STAFF NEWS & ANALYSIS
The West's Pending Paper Money Implosion
By Staff News & Analysis - October 20, 2010

In China, a City With Lots of Buildings, but Few People … Patrick Chovanec, who teaches business at Tsinghua University in Beijing, says the building boom is driven by frenzied investors — not the housing needs of millions of migrating workers. "People are using real estate as an investment, as a place to store cash — they treat it like gold," Professor Chovanec said. "They're stockpiling empty units. This is going on in cities of virtually every size." … Property development here is so hot that last year, housing sales in Ordos reached $2.4 billion, up from $100 million in 2004, according to government statistics. … "This is a city of the future," Li Hong, a government official, said during a recent tour of Kangbashi. But the future has not yet arrived, despite Mr. Li's best efforts to persuade a visitor otherwise. … Only a few minutes earlier, Mr. Li escorted a reporter through an empty 500,000-square-foot convention center and a 12-story office tower that had dark hallways, locked doors and just a few scattered souls. – New York Times

Dominant Social Theme: All across the world, the kids are OK! And so are their investments!

Free-Market Analysis: We begin with China and its empty cities, but we want to mention Brazil as well. In a move that has not received much coverage, Brazil is dissociating itself from certain IMF deliberations regarding the nascent currency war. The Western elites, in their increasingly obvious desperation, had hoped to turn the IMF into a kind of global central bank, but Brazil's leaders seem not to go wish to along with that scenario. In fact, it is not 1945 and the Anglo-American axis cannot bully its way to a new economic order simply because it wishes too.

Brazil's top economic officials won't attend G20 … Brazil's top economic officials will not be attending meetings of Group of 20 finance ministers and central bank governors in South Korea this week, the finance ministry and central bank press offices said on Monday. … Reuters reported on Friday that Finance Minister Guido Mantega would not be attending the meeting and would unveil new currency measures aimed at containing a rapid rise in the real BRBY this week. (- Reuters)

Meanwhile, China's endless struggle with real-estate inflation was further emphasized yesterday when the Chinese central bank announced it was raising interest rates. This is a kind of one-two punch in our estimation. China is the most important economy in the world that has not collapsed yet. Once China collapses and the plan to further expand the wretched Western central banking system is revealed as unworkable, the 100-year old Western banking system may begin to implode in earnest.

The problem with free-market economic analysis is that it is impossible (usually) to get the timing right. The larger, macro business cycles may be apparent, but predicting when China's real-estate bubble is going to burst is a fool's errand. No one knows with any certainty. These bubbles can go on for years, decades even, though in China's case the bubble is likely long in the tooth, just as China's "expansion" is. China's entire economy is terribly distorted now. Even the New York Times has discovered this (see excerpt above). Surprisingly, Bloomberg has too. Here's Bloomberg on China yesterday:

China Hides Rampant Inflation in Money Binge … Money, money everywhere. At least that's what it feels like at the moment in China. Awash in luxury cars, condos and expensive jewelry, the Chinese are enjoying what looks to be an unstoppable boom. But inflation figures due to be released tomorrow should give pause to those who assume China's economy is on sound footing. To an extent few fully appreciate, China's astonishing growth rates these past two years have been fueled by an even more astonishing expansion of its money supply, by more than 50 percent. Until now, the inflationary consequences have been largely camouflaged in the form of rising asset prices. (-Bloomberg/BusinessWeek)

The ruination of the Chinese economy will likely end the horrible communist experiment that the Anglo-American axis helped inflict on the long-suffering Chinese. The vicious ChiComs and their oppressive system are only tolerated today because they have managed to create a good deal of "wealth' of late. But when it evaporates, the poor Chinese who have been buying empty flats in unpopulated cities as "investments" won't know what hit them. It is obvious the Anglo-American axis has been patiently tutoring the Chinese. The system that the Chinese operate currently didn't spring out of the ground fully formed. It is a mimic of the worst parts of the Anglo-American free-enterprise system; almost all "enterprise" and little that is "free."

