News & Analysis
China – Third Pillar of a Broken World Economy?
China's spectacular real estate bubble is about to go pop ... So you thought that UK housing was unaffordable. Try Beijing and Shanghai, where ... prices are off the scale relative to income, the commonly used yardstick for measuring affordability. OK, so these are the boom cities of the Chinese economic miracle, but even on a nationwide basis, affordability is no lower than in the UK. Little noticed amid the furor of the euro crisis, HSBC'S preliminary survey of China's factories, published this week, indicated manufacturing activity in the world's second-biggest economy actually declined in July from the month before, the first such contraction in a year. The HSBC purchasing managers index for China has been falling for months now, indicating a protracted fall off in growth as the Chinese authorities act to rein in rampant inflation. – UK Telegraph
Dominant Social Theme: Don't the Chinese have it under control? The IMF seems certain they've have planned for this.
Free-Market Analysis: The US is struggling with US$200 trillion in unredeemable commitments to the world and its own population; the Eurozone is gradually sinking under the weight of the PIGS sovereign debt; and China, the third pillar of the world's economic façade is likely facing a significant bust.
When a country the size of China with 1.4 billion people has a "hard landing," it will come down with a sizable destructive force on the larger global economy. There are only two ways to look at such a landing: Either it is expected or is it not. Western power elites propagated central banking; they put over 100 of them in place run by the BIS. Either they understand the consequences of what they've done or they don't.
Of course, lately we've taken the view they DO understand. The people behind the world's economic and monetary systems are not stupid, how could they be? So as the world's economy collapses into ruin and the Greater Depression extends its hold over the globe like a dark shadow, we would tend to believe the idea is to maximize the results of international financial chaos by attempting to rewrite the rules.
Yes, we are on the lookout for a new dominant social theme, one that will emphasize an international currency, perhaps a basket of currencies including gold. It will be supported by the BRICS and Europe and administered by the IMF. That seems to be the plan. Out of chaos, order. Whether the Pharisees running the world out of London, Washington and Israel can implement such a monetary system obviously remains to be seen.
Meanwhile, the larger diplomatic and financial community remains oblivious – purposefully or not – to the latest unwindings in China. This is where the REAL action is. Europe and America are already slumping into a Great Depression; it is China that shakily props up the stool of world commerce, though perhaps not for long.
But why alarm the masses? The latest IMF opus casts a soothing spell, as usual. Yes, the International Monetary Fund is out with their latest Staff Report on China promoting the meme that all is well with the world's second largest economy. The IMF tells us soothingly that it has examined "the macroeconomic outlook, the potential for a property price bubble, the risks to the banking system, and the policy measures underpinning the 12th Five-Year Plan."
IMF honchos concluded in perfect bureau-speak that "The ongoing withdrawal of monetary stimulus is fully appropriate but a greater weight should be given to the use of higher interest rates and nominal appreciation in tightening monetary conditions."
In other words, the Chinese central bank should keep raising rates. No comment at all about the dysfunctional use of "five-year plans" generally. Instead, the IMF is generally approving. "Financial reform holds significant promise in contributing to the needed transformation of the Chinese economy."
They even have their own ideas about how the Chinese should administer their latest plan: "Over the horizon of the 12th Five-Year Plan, reforms should seek to secure a more modern framework for monetary management, improve supervision and regulation, deepen the channels for financial intermediation, transition to market-determined deposit and loan rates, and open the capital account. In all of this, a stronger renminbi will be an important complement."
Such calming words. China's top technocrats can simply adjust the machinery at the top and the Chinese economy, as vast as it is, will hum like a top. No accommodating the free-market here; no need to mention it. Econometrics rule. The IMF global-crats still haven't gotten around to reading Ludwig von Mises.
Every time the state creates a policy, it changes human action as regards to that policy. This is why laws have unintended consequences. This is why laws and regulations (price fixes) merely distort the economy without making any positive changes. Price fixing only moves wealth from those who create it to those who have not.
China, like America and Europe, is one vast price-fixing shop. Price signals are likely so eroded that when the crash does come, the distortions may take decades to work themselves out of the economy. As in America and Europe, lending and commerce at the highest and broadest levels shall shudder to a stop.
