the tide goes out, it’s easy to see who was naked all along.

“Something big has happened”

A surprisingly astute article from a dyed-in-the-wool member of the US establishment, Robert Reich:

Something very big has happened, and it’s not due to Bernie Sanders’ magnetism or Donald Trump’s likeability.

It’s a rebellion against the establishment.

The question is why the establishment has been so slow to see this. A year ago – which now seems like an eternity – it proclaimed Hillary Clinton and Jeb Bush shoe-ins.

Both had all the advantages – deep bases of funders, well-established networks of political insiders, experienced political advisors, all the name recognition you could want.

But even now that Bush is out and Hillary is still leading but vulnerable, the establishment still doesn’t see what’s occurred. They explain everything by pointing to weaknesses: Bush, they now say, “never connected” and Hillary “has a trust problem.”

A respected political insider recently told me most Americans are largely content. “The economy is in good shape,” he said. “Most Americans are better off than they’ve been in years. The problem has been the major candidates themselves.”

I beg to differ.

Economic indicators may be up but they don’t reflect the economic insecurity most Americans still feel, nor the seeming arbitrariness and unfairness they experience.

Nor do the major indicators show the linkages Americans see between wealth and power, crony capitalism, declining real wages, soaring CEO pay, and a billionaire class that’s turning our democracy into an oligarchy.

Median family income lower now than it was sixteen years ago, adjusted for inflation.

Most economic gains, meanwhile, have gone to top.

These gains have translated into political power to rig the system with bank bailouts, corporate subsidies, special tax loopholes, trade deals, and increasing market power – all of which have further pushed down wages pulled up profits.

Those at the very top of the top have rigged the system even more thoroughly. Since 1995, the average income tax rate for the 400 top-earning Americans has plummeted from 30 percent to 17 percent.

Wealth, power, and crony capitalism fit together. So far in the 2016 election, the richest 400 Americans have accounted for over a third of all campaign contributions.

Americans know a takeover has occurred and they blame the establishment for it.

Damn straight it has. And damn straight they should. They’ve created a system that is every bit as centralized and bureaucratic as Soviet communism and they called it “capitalism” and “free trade”.

It isn’t. It’s financial rape and plunder.

The global debt threat

I’ve been warning about the danger of the massive debt overhanging the global economy since 2002 to absolutely no avail. 

The problem is the giant, stagnant pool of loans that companies and people around the world are struggling to pay back. Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but in recent months, the threat posed by an overhang of bad loans appears to be rising. China is the biggest source of worry. Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output.

Official figures show that Chinese banks pulled back on their lending in December. If such trends persist, China’s economy, the second-largest in the world behind the United States’, may then slow even more than it has, further harming the many countries that have for years relied on China for their growth.

But it’s not just China. Wherever governments and central banks
unleashed aggressive stimulus policies in recent years, a toxic debt
hangover has followed. In the United States, it took many months for
mortgage defaults to fall after the most recent housing bust — and
energy companies are struggling to pay off the cheap money that they
borrowed to pile into the shale boom.

In
Europe, analysts say bad loans total more than $1 trillion. Many large
European banks are still burdened with defaulted loans, complicating
policy makers’ efforts to revive the Continent’s economy. Italy, for
instance, announced a plan last week to clean out bad loans from its
plodding banking industry. Elsewhere,
bad loans are on the rise at Brazil’s biggest banks, as the country
grapples with the effects of an enormous credit binge.

2008 was the first stage, but instead of doing as I recommended,
permitting the bad loans to default, and allowing the banks and other
credit holders to go bankrupt, Ben Bernanke and the Republicans “saved
the economy” by kicking the can down the road just as Alan Greenspan did in 1987.

Granted, they kicked it further than I would have believed possible in 2009, but nevertheless, we’ve now reached it again, and it is bigger and heavier than it was 7 years ago. And the Fed’s metaphorical foot is broken.

