|Wall St. Tweak.|
Now that I've once again caught somebody referring to some part of the world as third, I had to ask myself what is it that people mean when they use that word? Is it the developing world or an emerging economy, if so from what is it emerging and into what are they developing? And how is an economy ever considered "Developed"? And how exactly does that differ from Calcified? Which is the opposite of a vibrant, resilient economy, which is what a developing economy is.
As Wolf Richter points out, regarding the Chinese economy:
"What’s left behind is a still growing and partially hidden mountain of debt – and the threat that this contrived economic activity, this malinvestment, funded by unsustainable credit growth can’t be, well, sustained forever. That moment when it can’t be sustained any longer, when the house of cards comes tumbling down, has become a threat so serious that the government is fretting about it out loud in the Chinese media."
Now, how is this malinvestment, unsustainable credit growth, and contrived economic activity, which, as Mr. Richter points out, is not only unsustainable, but, I would say, unwise, different from the US version? Well, other than it makes everything for the entire globe, while the US makes, well, Treasuries and fraudulent financial 'products', more cars than anyone needs, or wants, or can afford, unless they're given free loans and deprived of any other means of locomotion to get to that job, that, like those in China, are 'make work' positions. Although Paul Krugman insists we should engage in even more conjured up jobs and even more malinvestment, because as he states, making things nobody wants is better than doing nothing, a pale echo of the USSR's well-known dynamic whereby, "They pretend to pay us and we pretend to work".
Yet that wasn't enough,whether or not he was being deliberately ironic or not, Wolf 's post continue's to state things about the Totalitarian, Communist government of China that exactly echos the policies and actions of the Kamikaze Kapitalism Kultur of the US:
"With credit growth at around 17% per year, and GDP growing at less than half that rate, the mountain of debt in relationship to the economy continues to pile up. Hence “unsustainable.” What happens when “unsustainable” turns into actual consequences? That’s the very moment Chinese officials fret about."
Not that I'm suggesting that the figures are the same, but the sentiment is exactly the same. The relationship between credit growth and the growth of the economy, or corporate profits, or the stock market, or government debt, all of which should have some kind of effect on one another, have all come loose from their moorings and, because, as we know from LIBOR manipulations by the BOE, or Fed-intervention in the rate of return on bank loans, as reflected by ZIRP, the state of the State leads one to ask, unless one is numb, the same question Wolf poses, "What happens when “unsustainable” turns into actual consequences?"
And has an equivalent answer: That’s the very moment Fed officials fret about.
But it gets better:
"The property sector – China’s epicenter of malinvestment and bad debt – had “too great an influence” on China’s economic health, Zhu Baoliang, head of the economic forecast department at the State Information Center, was quoted as saying. Approximately 60% of financing and manufacturing activities are related to it, he said. Which is enormous. “If any big problem occurred in the real-estate industry, it would have a great impact on the economy.”
Sound familiar? Just as in the good Ol', once industry stops producing the wealth needed to pay its own unsustainable burden of indebtedness, it turns on and vulturizes the rest of the economy, making it look as thought manufacturing is still robust and thriving long after it has become a net drain on the economy, such that the Ponzi scheme of property price, or rather asset, inflation becomes the real driver of the economy, everything else being in a subservient position to the ever escalating destabilizing influence of asset-appreciation. The automobile industry is, methinks, a perfect example. Whereas when only one country had a transit system of indigent-provided gas-powered vehicles competeing against a backdrop of animal and wind-provided transportation in other countries, the profits to be made therefrom were of an order of magnitude greater than could be achieved by its trading partners, giving it a huge advantage (Translation: stellar profits). But when all those competitors achieve the same status, then all those fuel-driven transport units, now necessary, are no longer luxuries, but are an increasing cost of doing business just to get your workforce to and from the workplace, and once the source of power to fuel those vehicles now becomes exogenous, and must be paid for out of company profits, the equation is stood on its head, and government supports business, not the other way around, as the business community has been quite adept at convincing us it is.
And, as if to just help drive the deja-vu aspect of it all, Wolf throws in as fuel:
"But the real-estate industry is precisely where the problems are now occurring, though governments at every level are furiously engaged in keeping that bubble going while limiting its growth for as long as possible. When a single sector that is riding on top of the largest construction bubble in history has such an enormous impact on the rest of the economy and drives 60% of manufacturing and finance activities, it doesn’t take an outright implosion to take down China’s specialized economy. All it takes is a moderate slowdown. And POOF."
This could've been written around 2005/6, as property prices in the US peaked (Oh yeah, that's right, it was, but not by the 'right' people) except, it would've had to mention CDO's as adding an extra layer of risk, and there'd be mention of "mopping up" operations, as though any amount of mopping up helps something that's completely underwater, such as your home's value.
But the last paragraph in Wolf's piece is the real stunner, as it (can it really be unintentional?) starkly demonstrates the contrast between what our so-called Market-based economy of supposedly unmanipulated data points and Free press assumptions are, and what the reality is:
"The fact that the government is making its concerns public so bluntly appears to be a sign that it is preparing the population and the business community for whatever is to come. Diversifying an economy away from the dominating mega-property sector that kept manufacturing and financing flush with activity and money, and doing so quickly before the bubble inevitably implodes, will be another miracle for China’s central planners to figure out how to perform, and do so pronto."
It's the first sentence that is the tell. In the US, after 2006 when those who were actually watching the economy, as opposed to those who were paid by the government to watch the economy, but who instead merely became paid cheerleaders for a financial fraud the likes of which had rarely, no, I think never really is the right adjective, been perpetrated on such a scale before, were, far from making its concerns public and preparing the population for what was to come, was instead lying to their face in order to stab them in the back, exhorting them to continue, via ever-rising property appraisals and liar loans bundled and sold to investors as AAA-rated securities, financing their War Crimes and other Imperial ambitions, included in which was the total impoverishment, via unprecedented connivance and subterfuge, of a vast swath of the population. But in the country that boasts ad nauseum of its freedoms, and the most loudly about the freedom of its press, the press had nary a word to say about the increasingly obvious collapse that was staring us in the face.
In other words, to do to the USA what it had done to the USSR. This succeeded so spectacularly that it has continued as the underlying dynamic in the Kamikaze Kapitalism Kultur's engine of destruction, and, if Mr. Richter is correct, has now been exported, like everything else, to the developing world. China should be careful. When you copy everything from someone else, when you think you can 'develop' your economy so as to 'emerge' into what is considered a developed economy, the ghost in the machine comes with it, whether Mao's Communism, or Get-Rich-Quick Kamikaze Kapitalism, and it'll haunt you in ways neither foreseen nor apparent in the original version. But the Asian tendency to quash anything creative in their cultures, forcing everyone into the same State-approved molded personality and mindset, obviates the possibility of them creating any homegrown solution to their problems. They'll have to be solved elsewhere, and then they can try to copy those, too.