Elephant, Meet China
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Lewis Wickes Hine Newsies Gus Hodges, 11, and brother Julius, 5, Norfolk VA Jun 1911 Oh man, I wanted to keep this short, what I wanted to say looked
[See the full post at: Elephant, Meet China]As long as everyone is pretending, there is no need to introduce reality into the equation and spoil the party. That has been the mantra in the USSA since who knows when. All the fedsters can speak in tounges to confuse the few that are trying to pay attention. Deflation becomes a Real Recovery with minor adjustments to the obligatory statistical reporting. Money is borrowed into existance. Where do you think the chinese learned these tricks? But the flaw is that it can’t go on, and we are hearing the sounds from the understructure that indicate the collapse is nearly upon us.
Yes, China has problems, Jim Chanos has been reminding us of it for years now on CNBC, he is heavily short.
How can they not have a recession? Their biggest export market Europe is a basket case. We ourselves are not what one would call Boom town and are no doubt hurting the Dragon as well. Japan just crashed the Yen, hardly a help.
They are way overdue for a back up. Real estate will fall dramatically, unemployment rise, stocks will probably dive as will expectations of rapid growth forever. A healthy development, nothing like a dose of reality to stop silly stupid reckless behavior.
The world will still spin. Measures will be taken to end the misery. The billion plus Chinese will still eat every day and make it through.
The Chinese, nor their trillions in reserves, are not going to suddenly disappear, not from a severe recession. Look at we were in 2008, and look at us now compared to then.
Recessions, depressions , whatever you wish to call them depending on your benchmarks are common. Some end quickly, some drag on for the longest time,
My great fear is that all this economic misery, if it gets severe enough, could lead to world war. Then we will have a real problem, one too horrible to contemplate.
To be human is to be delusional. Everywhere we look, we are afforded the chance to deny reality. Society is set up that way. It is not that hard to fool the masses. We want it that way, lest we recoil in horror at the extent to which we don’t understand the cosmos. We just want food and water, sex and a roof over our head. We want a big daddy god and we want to be told that the planets have always been safely in their current orbits, and that the universe runs like a dependable clock. We want a good bedtime story so we won’t have to worry.
Bankers can print unlimited amounts of money, politician’s can lie through their teeth – just about anything goes, as long as we aren’t physically in danger. Nothing will change until we get hungry. We, the coddled masses in this country would rather eat cake than revolt.
Collapse will be a slow grind down the hill, a series of stairsteps. I like Kunstler’s term, “The Long Emergency.”
Every crisis since the late 80’s has the same result the world over. More power to banks and central banks. Every crisis has the same cause, excess credit creation, by the self same banks and central banks. Xi and Li like all political leaders before them have no choice but to cede more independence and power to banks and central banks.
Once a country has a big enough uber class and middle class the chance of reform much less revolution drops to zero so every time you don’t think it can get more crazy it gets more crazy since there is no brake. Nothing goes on forever but in the meantime there are limitless trillions to be printed to support the banking giants assets. Not coincidentally the banks will provide credit to the governments so they can continue doing the things governments do. I don’t doubt for a moment that governments can continue to function just fine as they are with half of their citizens not participating in the economy at all.
And gee, let’s not forget that the insane production of all these misallocated resources spewed untold amounts of greenhouse gases into the atmosphere at precisely the time when our environment cannot tolerate the insult.
Not only has the monstrous Chinese kleptocracy ripped off their own people, they’ve slapped all of humanity in the face and said, “Ha ha! Screw you too!”Here is a must read article by Stockman with a VERY good explanation of “financialization.
The Oil-Drenched Black Swan, Part 2: The Financialization of Oil
It ties it all together about raising profitability and risk together.The reasoning used to rebut Stanley Fisher in “Fed Fischer’s Complete & Bizarre Nonsense: Oil Price Collapse “Making Everybody Better Off” is fallacious. It confuses money with value. Take the author’s equation X = GAS + EVERYTHINGELSE. Clearly, if GAS the price of gas goes lower, the consumer can either buy more GAS, or more EVERYTHINGELSE. In the GDP sense, perhaps nothing changes, since the same amount of money is spent. However, excluding possible follow-on effects (such as layoffs in the oil industry), the consumer is clearly better off, because he gets more actual product or service for his money.