The only way that China can avoid this fate is by letting the coming crash unwind as it must. But the chances of a dying communist empire ceasing to manipulate the economy in hopes of saving itself are slim to none. Whatever emerges from the wreckage of what the Chinese have created in the past 40 years should be different than what has gone before.
Apparently, Western elites must believe they can continue to control events – with the help of China's elite families – not just in China but in Europe and America as well. Or perhaps they are simply desperate. Either way, we'll probably find out.
The meme seems to be shifting, in fact. There are more and more articles about China's distress. This article (excerpted above) in the UK Telegraph, is symptomatic of a change in coverage. The larger press – despite the IMF's calming notions – has begun to sour on the Chinese miracle.
The Telegraph article points out that while slowing price inflation is a good thing, the slowdown in housing appreciation, courtesy of Chinese rate hikes, may ultimately backfire. "As noted in the IMF's latest staff report on China, published this week, the property sector occupies a central position in the Chinese economy, directly making up some 12pc of GDP."
Not only that, China's middle class has invested heavily in empty properties throughout China – and in properties in China's growing accumulation of pre-built and still-empty cities. We are told of course that these empty cities, railroad stations and skyscrapers are merely evidence of the brilliance of China's central planners. It is all part of a "larger plan." Of course, the Soviet Union's planners were no doubt just as brilliant. And they are no more. Here is the crux of the article:
Residential and commercial property development have been such a big component of growth in recent years that anything that damages the property market risks upsetting the entire apple cart. Nobody can forecast with any certainty when the crash will come, but come it will. You cannot cram that much development into such a short space of time without there eventually being a correction. And when it comes, its knock on consequences are going to be extreme, possibly just as seismic as the rolling series of banking crises we've had here in the west.
We've been banging this drum for the longest time. But we've gone a step further as well lately, pointing out that the entire Chinese economy – the part that runs things – is a kind of Potemkin Village. It has been constructed to mimic the West's idea of how an economy should look but behind the façade, the ChiComs operate as usual.
A lot of the competition is farcical; the banks neither compete nor lend in the traditional sense and the larger economy that's been touted in the West as breaking away from the rigid Marxist model of development has in fact done no such thing. Now the Wall Street Journal is sounding the alarm as well:
Chinese Banks Are Worse Off Than You Think ... Rosy loan-to-deposit ratios hide a serious nonperforming-loan problem. Investors are worried about the health of China's banks. They're afraid – with good reason – that the massive, state-directed lending binge that was instrumental in pumping up China's GDP figures the past two and a half years will end up producing an equally massive pile of bad debt. Barely a week goes by without new word of a troubled project or impending default. Never fear, say the banks and some analysts. They point to the extraordinarily low loan-to-deposit ratios of Chinese banks, averaging around 65%, as evidence that these banks have plenty of cash to cushion themselves against any future loan losses ...
It's incredible that analysts and columnists talk about "loan-to-deposit" ratios and such when referring to Chinese banks. These terms mean nothing much in Western cultures where, thanks to central banks, banking has become an appendage-function of the state. In modern China, there never even was an independent banking sector. When the crash likely comes, the reality will be ugly indeed.
Who knows what the Chinese and the larger global power elite have in mind. Have they planned a worldwide crash? Are they confident they can manipulate it via war and despair into birthing a new worldwide economy with a global currency? Or have events outstripped them? Are they merely hanging on desperately and trying to put out the fires of a ruined system as they emerge?
Conclusion: We have no answers to these questions. But we don't see how a "soft landing" occurs. The Chinese economy is too big and traveling too fast. And when (and if) such a crash does take place, we don't see any other legs to prop up what may become an economic free-fall. We haven't read or seen anything yet that logically persuades us otherwise.
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Posted by revelationpost on 07/26/11 02:16 PM
Central planning does not work in the long run. Look at the Soviet Union: Phenomenal growth at first, then completely stagnant. The 8 men of the Politburo cannot act with the same efficiency that a free market can, no matter how intelligently or quickly they think. The central planning commission of the Chinese Corporacracy cannot properly control the all-for-one, one-for-all mentality of the provincial governments that drive the Chinese property bubble. This site describes how the Chinese government works pretty well, and from it we can see how it will fail: Click to view link
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Posted by onebornfreeatyahoo on 07/26/11 12:52 PM
John Danforth said:
" We will never get any government gang to play by civilized rules unless we make ourselves heard and raise the stakes for those who aspire to rule."
