Old China Articles – September 2015

We all need each other, Yes even you China.

On discussions with a colleague on the possibility of the Chinese building an economy for all, I noted rather darkly that if the Chinese manage to create a system that enriches the masses over the few, they will have long since abandoned Free Market Capitalism.

His argument was that China is large enough now to exist and reform its economy without US economic interdependence (Americans are not buying as much rubbish as they used to, neither is anyone else.)

I pointed out that with regard to China`s economic strength, whilst we do not know the full picture due to the ever ethereal nature of official Chinese statistics, we do know the following:

  • China and its territories lost $5 trillion off its stock markets in 8 weeks
  • It’s exports fell 8% in August 2015
  • It’s lowered the base interest rate 5 times in 12 months because It’s private/public sector is having a very hard time rolling over the $22 trillion  of private debt created in just 5 years.
  • China devalued It`s currency 3 times in the space of two days to make production for exports cheaper but when there’s no consumption this is self-defeating as any attempt to continue over-supply when there is no corresponding increase in demand can only fail.

Its official government growth rate is “7%” idiot investment bankers think its 6.8%, proper economists think 2% is optimistic, and this will fall further still as the returns on production across industries fall as they over invested via debt for demand that just isn’t there. In turn raw materials are not imported and everything from iron ore to oil has fallen to 1999 levels in terms of cost. Again in turn, any economy based on mineral exports is in trouble (Canada, Australia, Indonesia, Brazil, Most of the African Continent, and others)

China`s unemployment figures are widely regarded as fraudulent having not moved so much as 0.5% for years and so reliable figures for layoffs are difficult to come by. When you see images of workers returning to the countryside, this will be a sign of the deepening problems China faces. *Update March 2016: As predicted, China has begun to lay off workers, 6 million steel and cement workers so far

The truth is we all need a better system. Our entire global recovery was based on nothing more than China repeating in 5 years what the west did in 35. Welcome to the era of “peak demand” where the global poor and middle classes having had so much purchasing power intentionally eroded are now so indebted due to that erosion, that they can no longer continually increase consumption of crap from abroad and pay off their debts at home.

If real reform doesn’t take place to recapitalize the poor and middle, across the global free market economies, If the 1% cannot find a way to reorder their affairs in everyone’s favour rather than just their own, then I am afraid It’s a long way down for all of us from here.

China’s stumble, it forgot debt matters, and that matters to everyone else.

Between 2008 and 2015 china increased its private debt from $5 trillion, to $22 trillion. It used it to build baby build which is why there are 60 million empty home/apartment’s in China today, and countless empty municipality buildings.

Those that could afford to do so, bought the apartment’s as investments as they foolishly relied on ever-increasing house prices.

In 2014 prices began to fall, they liquidated (sold) what they could and ran to… yup, the stock market. In 1 year the Shanghai index increased in value 150%. 90 million individual trading accounts have been opened in China.

China began having trouble rolling over its private debt this year as global demand has suffered due to the richest 1% taking a larger share of global wealth beyond anything seen in Mankind’s history, many Chinese states are already in recession.

All imports of ALL materials into china (except gold…) are down which has thrown mining country’s into recession (see Brazil et al) Oil use is falling and supply is rising causing an oil glut and the price of oil to TANK. 80,000 shale worker jobs in the USA have been lost this year alone. More will follow. Many more.

China`s exports fell 8% in June due to weak global demand, and the stocks responded in kind to that utter lack of demand and massive overcapacity in industrial production.

What you’ve seen in August is a breeze compared to where this all is heading longer term. Putting China to one side, the other giant elephant in the room is the fact that globally assets are massively overvalued due to trillions and trillions of “free” money that’s been pumped into markets since 2008 by governments for the banks, and pricing is inflated by this cheap credit (“quantitative easing”) as its been used primarily for rich people to merge assets and buy back stocks, pricing also depends on expected demand which just isn’t there, indeed its going in the opposite direction, yet if we listen to normal media here in the UK and USA we are told we are all in the land of Milk and Honey and its blue sky’s ahead.

Some… Of the trouble with China, and by extension, everyone else.

In July/August China had $4 trillion wiped from stock values in 4 weeks and 52% of company A share listings frozen, its exports are down 8%, its private debt higher than the USA, its environment poisoned beyond repair, its growth rate falling, the official consensus figure says 6.8% but data from Anne Stevenson-yang suggests 3.4% growth would be optimistic.

 

Its currency had to devalue three times in two days, as for the bric countries, Brazil et al and to a large extent Australia, Indonesia and Africa, without a booming china to buy their ores they are going nowhere fast, indeed Brazil announced recession yesterday.

Along with the currency devaluation, China has lowered interest rates five times in the last 12 months to ease internal credit markets / provincial debt problems. All this makes supply cheaper, but the global poor and middle classes having suffered 40 years of stagnant wages and rising costs, can no longer take on more debt, to consume ever more year on year as they did before 2008.

 

In truth, what we have right now could be called ” global peak consumption” so much of the wealth of the world has been funnelled upwards in the failed experiment of “trickle down” economics that the bottom and middle are now poor and indebted beyond repair, as are most governments and government central banks. Take the US Federal reserve, its sat on $5 trillion of debt and only has $55 billion in cash. Around the world the picture is the same. A Global Ponzi scheme of epic scale and deceptive simplicity.

 

As the years progress this problem of accumulated wealth without merit nor work will compound and can only result in unstable economic systems, overvalued assets (see the dow jones 24th August onwards, the top 5 US tech firms have a valuation greater than the entire German economy…) and in the end, civil unrest for any country that uses this system. Here in the UK, 2011 will look like a picnic. In the USA, I dread to contemplate such a scenario, but in time, with enough strain, it will come, indeed in some ways it’s already begun.

 

The simple fact is, the system as exported by the USA in the 80`s via the boneheaded ideas of Friedman, Laffer & Co. and as modified and employed in the UK by Thatcher (and continued under NuLabour and on wards) as modified and used in china and many others, can only ever result in growing disparity, and without restraint nor resistance from citizens will result in their enslavement through permanent debt and corporate dependence for all things for life, to finally end with the decimation of our civilization via the ecological collapse of the planet on which we depend.