Goner Pyle – good points. And not only did the world suffer from pollution and the Chinese people get ripped off by their own elite, but these elite then turned around and bought up our nicest cities with their often corrupt and ill-gotten gains, pushing prices into the stratosphere for our own citizens. It was just a win-win for all (sarc)!
But I did read somewhere that 60% of the exports coming out of China were from multinational western corporations, so I guess our guys had a lot to do with that pollution as well.
Danny B – that was a great Stockman article. Thanks for posting it.
Point-of-Order, Danny B and Raleigh.
Stockman, and Z.H., and now Ilargi have posted Charles Hugh Smith’s “Oil Drenched Black Swan” article.Ilargi: “A Chinese manufacturing gauge fell as factory shutdowns aggravated a pullback in the economy [..] The government’s Purchasing Managers’ Index (PMI) fell to an eight-month low of 50.3 in November, compared with the 50.5 median estimate of analysts in a Bloomberg…”
Oh my GOD! The PMI is off by 0.4% over 8 months!? This is a catastrophe! China is melting down as we speak!!!
………………………………..
But seriously: I never cease to be amazed (and amused) at the “arguments” advanced by China bears, including (the mentioned) Jim Chanos. These guys have been wrong almost forever, now. But they keep plowing on, grinding out the same bear BS.
Yeah, I’m sure that one day — in stopped-clock fashion — they will be “right” for a brief interval, as the excesses get cleared away in a great swoosh. So what? That’s healthy. That’s what SHOULD happen in order to improve the foundation for the great growth yet to come. China needs a cleanout for a year or two. That would strengthen them.
I see all the lame fallacies in here, including the old “ghost cities” chestnut. I’ve dealt with that subject in some detail elsewhere (here? TAE? cannot remember) and I don’t feel like reinventing the wheel. Suffice to say that China’s so-called “ghost cities” are in fact a smart initiative. China is undergoing urbanization at a terrific pace, and it often makes a lot more sense to build whole new cities from scratch than to (awkwardly) vastly expand old ones. Naturally, and by definition, the new cities will be empty for a while, at the beginning. Big deal. Check back in five years, when they’re half-full, and ten years, when they’re full up. This has already happened in more than one of them. “Ghost cities” makes a great tabloid scare-headline. Too bad it is without substance. Building new cities at a breakneck pace is a wise investment, for them. They need the cities, and they have to put their purchasing/finance power somewhere. Much better than buying more bonds, or some other bullshit paper “investment” that can go up in a cloud of smoke any year now.
Along the same lines, the “China Wasted $6.9 Trillion On Bad Investment Post 2009” scare headline. I’m not impressed. A couple of obscure researchers, somewhere in the bowels of the Chinese bureaucracy, decided that all that money was “wasted” on “bad investments”. Well, I’m sure that a LOT of money has been wasted on bad investments in China. It would be impossible for it to be otherwise in a large industrializing nation. It is all a question of the amount, and who judges what is a “waste”. In one of the stories reporting this “6.9 trillion” figure, it is said that the money was “wasted” on “airports, industrial zones, and highways that no one needs.” Er, excuse me? That “no one needs”? How was that conclusion reached? Was it reached just by eyeballing these projects upon completion, and noting that the airports, highways and whatnot were (of course) EMPTY at that moment? If so, this is idiotic “analysis” that deserves no airplay at all.
Golden Oxen: “The Chinese, nor their trillions in reserves, are not going to suddenly disappear, not from a severe recession. Look at we were in 2008, and look at us now compared to then.”
Yes, well, it is not the “trillions in [dollar] reserves” that is so significant. Rather, it is what they have BUILT that is significant. Big piles of a fiat money are no big deal; that stuff could be devalued or even collapse, in short order. The industrial and other infrastructure that they have developed IS a big deal; that stuff will survive just about anything, and it will go on producing wealth even during and after a financial meltdown. (There is a huge difference between finance and physical economy. HUGE. Too bad Western morons seem incapable of grasping this.) Likewise their enormous and rapidly-expanding cache of gold — said to be north of 20,000 tons (!) now; that won’t be going away in a fiat/equities/bonds/etc. bonfire, either.