That is a mistaken belief, as far as I can see[based on my understanding of human action/how the world works].
An individual can waste vast amounts of time /energy/resources working towards what is, in reality, an unachievable goal.[i.e governments that "play by civilized rules"- according to any one individuals definition of "civilized"]
If you had just said :" We will never get any government gang to play by civilized rules " , and left it at that, I would have agreed.
_That_ is the reality which you [and others] currently appear to be unwilling, or unable, to acknowledge.
In my opinion one of the most important steps for an individual concerned with enhancing their own freedom is the discarding of false beliefs such as this.
The mistaken belief that governments, once created, can in any way be made accountable by pressure from those outside them is a dangerously false one for an individual to hold, it, at the very least, ensures that they will never achieve any real progression along the path to their own freedom.
See: "The Inherent Criminality of All Governments, Everywhere":Click to view link ,
regards, onebornfree
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Posted by TMoore on 07/26/11 08:58 AM
The recent "7.23 Yong-Wen major transportation accident" is metaphor for the Chinese economy that is going too fast for a soft landing. Is it any surprise that the official word from our colleagues in China emphatically understates the extent of the disaster?
Nothing to see here. Keep, er, moving...
Reply from The Daily Bell
Increasingly it looks like a kind of Stalinist disaster. The people at the top didn't really change at all, it seems.
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Posted by injun1 on 07/26/11 01:02 AM
I thought it started with "We the people"
Don't blame me, I learned it from John Danforth/hehehe!
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Posted by bob on 07/26/11 01:00 AM
I said it before and I repeat it again: the present China is somewhat modified Stalinist state.
The Soviet Union too in 1930s has made gigantic economic & industrial advances. Its economic model was very simple:
- the massive use of slave-labor
- export of everything to get foreign currency reserves to
- import high technology and machinery to industrialize the country
Forget all that nonsense about the Stalin purges in late 1930s. These 1930s purges destroyed the Soviet 5th column (specifically, the Lenin's old Jewish "guard" sent to Russia by the WallStreet and the City of London). These purges were good for the Soviet State.
Unfortunately for Russia, the real purges of Soviet economy and military assets took place in late 1920s when Stalin was not yet a dictator.
The Stalinist state collapsed following the Stalin death since the Soviet ruling party elite was more interested in their own good life rather than in a continuation of a socialist utopia.
Reply from The Daily Bell
Well ... the first phase of industrialization of the USSR must have felt like a "miracle" too. Even the state can create grand projects. It is the utilization and maintenance of them that is the problem ... Only the free market and competition can do that. Which is why these grandiose projects fail utterly over time.
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Posted by John Danforth on 07/25/11 11:39 PM
Oops, I said "we".
Just kidding!
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Posted by John Danforth on 07/25/11 11:38 PM
And then there's always the truism that law is what the biggest gang with the most guns says it is.
Been that way since caveman days.
So perhaps in the early days, the armed people decided that as long as everyone followed that simple set of rules, everything would stay peaceable. Perhaps the government obeyed these rules because they feared the consequences of betraying the public trust. In fact, I have concluded that this is the only limitation on any government's power, anywhere or anytime. And I believe this is why so much effort and resources are poured into propaganda.
The failure of propaganda, the loss of credibility, and the possibility of blowback are what the internet reformation is bringing about. We will never get any government gang to play by civilized rules unless we make ourselves heard and raise the stakes for those who aspire to rule.
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Posted by injun1 on 07/25/11 07:41 PM
I believe it was the late Patrick Swazye who said;
Bad, You ain't seen bad yet, but bad's coming!
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Posted by steveg on 07/25/11 07:05 PM
Very thought provoking article. I believe the system has collapsed. Only we have not realized it yet. The money system has been corrupted, the thieves are running loose and some of the villains are even advising governments. Evil is running amok and I believe the end result will either be some kind of martial law imposed by the villains or another world war {I hope not) but when you have so-called "conservatives"" consorting with communists then who knows where it will all end? see links below
Click to view link
Click to view link
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Posted by onebornfreeatyahoo on 07/25/11 06:50 PM
onebornfreeatyahoo said: "And yet, here we are :-) "
In light of some of my previous comments concerning the word "we" , I probably should not have used it, at least not without quotation marks!