Fear and fascination

Having successfully circumvented and stared down the American imperialists in both Crimea and Syria, The Saker suspects Vladimir Putin is about to purge Russia’s 5th column:

One of the possible signs of a purge to come is the fact that the Russian media, both the blogosphere and the big corporate media, is now very critical of the economic policies of the government of Prime Minister Medvedev. Most Russian economists agree that the real reason for the current economic crisis in Russia is not the falling price of oil or, even less so, the western sanctions, but the misguided decisions of the Russian Central Bank (such as floating the Ruble or keeping the interest rates high) and the lack of governmental action to support a real reform and development of the Russian economy. What is especially interesting is that vocal opponents of the current 5th column now get plenty of air time in the Russian media, including state owned VGTRK. Leading opponents of the current economic policies, such as Sergei Glazev, Mikhail Deliagin or Mikhail Khazin are now interviewed at length and given all the time needed to absolutely blast the economic policies of the Medvedev government. And yet, Putin is still taking no visible action. In fact, in his latest yearly address he as even praised the work of the Russian Central Bank. So what is going on here?

First, and to those exposed to the western propaganda, this might be difficult to imagine, but Putin is constrained simply by the rule of law. He cannot just send some special forces and have all these folks arrested on some kind of charge of corruption, malfeasance or sabotage. Many in Russia very much regret that, but this is fact of life.

In theory, Putin could simply fire the entire (or part) of the government and appoint a different Governor to the Central Bank. But the problem with that is that it would trigger an extremely violent reaction from the West. Mikhail Deliagin recently declared that if Putin did this, the West’s reaction would be even more violent than after the Crimean reunification with Russia. Is he right? Maybe. But I personally believe that Putin is not only concerned about the reaction of the West, but also from the Russian elites, particularly those well off, who generally already intensely dislike Putin and who would see such a purge as an attack on their personal and vital interests. The combination of US subversion and local big money definitely has the ability to create some kind of crisis in Russia. This is, I think, by far the biggest threat Putin his facing. But here also we can observe a paradoxical dynamic:

One one hand, Russia and the West have been in an open confrontation ever since Russian prevented the USA from attacking Syria. The Ukrainian crisis only made things worse. Add to this the dropped prices on oil and the western sanctions and you could say that Putin now, more then ever, needs to avoid anything which could make the crisis even worse.

But on the other hand, this argument can be flipped around by saying that considering how bad the tensions already are and considering that the West has already done all it can to harm Russia, is this not the perfect time to finally clean house and get right of the 5th column? Really – how much worse can things really get?

Only Putin knows the answer to this simply because only he has all the facts. All we can do is observe that the popular discontent with the “economic block” of the government and with the Central Bank is most definitely growing and growing fast, and that the Kremlin is doing nothing to inhibit or suppress such feelings. We can also notice that while most Russians are angry, disgusted and frustrated with the economic policies of the Medvedev government, Putin’s personal popularity is still sky high in spite of the fact that the Russian economy most definitely took a hit, even if it was much smaller than what the AngloZionist Empire had hoped for.

My strictly personal explanation for what is happening is this: Putin is deliberately letting things get worse because he knows that the popular anger will not be directed at him, but only at his enemies.

Vladimir Putin is a patient man, but he is also capable of acting very quickly when he senses an opportunity. And the global economic crisis combined with the European migrant crisis is going to permit him to act without fear of a coherent and effective response, particularly in light of the way in which the Trump insurgency has them far more concerned about their control over the seat of their power than about the fate of their vassals in Russia.

For five decades, the imperialist trump card has been the economy. Play along and get rich, refuse to play along and get replaced by someone else who will get rich. But the credit boom ended in 2008 and the game of musical chairs began. The imperialists are now half-occupied with making sure they have a seat; there is no room at the table for new players.

The game has changed. How the new game will take shape is, as yet, unknown, but I am certain the attempt to keep it going by banning cash and exerting total financial control will not only fail, it may take down those authorities who turn to it.

Forget “interesting”. These are frightening, but absolutely fascinating times. These are the interesting parts of history.

An avalanche of defaults

The mainstream economists are just beginning to catch up with The Return of the Great Depression, published in 2009.

