News & Analysis
Hedge Fund Predicts China Disaster
Hedge fund manager Mark Hart bets on China as the next 'enormous credit bubble' to burst. Mark Hart, an American hedge fund manager who has made millions predicting the crises in US sub-prime market and European debt, has launched a fund to bet on the imminent implosion of China. Mark Hart says complacency among market participants regarding China is eerily similar to the complacency exhibited prior to the United States sub-prime crisis and European sovereign debt crisis. Mr Hart, who runs Corriente Advisors from Fort Worth Texas, has told potential investors in a presentation that China is in the "late stages of an enormous credit bubble". When this bursts, the financier said he expects an "economic fall-out" that will be as "extraordinary as China's economic out-performance over the last decade". Asking for a minimum $1m (£640,000) stake, Corriente said it will use sovereign and corporate credit default swaps, interest rate and foreign exchange options to cash-in on the collapse. – UK Telegraph
Dominant Social Theme: Let's not talk about it ...
Free-Market Analysis: The same day we published yet another (much disputed) article about China's raging inflation, we read this in the Telegraph (see article excerpt above). We agree with much that the Hart is suggesting, and we have mentioned a lot of it. What comes across clearly to us is that Hart has arrived at the same conclusions that we have.
There are some differences, and we want to point them out emphatically, however. We have NOT predicted, as Hart may be predicting, that a Chinese implosion could occur tomorrow, or the next day. It could of course (and we do believe now that the timeline has moved up) but Austrian analysis (which we try clumsily to practice) shows us quite clearly that the mechanism of the business cycle can be predicted but not the timeline.
Thus, we can conclude (and have) as Hart has concluded, that China is in the middle of a huge bubble. But we would NOT forecast a timeline as Hart seems to be doing by giving himself five years. We would tend to believe that a Chinese implosion would come in far less than five years at the rate that prices are accelerating; but, again, we believe timelines are not feasible.
It is interesting to us that we are reading more and more articles about a Chinese collapse, however. This need not be a power elite dominant social theme; it can simply be the recognition of a reality. On the other hand, central banking always leads to a business cycle, an exaggerated boom and eventfully a distinct crash. Since China's boom has been going on so long, it is reasonable to assume that the crash will be significant indeed.
Hart also points out the following: "The result is that, rather than being the 'key engine for global growth', China is an 'enormous tail-risk.'" Though he doesn't address the politics of it, we have pointed out in the past that a significant implosion in China would probably put the leadership itself at risk. We have pointed out as well that we believe the leadership's position is not at all secure, and that those who run the Chinese Communist Party are well aware of it. Courtesy of WikiLeaks, we now have additional documentation of this suspicion as follows:
China 'scared to death' of Pelosi ... China was "scared to death" over a visit by US Speaker Nancy Pelosi, who is outspoken on human rights, and rejected her request to visit to Tibet, according to files leaked Monday. A top diplomat at the US embassy in Beijing said he asked China to consider letting Pelosi go to Tibet during her May 2009 visit to China, according to a cable obtained by whistleblower site WikiLeaks. Vice Foreign Minister He Yafei responded that China could not arrange the trip due to Pelosi's "tight schedule," according to the cable reprinted by Britain's Guardian newspaper. The Chinese ambassador in Kazakhstan was blunter, telling his US counterpart over an expansive dinner that Beijing was "fearful" over Pelosi's visit. – AFP
This does not sound like a ruling class with a great deal of confidence in our view. It sheds some light, we believe, on just how paranoid the CCP is. There are numerous trouble spots in China, and we believe price inflation is aggravating what is already a difficult situation. Authoritarian regimes are notoriously hard to implement over time – especially in a country as big as China – and this one has already lasted some 60 years.
We have also written that because of China's growing economic problems, the leadership may be more amenable to cooperation with the West, rather than less. WikiLeaks sheds light on this as well, showing us that China, apparently, is ready for the reunification of the Koreas. Of course such leaks may ratchet up the tension in that part of Asia, especially as North Korea sets for another succession, but according to US diplomats, that succession (if it does take place) may not last very long.