Actually — and I think you know this, G.O. — that gold very likely will be of great significance, especially when coupled with industrial might. China is brilliantly prepared (and preparing) for the great sea change now on the horizon — decline and fall of the great petrodollar regime. They are doing all the things that need to be done: very rapidly acquiring hard assets of all kinds (while ceasing to buy new u.s. bonds); building more industrial and transport infrastructure (which ARE hard assets of a sort – with intelligence built in); building whole new cities to house the urbanizing population and support industrial growth; rapidly developing alternative energy production capability; rapidly developing natural gas import capability; etc., etc. All of this stuff is critical, and must be done right away — just as they are doing it. They’re making mistakes along the way, of course, and they’ll pay a price for that. That is unlike the proprietors of TAE, who would undoubtedly run China in an error-free manner, given the chance. 😉
A few more relevant comments:
I’ll be stopping back every year or two. We’ll see if China has collapsed into unrecoverable chaos by then. Don’t hold your breath, please.
alan2102, I wonder whether the positions are mutually exclusive? I fully agree with you that China has been positioning itself the right way. I would go further and say that China has used these last days of current global monetary financial system to amass as many physical assets as possible, with the full knowledge that its own course and the entire system is unsustainable. A crash is coming, China knows it, and the entire system will reset. A massive amount of debt will be destroyed. And when the dust settles, China will be sitting on a mountain of gold and a country full of new infrastructure. In the meanwhile, it is in China’s interests to keep the present system going as long as possible. If that means cooking the books, so be it. If that means a massive unregulated shadow banking system, so be it. Smart move in my opinion.
Yet it doesn’t change what the China bears are saying, does it?
I also disagree with TAE that all of this is going to end in a big deflationary collapse. I agree that there will be a collapse, and I agree that in the beginning stage it will be deflationary, but I think it will culminate in a one-off reset event where the dollar will be subject to an (almost) overnight revaluation — not just against other currencies, but against the real world (including gold, all of those new Chinese cities, and everything that exists in the material world). But enough of what I think. The point I wanted to make is that I don’t see that much difference between what you are saying and what TAE is saying.
Thanks Alan for such an excellent posting.
You gift for writing and realistic coherent original points of view are most appreciated. Regards, GO
Boogaloo: “China has used these last days of current global monetary financial system to amass as many physical assets as possible, with the full knowledge that its own course and the entire system is unsustainable. A crash is coming, China knows it, and the entire system will reset. A massive amount of debt will be destroyed. And when the dust settles, China will be sitting on a mountain of gold and a country full of new infrastructure.
In the meanwhile, it is in China’s interests to keep the present system going as long as possible. If that means cooking the books, so be it. If that means a massive unregulated shadow banking system, so be it. Smart move in my opinion.”Yes to all. Fully agree that it is a smart move. They are smart; we are dumb. We’ll wise up, but it will be the hard way, and it will take a couple generations.
Boogaloo: “Yet it doesn’t change what the China bears are saying, does it?”
The difference is in the emphasis. The China bears tend to be (are not necessarily, but tend to be) apocalyptic doomers. The Great Fall of China, so to say, is part of their doomeristic eschatology, beyond which they cannot see. That last part is the key thing: cannot see beyond. Of course it is true, in a sense, that “the system is unsustainable”, but what doomers see is an unsustainable system going down in a great ball of flame AND NEVER COMING BACK. But that is not what is going to happen. That’s what happens in the Bible and other mythic works (think Armageddon, Ragnarok, etc.), but that is not going to happen in our temporal world. Our unsustainable system will, of course, not be sustained — by definition. And a different, somewhat more sustainable (for a while) system will be instituted. There are several words for this phenomenon1. The words are in the dictionary. Among them are: “change”, “adaptation” and “survival”.
Some China bears are not apocalyptic doomers. They’re more secular and superficially more rational. But they are afflicted with a couple of other problems. For one, chronic myopia or short-termism. They look at an empty new city and see only a “ghost city” or “empty airport”, rather than an investment that will START to pay off in 10 years, and will continue paying off for another 150 years. They see just the empty city, and somehow fail to see the hundreds of millions of people who very much NEED that city, and will start moving into it shortly (though not instantaneously, since such transitions cannot be instantaneous). Another problem, I’m sorry to have to point out, is racism and chauvinism — a toxic subliminal brew of residual “yellow plague” fear and hatred, and American/Western exceptionalism and supremacism. Like, “those bastard slants and gooks can be crafty at times, but us great Western Whites have it all over them”. No one actually SAYS this, of course, and few even (consciously) think it; far too crude. But that is the underlying attitude.