Once the system implodes, the Chinese likely will stop cooperating with the Anglo-American elite. This will be another change. Currently, the Chicoms are enthusiastic players in many of Western elite power promotions. The Chicoms can be found in Afghanistan eagerly making deals with the corrupt Karzai government to exploit Afghanistan resources. They pop up after meeting Eurocrats to claim they have confidence in the foundering euro and are willing to buy Greek debt. They speak out after IMF meetings to explain that the world does indeed need a global central bank and global currency. The ChiComs and the Anglo-American elite think alike. They are brethren. Intertwined. It is perhaps a kind of love-hate relationship.

If the West unravels any more rapidly or ruinously, it can take China down with it. Likewise, when China falls, (and it will) the crash will resound worldwide. India, too, is awash with money; one the country's wealthiest citizens just built an extravagant US$1 billion "house" (actually a serial apartment building) in the middle of impoverished Mumbai. Brazil is no different. Money is sloshing around the world, and the US and Britain have led the way with their insatiable and reckless money printing. It is a 'boom-time," yes, but a terminal one, and soon comes the bust for the countries that have not experienced it yet.

The Chinese crash, when it occurs, will be truly resonant, like Ulysses impaling of Polyphemous' single Cyclopean eye. Or perhaps it is better to compare it to a nuclear device, one unleashing the distortions of 20 years of relentless monetary stimulation with truly unbelievable 10% per quarter growth rates. And in the aftershocks, a significant percentage of China's real estate will prove worthless or unlivable in our view.

The huge Chinese banking system, which is merely a facade for governmental control, will begin to crumble. As will the country's rigged stock exchanges and some or much of its international industry. Whole cities may have to be razed (if there is the money to do so). Much of the government-built infrastructure, its roads, sewer systems, etc., will prove to be unreliable. The endemic corruption of the Chinese system will be revealed in all its ugliness as the money tide recedes.

The ChiComs, in our view, will not have the time, the patience or the wherewithal to print more money – to generate a Bernanke-Paulson style artificial boomlet to stabilize the financial system. When the economy begins to fail (and it is a huge economy) the Chinese state will begin to unravel as well. The fury of the Chinese people will likely spill over; especially those in the country who never participated in the boom. Starved in the 1950s and 1960s and oppressed since then in various authoritarian ways, the Chinese have kept quiet in return for government-provided wealth and security. When it turns out that once again the government again has failed, the social pact will be seen as abrogated and the leadership will not be able to recover. This is what the top level of the party grimly and correctly fears.

The coming failure of the Chinese economy could wipe away the current leadership and usher in a new form of government. Perhaps it will be a democratic one or perhaps it will entail radical democratic socialism. The Chinese protests at Tiananmen Square were actually socialist protests. The demonstrators may have wanted more freedom, but it was freedom that was to be used to demand a more extensive welfare state. So China remains a damaged and conflicted society with a historically authoritarian culture and little experience with sociopolitical freedom. It is not the United States (or at least what the United States was).

Even if China does not crash in the near future, the West's unraveling is likely to continue. Europe is already ablaze, as we predicted, and if observers believe the current protests are about "austerity," we think they are misinformed. A class war has started in Europe as we pointed out just yesterday. In America the class war has found its voice in Tea Party agitation. But once the Republicans (who will be swept back into office) return to the center and begin to "legislate" because "that is what the people want," the fury that is building in the US will become unstoppable in our view. There will come a European moment.

The Western elite wished to use the economic crisis (which we think is far-worse than expected) to create a significantly tighter global, financial system with one IMF-run central bank and a single currency as well. But the globalist aspirations of this familial Anglo-American conspiracy are increasingly shattered in our view. The shards of these insane manipulations are beginning to rain down upon them.

How did the Anglo-American elite anticipate that it would bully China, Brazil, India, etc. into going along with a system of world government in which the Anglo-American axis would take the lead? Colonialism is not a supportable strategy anymore, for the West. And then of course there is the truth-telling of the Internet, which has immeasurably complicated elite schemes.

After Thoughts

We will close with our usual disclaimer that we are following elite promotions as best we can and that the Western elites comprise a very formidable group. It could be that they manage to create a more unified world economic system out of the current crisis. It could be that a Chinese crash is averted or that the powers-that-be will figure out a way to declare and uphold martial law throughout the West, as the more paranoid are now predicting. We would find it surprising.

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