Wikileaks cables reveal China 'ready to abandon North Korea' ... Leaked dispatches show Beijing is frustrated with military actions of 'spoiled child' and increasingly favours reunified Korea ... South Korean war veterans protest after North Korea attacked Yeonpyeong Island. The WikiLeaks cables reveal Beijing believes such actions are those of a 'spoiled child'. ... China has signalled its readiness to accept Korean reunification and is privately distancing itself from the North Korean regime, according to leaked US embassy cables that reveal senior Beijing figures regard their official ally as a "spoiled child". – Reuters
We have tried to analyze China in terms of its opposition to the West and to Western money power from the standpoint of one-world government. We have gone back and forth on the issue, and lately concluded that China may be more cooperative with the Anglo-American power elite at top levels than it appears to be. (The same goes for Russia, perhaps.) The above leaked cables certainly seem to show a Chinese leadership not only is not especially confident of its reign, but one that is seeking what the article calls, "trade and labour-export opportunities for Chinese companies," in a unified Korea.
Conclusion: China's leaders are apparently focused on stability and economic growth. (We don't blame them.) It sounds less like China is looking for a war to solve its problems and more like China is looking around desperately to increase trade – as a remedy. Of course, from our point of view, no amount of increased trade – or any other kind of economic activity – is going to do much good in the long run. Inflation is always and everywhere a monetary phenomenon and cannot be addressed by economic activity per se. Sooner or later, China will suffer the consequences of its leaders' policies. We will see then if a military solution is to be considered.
Latest Daily Bell Articles
Feedback
 |
Posted by Sovereignthink on 01/20/11 02:31 AM
Re-Public Your Local Republic Domain and Community trust.
(full)
Click to view link
-sovereignthink
|
Posted by Mark T on 12/05/10 09:18 PM
Furthermore, The gold standard (as anyone who has read pre-1920's American or European history knows) solves no problems in particular and adds SEVERAL major constraints/problems that were never addressed.
Not the least of which is fiat currency pegging. Say the US decided to eliminate all debt, reduce the size of all entitlements to say 10% of the current holdings and defund the military by about 80%. At this juncture the US would have a revenue balance around 200Billion dollars per year.
Constraining the currency around gold means that the US government then would still be nearly 150% larger than the total possible economy " were it based on Gold at some reasonable fractional value (say 2:1), Of course the US economy itself is too large by nearly 10 times, so we all have to tighten the belt, a tad.
So what the fiat currency system buys us " that no other economic model does, is flexability on a scale that is difficult to imagine.
The last time some nation "tried" to stay the course on being a commodity backed currency, was Imperial Spain " 1590~ by 1650 or thereabouts it was finally defeated by allied European forces, not with a bang but with a whimper, as the Spanish had access to a literal mountain of silver and gold in the Americas and gave nearly every scrap of it to their "erstwhile" marketeers in Amsterdam.
It is comforting to see however that the neo-mercantile movement has hardly any traction beyond the Glenn Beck crowd.
If you want more information try reading "The Ascent of Money" it's easy to read and explains pretty clearly why "returning" to the gold standard is such a questionable idea.
Oh, just one more thing, there is aready commodity the world is at this moment trading in/against for many currencies " and it's even running out. But it's not quite so dear as gold just yet. Oh and that currency / commodity of course " is oil and the petrodollar.
If you do find some way of producing 26 billion dollars of gold per year, do let us know, because that's how much oil is used and traded " every year.
In total the planetary reserve of gold " is about 5000 billion dollars " ever.
Reply from The Daily Bell
Gold at some reasonable fractional value (say 2:1).
What makes you think it could not be 100 to one? Or 1,000 to one? In Scotland, free banking settled at 5 percent gold versus outstanding balances ...
Did you know the US was free-banking oriented even after the Civil War. The book you read doesn't seem to have given you a full understanding of money. You might want to try Rothbard.
|
Posted by Advlescentvlvscarnifex on 12/01/10 09:16 AM
The military might of the US thanks to technological advancement has upended logical economic and business fundamentals, and a pliant public made up grossly ignorant rabble and smart people that prefer a certain lifestyle over freedom, has made "confidence in the currency" a non issue in big economies.
The Chinese ship may remain steady until an asteroid strike, frustrating the hell out of those who know something about economics. That's how it works here in the US. People who say the right things here get farther than people who produce real results. It's hard to know what to bet on.
|
Posted by Vauung on 12/01/10 05:57 AM
The 'maybe' is sheer Click to view link brain-burp, and in three short words you identify the North Korean people with their murderers in a way the regime's own propaganda organs would struggle to achieve.
|
Posted by Vauung on 12/01/10 05:03 AM
It's the same bizarre conflation that leads the Click to view link people to constantly apologize for lunatic regimes that happen to be enemies of the Anglo-American powers. It makes no sense, and it's sad to see you falling into the same incoherent position.
|
Posted by Justin on 12/01/10 04:54 AM
North Korea is no threat to anybody, except maybe themselves. If you think they are then be my guest, enlist & go kill them but don't use my tax dollars to do it.
|
Posted by Vauung on 12/01/10 04:13 AM
Assuming 'Korean' means ROK, what possible reason is there to believe this? To be an ardent pacifist is one thing, but to subscribe to wishful thinking, based on the ascription of benevolent (or even barely rational) motivations to a gang of demonstrated monsters, is to stray into absurdity.