Funny, but just yesterday I was cleaning out an old pile of books, and engaged for an hour with a title by Victor Davis Hanson — a good example of the chauvinistic type that I’m talking about. The book was about the Western way of war, versus the Eastern. Hanson describes how the (inferior) Eastern mind, imbued with collectivism, Confucianism, etc., was vulnerable to defeat by the sometimes far-outnumbered white Westerners. He makes a very good case — if you don’t mind falling into the trap of exceptionalism and chauvinism, failing to see how the “inferior” Eastern mind is at this very moment developing physical economic systems that will have effects more devastating, and lasting, than any military defeat of yesteryear. I guess them darn slants and gooks CAN make some really smart moves after all, huh?
Boogaloo: “I also disagree with TAE that all of this is going to end in a big deflationary collapse. I agree that there will be a collapse, and I agree that in the beginning stage it will be deflationary, but I think it will culminate in a one-off reset event where the dollar will be subject to an (almost) overnight revaluation — not just against other currencies, but against the real world (including gold, all of those new Chinese cities, and everything that exists in the material world)”
Apocalypse now! Or soon. Yeah, maybe. It might come down like that. But the key thing is that it will not be the end of the world, the end of history, the end of industrial civilization, etc. It will be the end of certain things (e.g. debt excess) that had to end. But it will not end human energy, initiative, industry, intelligence and adaptability, nor will it end the built physical economy and hard assets — or as you put it: “the real world (including gold, all of those new Chinese cities, and everything that exists in the material world)”. Yo! China’s 15,000 kilometers of high-speed rail (for one small example) will not disappear or become inoperable or cease operations. Likewise all the other physical stuff.
PS:
I mentioned two weaknesses of China bears: myopia/short-termism, and veiled racism/supremacism and exceptionalism. There is another one that I should mention. It is the assignment of grossly excess significance to the financial economy — to paper money or other abstract representations of wealth — rather than to the real wealth (the physical stuff that money buys and builds, and the hard assets). This is, if you’ll allow me my turn to wax biblical, a form of idolatry: paper money, or abstract representations of wealth, is worshiped as though it were the real thing. Its significance and power is estimated to be far in excess of its real significance and power. But it does NOT have real, enduring power. It is NOT the real thing. It is a false god. It has temporary uses, and I am not against it or its right uses. It has temporary power, and its collapse would surely have repercussions. But it should never be confused with what is real; it should never be the subject of worship.
To think that China — i.e. the entire vast modern nation, including all of the factories, roads, bridges, cities, the works — will somehow collapse into permanent chaos and impoverishment because of a collapse of fiat money, or bonds, or whatever is, effectively, idolatry. It is the taking of a cheap representation of the real as though it really were real — and (even) as though it were a real god with supernatural powers. This is idolatry, and perhaps animism. Superstitious. Those dollar bills (or T-bills, or what have you) are not mystical talismans with which one can command the elemental forces of nature. They might behave that way at times, under certain circumstances, but they do not have that power by virtue of anything intrinsic. It is all situational, cultural, consensual.
This idolatry problem, btw, seems built-in to the Western mentality, now; i.e. it is not just a characteristic of China bears. We worship the symbols instead of the real thing. Combined with the myopia, it is deadly. We pretend that “making money” by non-productive (or even exploitative and destructive) financial shenanigans this year or this quarter is equivalent to, say, realizing profits over decades from the dramatically improved commerce and human development resulting from the building a high-speed rail line from China to Turkey.