To be clear, the point I was trying to make to Mr Bischoff [and others], is that despite his conclusion/ belief [i.e. " the U.S. Constitution created a governmental system which guaranteed states and individual rights balanced on the minimum of restrictions on individual freedom,..."] , that he and others are here regularly on these boards complaining about what they no doubt would characterize as the current US governments "unconstitutional" acts, my point being that the US constitution has obviously prevented _none_ of the many things many on here complain about [including the 16th and 17th amendments, by the way], so the whole idea that " the U.S. Constitution created a governmental system which guaranteed states and individual rights balanced on the minimum of restrictions on individual freedom,..."] , is nothing more than a fantasy, a dangerous belief that in actuality will prevent any believer in it from ever achieving their own freedom, in my opinion.
Real freedom for an individual must start with the recognition, close examination, and eventual discarding of obvious fantasies such as this extremely common one, Mr Bischoff. [In my opinion :-) !]
Isn't it time for yourself [and others] to "wake up and smell the coffee", so to speak?
Regards, onebornfree
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Posted by onebornfreeatyahoo on 07/25/11 06:11 PM
Bischoff said: "Contrary to your opinion, I have come to the conclusion that the U.S. Constitution created a governmental system which guaranteed states and individual rights balanced on the minimum of restrictions on individual freedom,..."
And yet, here we are :-) Regards, onebornfree.
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Posted by injun1 on 07/25/11 05:19 PM
I am reminded of the good ol' days when the whiskey question arose. A politician running for re-election was asked where he stood on the whiskey question. He calmly stood up and said, Mam, if you're talking about that vile substance that destroys families, creates poverty and takes the very food from the mouths of babes, mam, if that's what you mean by whiskey, then mam, I am firmly against this vile substance and I will work to destroy this very demon with all the power I possess!
But! Mam, when you say whiskey, if you mean that smooth substance that creates a tax base to build and support schools, creates jobs and helps feed the hungry and provides comfort to the lonely soul, well mam, if that's what you mean by whiskey, then I will work to preserve and protect the very essence of this nectar of the gods with every fiber of my body!
This is my stand, I shall not waver, this is my stand!
Ah, conversation, ain't it great!
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Posted by Bischoff on 07/25/11 04:46 PM
@ born free
"In fact, the US Constitution was a coup d'etat, carried out to further the aims of the centralizers, who had been, up to that point severely hampered in their efforts via the Articles of Confederation."
Your opinion about the U.S. Constitution is a popularly accepted notion which has been repeated for years and years. After studying the government of the Union of the North American States which declared independence from Brirain, I concluded that it was anything which could have lasted for long. As a matter of fact, the government under the Continental Congress was coming apart already by the middle of the 1780s. Things were going from bad to worse, and the survival of independence for the North American States was seriously put in jeopardy by fighting among the states.
"In fact, the US Constitution was a coup d'etat, carried out to further the aims of the centralizers, who had been, up to that point severely hampered in their efforts via the Articles of Confederation."
You might take this position, if you are governor Clinton of New York or governor Henry of Virginia, but the anti-federalists failed to argue their cause at the constitutional convention. They all but dismissed the constitutional convention, being certain of their cause against the establishment of a central federal government.
Their cause no doubt offered much greater freedom to the individual states to do as they wanted. However, such loose union would did end in a state of affairs which presented the British and Spanish with the opportunity to divide and conquer. The British thought the better take advantage of this sentiment of anti-federalism before it was too late when they invaded Washington, DC in 1812.
Jefferso himself, not a great supporter of Federalism did recognize as president that central power properly exercised did immeasurably add to the security of all the states within the Union. The Louisiana purchase and the Lewis and Clark expedition is an example of this recognition by Jefferson. Click to view link was Jefferson who as the author of the "Bill of Rights", modeled on Mason's Virginia Bill of Rights, wanted to insure protection of individual rights of American citizens.
Contrary to your opinion, I have come to the conclusion that the U.S. Constitution created a governmental system which guaranteed states and individual rights balanced on the minimum of restrictions on individual freedom, but just enough to prevent the Union from ending up in anarchy.