It's simply weird the way opposition to Anglo-American militarism seduces supposed libertarians into tacit ideological alliance with the most vicious totalitarian tyrants on the planet.
|
Posted by Vauung on 12/01/10 03:58 AM
"The DPRK is no threat to anyone, not even the South Koreans."
Do you really believe that?
The state is essentially parasitic, and the North Korean state -- the most extreme totalitarian entity currently in existence anywhere -- is in the unfortunate situation that it has basically killed its host. Rather than quietly dying (which state ever does that?), it has instead shifted its mode of operation to regional blackmail based on threats of violence and a hard-earned reputation for dangerous irrationality. China now realizes the regime is crazed and is trying to back off carefully.
When the implosion finally occurs, it is unlikely to be tidy, and if a war breaks out (which is quite probable) it will be the final deranged act of the DPRK elite. But you can relax about one thing, nobody is going to attack the DPRK, there's simply no upside for anyone in that (and the ROK is in no hurry to inherit a broken, culturally devastated charnel house).
|
Posted by Justin on 12/01/10 03:17 AM
|
Posted by Justin on 12/01/10 03:13 AM
A war is a war. The DPRK is no threat to anyone, not even the South Koreans. It is not the DPRK holding wargames off the Californian Coast.
I agree with the view, expressed on Click to view link, that if the US military left South Korea unification of the Korean Peninsula would follow soon enough under Korean hegemony.
|
Posted by Vauung on 12/01/10 03:03 AM
"Seems like a softening up of the readers for war to me."
Isn't it the opposite, or nearly so? If China is in fact flexible on the re-unification of the Korean peninsula (under the ROK), then the most unpredictable source of Sino-US tension is substantially defused. The DPRK might go down messily, of course, but at least that would be a (major) regional upset, rather than a global conflagration.
China (the regime) would certainly be wise to take this course. With the DPRK gone, US involvement in North-East Asia would become far more difficult to sustain (politically), a united Korea would naturally drift towards China (due to cultural affinity, mutual distrust of Japan, and overwhelming economic interest), China's foreign policy in the region would be vastly more controllable, and its position would almost inevitably become hegemonic.
|
Posted by Justin on 12/01/10 02:47 AM
China Preparing for Collapse of N. Korean Regime, Cables Say
"A series of leaked US diplomatic cables is prompting the world to confront the dilemma of which country or army should stabilise North Korea and secure its nuclear facilities in the event of regime collapse....."
Seems like a softening up of the readers for war to me. Either WikiLeaks is a PsyOps or this Julian Assange is a naive fool.
Even the last 'leak' was nothing new. Gun camera footage from Apache helicopters, showing them squashing people like you would squash a cockroach have been on the internet for years.
|
Posted by Tiamet on 12/01/10 01:51 AM
The surveillance equipment had been installed throughout a modern city of 2 million Chinese citizens, in their homes, offices, places of work, throughout public space, all over.
This is surveillance 24/7; perhaps, Nancy Pelosi is familiar with this arrangement, it was implemented not long after 9/11, which happens to be a great German car; its .com model was called a Boxster.
Perhaps, Nancy Pelosi, a devout Roman Catholic knows about the surveillance agreement because she was on the House Intelligence Committee, along with the rest of the gang of 8.
I would presume Senators McCain and Levin know about the test site in China, and want to curtail belligerent enemy combatants, Americans, with his proposed law, S 3081.
The Rolling Stone expose' covers many details pertinent to any assessment of the situation of China; if someone can gain access to this article from the RS archive and reprint it as a link it would be worthwhile as intentions are revealed, within the world with Wikileaks, its makers.
The photo of young officer who pilfered the documents appears very young, cherub like, blond, innocent, with rosy cheeks in his military uniform.
The surveillance experiment had to have been put into place not long after 9/11.
That all 2 million Chinese living in their modern city are being forced to live under surveillance 24/7, at home and at work, nauseated me. An ongoing experiment with 2 million people living in a modern city, 24 hours a day, 7 days a week, under surveillance could only happen in China, until it occurs in the USA, of course.