Energy:
Natural gas is cleaner than coal. It will also be cheaper. It is also available in vast quantities (see graph at the link below): easily enough to support Eurasian development for a century — and that is plenty long enough to allow transition to renewables. China’s coal binge is/was largely just because it had a lot of coal, and not much natural gas. But there is plentiful natural gas on the continent; it is just a matter of building infrastructure to transport and use it. That is underway. Of course it won’t happen overnight. Nothing that big — in the REAL world — happens overnight. 5% of China’s energy comes from nat gas now; 10% by 2020, 15% by 2025, and so on. The numbers will be similar for renewables. Hence, the coal binge will (thankfully) end, coming to a slow, soft landing over decades. Good riddance!
https://online.wsj.com/articles/new-russia-china-deal-could-further-hit-natural-gas-prices-1415614816
New Russia-China Deal Could Further Hit Natural-Gas Prices
By Eric Yep Nov. 10, 2014 5:20 a.m. ET
“A preliminary natural-gas deal between Russia and China signed over the weekend paves the way for opening up a second major supply conduit between the two countries—and lowering natural-gas prices in Asia.”Golden Oxen – I neglected to say: thanks for the encouragement! I don’t expect much in these parts, so it was refreshing. 🙂
alan2102, I cannot remember when or where I read it, but I vaguely recall a story by a Japan bear whose perspective dramatically changed after he actually visited Japan. He was so in awe of everything he saw, he came away with the impression that the Japanese will be just fine. Even when the end comes, the sun will come up tomorrow, and Japan will still be an amazing place.
The big risk I see is war. That could be the wrench in the machinery that changes everything.
Boogaloo: I’m sure that seeing things “live”, on-site, is a lot more impressive than reading abstract/dry numbers. Japan is in a very different situation: mature economy, hugely aging population, small island with no resources, and other problems. Of course, Japan is not going to collapse into obscurity as the bears might imagine; they have far too much strength for that. But they are in for problems, mid term. China: not so much. China has its issues as well, but they have so much more on the positive side that it is inconceivable that they will go down and stay down, as our TAE commentators seem to suggest.
We can’t go “live and on-site”, but photographs at least come close. Check this out, and scroll through the whole thing because it starts with the small stuff, and then gets to the big stuff. It is mind-blowing, even for me:
https://www.businessinsider.com/giant-chinese-infrastructure-projects-2011-6?op=1
108 Giant Chinese Infrastructure Projects That Are Reshaping The WorldYes, yes, I know, after the Big Crash ALL of this stuff will simply be abandoned and forgotten, and the Chinese will go back to feudal dirt poverty for all of eternity. 😉
More on “ghost cities”.
Why is it so difficult for us (idiots) to comprehend that China is an advanced civilization with an aggressive and highly focused commitment to becoming much MORE advanced — and that building huge modern new (temporarily unoccupied, before they fill up) cities is part of that process?
https://www.bullionstar.com/blog/koos-jansen/guest-post-5-chinese-ghost-cities-came-alive/
Posted on 5 Aug 2014 by Koos Jansen
Guest Post: 5 Chinese Ghost Cities That Came Alive
snip
when a Chinese “ghost city” does fill up with people and businesses it inconspicuously falls off the radar of the dominant international media. It becomes a regular city, mashed into China’s broader urban matrix — a success story that few seem interested in hearing about. We are amused by empty streets, vacant shopping malls, and barren financial districts in China, not budding new cities steadily coming to life. Ex-ghost cities are rarely news.
Many places in China that have previously been heralded as ghost cities have by now been developed and populated. Though most are still works in progress, there is no way that they could rightfully be called ghost towns. Below are five new cities in China that have advanced through the ghost city phase and have come to life.
snip
prior to visiting Dantu all that I’ve ever heard of the place was that it was a deserted, failed development — one of China’s oldest White Elephants. “The ghost city of Dantu has been mostly empty for over a decade,” Business Insider reported. “In most neighborhoods of Dantu, there are no cars, no signs of life,” reported the Daily Mail. Both of these claims were made from looking at dated satellite images that showed the new district while it was still a construction site, not from reporters who actually went there. To put it bluntly, it’s no wonder the place looks empty: the images were taken before the place was built yet. As soon as the district was adequately constructed and pumped with the services that a population needs to live there, people moved in.
snip
The ghost city claims were made on the basis that there are a lot of empty apartments here. As I discovered early on in my ghost city project, just because an apartment complex appears empty isn’t necessarily an indication that the development is faltering, as there is an extended interim period between when the exteriors of residential buildings are built and the time when residents are able to occupy them.
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