I would assume that your way of thinking should lead you to condemn the ratification of the 16th and 17th Amendments. Yet, I don't recall hearing your opinion on that matter at all, unless of course it is included in your opinion that the original U.S. Constitution is a Coup d'Etat perpetrated by the centralizers of government power. The promoters of the 16th and 17th Amendments would then just be a part to further what was begun in 1787.
If that in fact is your opinion, it is clear that I do not agree with it.
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Posted by josejoe on 07/25/11 03:38 PM
well,i think we all know about 'opinions are like a--h---s. we all have one'-so far we are able to freely express them in this country (even tho someone MAY be keeping tabs on us!
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Posted by injun1 on 07/25/11 03:13 PM
Conversation; Don't you just love it!
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Posted by injun1 on 07/25/11 03:13 PM
Conversation; Don't you just love it!
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Posted by onebornfreeatyahoo on 07/25/11 02:31 PM
Abu Aardvark said : "With all due respect, onebornfreeatyahoo, isn't "public discussion of (claimed) differences" in a feedback section the actual PURPOSE of opening or entering one in the first place?"
Thank you for the question, and yes, I agree. I was only saying that I refuse to engage in public discussions with entities and groups who consistently refer to themselves as "we" etc.[e.g DB moderators]. I have discovered that it is a waste of my time.
You yourself of course, are free to try to seriously engage with a "we" [or anyone else], both here and elsewhere - I choose not to, for personal/business reasons, nor with those who switch back and forth on a regular basis.
Of course, I am happy to talk in private email with any individual who refers to themselves as "we" here, as long as they drop the "we" in those private conversations. Otherwise,furgit it :-) Regards, onebornfree.
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Posted by Abu Aardvark on 07/25/11 01:18 PM
"I steadfastly refuse to get into a public discussion of claimed differences with any "elf" or person here who seriously believes that their opinion represents anything more than their own, it is simply not worth my time. Sorry"
-----
With all due respect, onebornfreeatyahoo, isn't "public discussion of (claimed) differences" in a feedback section the actual PURPOSE of opening or entering one in the first place?
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Posted by onebornfreeatyahoo on 07/25/11 12:48 PM
The Daily Bell said:
" We have disagreements (which you may take more personally than we do) but these are very good articles and we recommend them to all."
Thank you for the [unexpected] recommendation.
As to your disagreements [which, even though I cannot guess what they might be at this time, I probably would not take personally]; my services:
Click to view link
are aimed at helping freedom-seeking individuals _ only_, and are not for those claiming to represent groups - so any individual elf , or anyone else for that matter, is more than welcome to voice their differences either here or via email [only email guarantees a response!] _as_ an_individual_ -
however I steadfastly refuse to get into a public discussion of claimed differences with any "elf" or person here who seriously believes that their opinion represents anything more than their own, it is simply not worth my time. Sorry.
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Posted by injun1 on 07/25/11 12:17 PM
It took 200 years for the U.S. Government to come to the conclusion that forced assimilation does not work. China's "Build it and they will come" real estate market, is based upon assimilation of their people, not for western market forces. Their real estate housing market was not designed and developed to promote outside citizenship. It was built to assimilate tribal cultures throughout mainland China so as to free the regimes appetite for natural resources and land confiscation.
China , like the rest of the world, cannot survive without water and natural resources. They are running out of them. There is a solution, but it takes vast amounts of land. Lands on which China's tribal people sit upon. Sound familiar? It should.
The U.S. government thru forced relocation did the same thing for the same reasons and more. To force the assimilation of tribal cultures in China is a much more difficult task to accomplish because of today's information world. The eyes of the world are watching. Public relations matter.
In order to assimilate under "worldly" public relation rules, one must provide shelter. In order to provide shelter for billions of tribal people, one must build housing that reaches the skies. It is not built for outsiders, but if the outsider wants to finance the scheme, so be it, it does so only out of greed, not to assist the tribal communities.
Grandma lives happily on the hilltop where we moved her tipi. It overlooks the house that the government built on land that has no water. It has made for a nice livestock barn for grandma. Good luck debt holders, as you hold a mortgage on a house that has no water. China is no different!
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