I doubt the Swiss, French, Germans, Irish, Italians, Dutch, or any other nation, except Britain would put up with a 24/7 surveillance. Perhaps, this explains the Swiss elves, as compared to Santas elves. Switzerland.
The surveillance technology makers may also make TSA scanners, and wands. Venal, purient obsessions to control others, bottom sniffers.
Those who know about the surveillance, and other ugly plans have left the country. Shanghai might become better than DC.
That the Chinese government and the USA are conducting experiments using US surveillance technologies on behalf of the DOD and the Chinese were interested in such an activity on their citizens is indicative of a mutual use in the future within both countries, a new industry.
The Congressional Intelligence Committees, the Senate Armed Service Committee headed by McCain and Levin, Homeland Security, which might infer Israel, must know about the Chinese beta site for testing US surveillance technologies on 2 million Chinese.
After all, we immediately shipped all the twisted steel girders from 9/11 to China, scrap steel, without testing any of it.
Some members of Congress who preside on the judicial and intelligence committees are the same people who attempted to sell the Chinese the Port of Long Beach.
The PE have huge investments in China, all the buildings, equipment leases, the factories, funded with taxes. These people are not going to take a big hit; they control the airlines, the country.
What has happened with the China and Russia accord, using their own currencies, for trade.
Americans have been in denial for decades, since WWI and WWII; anyone against these wars was jailed. The greatest generation learned to grin and bare it, and hoped for the best for their children, a few decades of prosperity, good living. They knew, the parents of the baby boomers knew the facts, but were kind enough to remain silent, and were the silent generation.
They knew the cold hard facts serving or dealing with WWII, while growing up in part during the Depression, and then dealing with Korea, Vietnam; had veterans stood up together, father and son, WWI and WWII, by 1963 things might have been different. Maybe not.
This was before our borders were opened, and 100 million, or a select few began looting the country for the next 40 years.
Bell ringers be gonged.
24/7 is a code; so is 9/11, and so is Porsche 911 Targa SC Orwellian.
Click to view linkscape, nets cape
Reply from The Daily Bell
Wow. Amazing contributors we have ...
|
Posted by MetaCynic on 12/01/10 01:05 AM
The fact that hyperinflation is an equal opportunity regime destroyer must be keeping lots of commie heads awake at night.
|
Posted by Vauung on 11/30/10 09:14 PM
In the world context, a "crash" involving some or all of these factors could be quite serious, since China is in fact "an engine of global growth" and its economy is symbiotically intertwined with that of the USA, so a systemic problem could drag both economies down and the rest of the planet with them.
When approached a little more cautiously, however, the issues are not so straightforward.
Firstly, Chinese stock markets are always 'bubbling' and 'bursting' with very little serious consequence. In part this is because the country enjoys true 'casino capitalism' in which investors take speculative gains and losses with an admirably stoical spirit.
Secondly, the real estate market is not mortgage based, so a severe downwards correction will have far smaller consequences than it would in a debt-knitted 'developed' economy. Most real estate proprietors have seen such staggering gains in their nominal wealth that even a savage collapse -- 50% for instance -- would leave them in solidly positive territory. The political economy of the real estate market is also highly complicated, because full private ownership of land is not recognized (the whole society is 'Georgist' without knowing it). To cut a potentially long story short, the systemic financial implications of a Chinese real estate crash are far smaller than recent Western experience would predict.
When it comes to inflation and the financial system, even greater complexities are involved. Chinese 'mercantilism' reaches its apogee in the financial sector, so the entire field is thoroughly politicized. Ultimately, the solvency of Chinese banks is inseparable from the asset base of the state (which is in turn hard to distinguish from the CCP), so -- to an even greater extent than in the West -- the claims of retail savers upon the banks is essentially equivalent to a political claim upon Party governance. This makes it unimaginable that a bank run could take off, it might, however, exacerbate the inflation problem if some kind of popular panic raised demands for liquidity in circumstances where financial assets had been frozen or even mortified in non-viable capital projects (such as dying state-owned enterprises or ill-conceived municipal infrastructure).
Weighing on the other side of the ledger are the Chinese state's enormous foreign asset holdings ($trillions in US T-bills most obviously), almost incomprehensibly vast domestic asset base (in 1949 the CCP basically took possession of the entire country), and relatively small domestic savings pool as a proportion of total bank liabilities (corporate saving is a far higher contributor to capital formation in China than the West).