The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).

“Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too. Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said.

“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he told The Telegraph on the eve of the World Economic Forum in Davos.

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”

The next task awaiting the global authorities is how to manage debt
write-offs – and therefore a massive reordering of winners and losers in
society – without setting off a political storm.

What is interesting to consider is if there is a connection between the nonsensical climate change propaganda and the coming avalanche of debt-defaults. If I were a member of the global elite who a) genuinely believed that resources like fossil fuels are limited, b) was in a position to decide how society’s winners and losers would be reordered, and c) did not subscribe to Christian morality and lacked a moral conscience, I would use the financial apocalypse and subsequent reordering to make sure that I, and my allies, held all the title to the resources necessary to ensure our control of them.

This would permit the construction of a global feudalism and extend the time in which the dwindling resources could be utilized, and would permit aristocratic resource-holders to retain a small First World technological society while the resourceless commoners are reduced to Third World technostasis.

That doesn’t even rise to the level of science fiction, of course, economics being a science only in the ancient sense of a field of knowledge, but even as pure economic imagination, it’s coherent and perhaps even worrisome in light of the present circumstances.

Already at trade war

Cuckservatives, and economically maleducated conservatives, don’t realize that the fact one is not fighting a war does not mean one is not already engaged in one:

In retort to Trump pointing out a necessary shift in trade position (a shift to put American interests first – a shift to stop the dependency on cheap import goods – a shift to use China’s dependency on access to our market to OUR advantage) Jeb Bush came back with an example of Boeing manufacturing.

Donald Trump, responding to Jeb’s Boeing example, pointed out China is forcing Boeing to open a manufacturing plant in China.  As typical from a candidate who is unfamiliar and unbriefed on the issue Jeb looked back incredulously and said:

    “C’mon man”…

There you have it.  There’s the disconnect.  Almost everyone missed it.  There, in that exact moment, is the spotlight upon all that is wrong with a professional political class; globalists dependent on Wall Street for their talking points.

Trump was 100% correct.

But the issue is bigger.

Not only is China demanding Boeing open a plant in China, the intent of such a plant provides an opportunity to explain why Trump is vitally important – and time is wasting.

China is refusing to trade with Boeing if the company does not move.  Why? It’s not about putting Chinese people to work, it’s about China importing their research and development, Boeing’s production secrets, into their country so they can learn, steal and begin to manufacture their own airliners.

This is just how China works.  In time, Comac, a state-owned, Shanghai-based aerospace company will then use the production secrets they have stolen, produce their own airliners, kick out Boeing, undercut the market, and sell cheaper manufactured airplanes to the global economy.

Boeing, the great American company that Jeb Bush thinks they are, becomes yet another notch on the Asian market belt.

All of those Boeing workers, those high-wage industrial skill jobs that support the American middle class, yeah – those jobs lost.   And the cycle continues.

Theory, logic, and fifty years of free trade experience all demonstrate the same thing: free trade impoverishes a wealthy nation and lowers its per capita wages toward the global average. And those are just the negative economic consequences. No amount of magical thinking and repeated chants of “ricardosmith ricardosmith” are going to change that.

If you want to go into more detail on the subject, read the relevant chapter of Cuckservative: How “Conservatives” Betrayed America.

THIS depression

I remember, when after publishing The Return of the Great Depression in 2009, various critics used to cite various “green shoots” reports in an attempt to taunt me for being incorrect. “What depression?” they would ask mockingly.

“Just wait,” I would tell them. “We are in the early stages of a depression that is bigger than the Great Depression.” Seven years later, even rosy-goggled mainstream economists like Brad DeLong are admitting that the situation is historically dire.

Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a “Great Malaise.” This week, he followed up on that grim prediction, saying, “We didn’t do what was needed, and we have ended up precisely where I feared we would.”

Joe Stiglitz is right.

In the aftermath of 2008, Stiglitz was indeed one of those warning that I and economists like me were wrong. Without extraordinary, sustained and aggressive policies to rebalance the economy, he said, we would never get back to what before 2008 we had thought was normal.