True 'meltdown' requires hyper-inflation, and that is always a political choice -- one that the CCP will certainly not make. Unlike Weimar Germany or Mugabe-despotism Zimbabwe, the CCP functions like a Hobbes/Hoppe monarch that exhibits long-term economic identification with Chinese society. Whatever its very considerable faults, it can be relied upon not to kill the goose that lays the golden egg.
|
Posted by John Blenkins on 11/30/10 09:08 PM
|
Posted by Matthew on 11/30/10 02:50 PM
Reply from The Daily Bell
Thanks.
|
Posted by Dogwood on 11/30/10 01:25 PM
Only 3(c)7 investors are alllowed to hear the truth!
|
Posted by Ingo Bischoff on 11/30/10 11:20 AM
As to the Chinese "real estate" bubble, it is a mere sample of the such bubble made possible in the U.S., particularly with passing Proposition 13 in California in 1979.
"Real estate" bubbles in the U.S., Uk, Ireland, Spain, Portugal or Spain are all part of the "central banking" scheme.
When a central bank creates irredeemable currency against sovereign debt, it is stuck in getting this currency into circulation. It could use helicopters to make weekly drops of this currency over populated areas, however the population would quickly become suspicious about the banking system.
Instead, the FED developed a way to spread the debt based currency among the populus by using the former commercial banks, which lost their function after 1934, to extent "mortgage loans" and "consumer loans" to the public. For an economy to grow, only more mortgages and consumer loans had to be extended.
When the central bank, with its Ponzi scheme of creating currency, finally runs into trouble and needs increasingly more currency in circulation, the "real estate" bubble first builts until it finally explodes.
The U.S. is at this point, so is Europe and so is China. The question is how to get out of this situation before the whole central banking system collapses?
One thing is clear, it cannot be done without the "experts/elites" having to take "a bath".
I believe that China has finally concluded that only the "gold standard" can provide for a sustainable economy. Russia, to spite the U.S. is willing to give it a try. Europe, pushed by the Germans, will come to this conclusion. India, South Africa and Brazil will need little convincing. This leaves the U.S.
The great advantage the U.S. possesses is the the recognition by the founding fathers of the existence of the "gold standard" written into the Constitution.
It was F.D.R. in his wisdom, spurnt on by the mega bankers, who by Executive Order 6102 in 1933 termed the founders to be nitwits and declared the "gold standard" no longer operative for dealings by Americans among each other.
The solution to the U.S. monetary problem is a parallel currency created against "Real Bills" and redeemable into gold. This parallel currency will be in competition with the FRN. Employees in private industry are the only ones paid with this currency, because only private productive business can initiate the "Real Bills". Government employees will continue to be paid with irredeemable FRNs. They will have to discover the real value of their pay in the retail stores.
What would be the result of such a parallel currency system? The private sector labor market will tighten, thereby increasing redeemable currency pay. This will attract government employees to private industry who have seen the value of their pay in FRNs fall.
Thus, the effort to restoring private business and free markets is begun.
Will it happen....??? Logic and what is "right" in nature would demand it. However, once special interests and elites have gotten their way, it is like an addiction which is simply too difficult to shake. That is just human nature. Unless we take the time to learn from history to guard against making the same mistakes.
The founding fathers in their wisdom had put a governing instrument together which on the whole worked extremely well. However, the people in the Progressive Movement in 1913 and F.D.R. in 1933 demonstrated that they knew better.
Now, the verdict is in, and we don't like it much.
|
Posted by Bren on 11/30/10 09:49 AM
That's what i like about Daily Bell;lotsa points of view & everyone gets heard,-no matter how outlandish (the old ignore/laugh/fight/ win)sensible-standard, always is kept sacred .
This top 6000 are Reptilian;i've yet to hear evidence to the contrary.
This Wikileaks is a catylist device to Internet suppression.
Non-sequitor! Folks: fight like hell-cats to keep IMF false boom-bust invasions on your Countries Sovereignity(sic!) .Old folks can't heat their homes & their pensions' fund being sacked by bankers.People have to go to illegal money-lenders for the cost of burying their suicided young offspring.
That fat-headed EU commisioner makes Stalin look like a joke..disband the Evil EU.
We like all the idiosincrisies (sic!) & different countries that made our World a joy previous to 'IT'.Globalisationing corporations have sucked your kids' blood n futures up their greedy pig snouts.
Individual behaviour is all it takes to topple the SCUMBAGS,-do'nt be involved in their protection-PLEASE!
Thanks DB for pressing ahead steadily & fearlessly.
|
|