I was wrong. He was right. Future economic historians may not call the period that began in 2007 the “Greatest Depression.” But as of now, it is highly and increasingly probable that they will call it the “Longest Depression.”

You don’t say…. Remember, while I am certainly capable of being wrong, I am well-read, well-educated, and significantly more intelligent than the norm. So, even if I am wrong, I usually have a fairly solid set of facts and logic behind the position I am expressing.

Perhaps more importantly, and unlike most of those who opine on such matters, I have no dog in the hunt. While I would very much like the economy to be booming, I am not financially dependent upon saying so.  While the measures that Stiglitz and Krugman were pushing were absolutely and utterly wrong – the “extraordinary, sustained and aggressive policies to rebalance the economy” would have only made things worse, as what was needed was a huge round of bankruptcies to clear the zombie debt – they were right to observe that the Neo-Keynesian measures utilized were doomed to be ineffective.

I wish I had been wrong about the Great Depression 2.0. But I wasn’t. And, as even Nate will likely admit now, I was also right about the global economy falling into worldwide deflation.

Unfortunately, this tends to indicate that I am likely correct about the world rapidly heading towards large-scale 4GW, including multiple civil wars, across more than one continent.

Open borders theory failed

Considering how badly mainstream economics has failed with even a partial implementation of the free movement of people, imagine how bad it would be if the globalists ever got their way and established a borderless world:

  • Immigrants make up 13 percent of the US population and 17 percent of the workforce. 
  • The number of Americans not in the labor force last month totaled 94,103,000.

It’s all there in Cuckservative, specifically, the chapter on economics and immigration. Free traders, you are wrong. There is no need to resort to quoting Smith, Ricardo, Hazlitt, or Mises. I know them better than you do.

The fact of the matter is that their theory was put to the test. And it failed. They are every bit as wrong in that particular regard as Marx and Keynes and Friedman were about the Labor Theory of Value, the General Theory, and monetary theory.

For decades, people opined about free trade and the free movement of peoples based solely on theory. Now, we have sufficient data to assess their predictions, and contrary to what many of us expected, (and I include myself in this regard), the free traders turned out to be completely wrong.

That doesn’t mean that autarky is the correct answer or that there are not significant problems with government-limited trade, but free trade has not only impoverished the nation, the free movement of people element has already put a number of nations in risk of extinction.

No, they shouldn’t have

Outsourcing your money to a self-interested outside party seldom ends well:

Finland should never have signed up to the single currency union, according to its foreign minister.

With the northernmost euro member now set to become the bloc’s weakest economy, the question of currency regime continues to resurface as Finland looks for explanations for its lost competitiveness. Timo Soini, who is also the leader of one of three members of the ruling coalition, the anti-immigration The Finns party, says the country could have resorted to devaluations had it not been for its euro membership.

The comments come as a former foreign minister gathers signatures in an effort to force the government to hold a referendum on euro membership. While polls still show most Finns don’t want to go through the process of exiting the currency bloc, there are signs that a plurality of voters think they would be better off outside the euro….

Without the option of currency devaluation, the government has calculated that Finland needs to lower its labor costs as much as 15 percent to catch up with its main trade partners, Sweden and Germany. Finland’s economy has shrunk for the past three years and Nordea, the biggest Nordic bank, predicts further contraction in 2015. Finland will be the weakest EU economy by 2017, when it will grow at less than half the pace of Greece, according to the European Commission.

Translation: when you can’t devalue your currency and share the burden equally throughout the entire nation, you have to pay all your workers less even though their expenses will remain high. So, instead of a devalued currency, you’ve lowered the quality of life of pretty much everyone who works for a living.

The sad thing is that this was all entirely obvious, and was in fact predicted, by many economists critical of the Euro. But social mood always trumps the naysayers who are battling the zeitgeist.

The Euro will fail eventually. This is not in doubt. The only question is how bad it has to get in the member nations before they reclaim their financial sovereignty.