Forbes has reported of a potential (probable?) “mega default” out of China. They even tell us “when,” Jan. 31st and “who,” China Credit Trust company. This is hardly “mega” anything as it’s only in the $500 million ballpark…but it is a “thread” that if pulled on hard enough or long enough could spread like an infection. I must admit, when I saw the headline my interest piqued only to see the actual meat not even being a ham sandwich.
If you notice in the article, this debt (trust) came about as a loan to a coal company and the author speculates that 12% or there about is the interest rate…I would urge you to take a broader view. The broader view being that “this is China.” Their economy is hugely leveraged and they have built, rebuilt and over built. They have even built entire cities that are empty. I’m not talking about sparsely populated; I’m talking about empty as in NO ONE lives there! Are they crazy? Or foolish?
No I don’t think so, follow this through. They have accumulated stockpiles of copper, lead, zinc, etc. not to mention gold…for free! They have built bridges, highways and even complete cities…for free! Free? Yes, I’ll explain in a moment. They have worked, produced and “traded” to accumulate “dollars” over the last 10-15+ years at a pace not even seen by the U.S. in the late 1800’s and early 1900’s. It has been a marvel to watch. They have as I mentioned also accumulated gold. They have probably now accumulated a stack that rivals what the U.S. supposedly has (had). And yes, much of the building and “business” was performed (or funded) by the use of credit, crazy amounts of credit!
So how does this make them any better off than any other country in the world if their financial system collapses just as fast as or even faster than the West? I believe that going all the way back to August 1971 that they “knew.” They knew that when we went off of the gold standard the “end game” was then carved in stone. I believe that they completely knew where this would all end up…in a paper heap collapsed into a black hole of zero value. So what did they do? They “played the game.”
They played the game and “helped” the U.S. go bankrupt by funding their debt needs. They also “built”…for their own future. You see, the Chinese look 100’s of years to the future rather than to the next “quarter.” I think that they fully knew that “when everything is worth nothing”…they would “have something.” “Something” as in a brand new infrastructure. Infrastructure that the West can only marvel at. Who cares about the banking or financial system? Who cares if everything paper collapses…”we’ll just start a new one!”
Do you see? They now have a modern country and it only took 10-15 years to build it (not to mention the small problem of poisonous smog). They knew that the financial system would ultimately come down so why should they go through a “re boot” to the system with rickety bridges and grass huts? Not only have they “modernized,” they have also provided themselves with a place at the table…the HEAD of the table when it comes to currencies. They have in my opinion accumulated more gold than any other country in the world now has. They have created their own future and one that is bright because they have “money” (gold) while the West was “spending their past.”
Will China just skate through a financial collapse…and one that may even start from an internal default? No, of course not but they are not looking at next year or the next 3-5 that it will take to pick up the pieces, they are looking out for generations to come! I have absolutely no idea “what” the event will be that turns the financial system upside down because there are just too many choices to pick from, I do suspect however that it will not be something “huge” and will be missed by most for several days. The Chinese however don’t even care “what” it is because it doesn’t matter. What matters is that their work is done, they have built infrastructure, modernized production, signed trade deals for the raw materials necessary for the future and accumulated “cash.” Crazy or stupid? No, they have outsmarted the world while we watched…while they “helped us help them!” The last 10 or 15 years of work is viewed by the Chinese as virtually “free” when set alongside the next 100-200 years!
I think the Chinese have overlooked a vital problem in this plan for their “future”, in that their new infrastructure is totally dependent on burning fossil fuels which are running out (they are doing lots with renewables but this is vastly overshadowed by FF’s). China imports half its oil, as does the US, so they will be running account deficits to maintain their future prosperity. Will that oil trade deficit be offset by exports of manufactured items? Maybe, but I have my doubts, as per below…
China’s economic advantage has been based on one thing only: the ability to manufacture cheap items without regard for social and environmental externalities. And because it didn’t trade the Yuan internationally, it could continue doing so “indefinitely” at low prices, in the process stealing the manufacturing industries of the west (of course the US was complicit in this transition as it wanted cheap toys to buy for free). There is no way the Chinese economy could have grown that fast if the rest of the world’s economies weren’t being drained equally fast.
Once its economy / currency gets revalued that advantage it enjoyed of cheap manufacturing will instantly vanish. Then what economic advantage will it have? The only one I can see is a stockpile of 10,000 tons of (revalued) gold. That will last for a while but with an account deficit necessary to secure the energy requirements to power all their spanktabulous new infrastructure it will get drained.
China does not have a culture that fosters innovation like the US does; its manufactured products are not trustworthy (I work in engineering and in specifying components it goes without saying that Chinese products are always explicitly forbidden because they are dangerous), it is an environmental nightmare and it is gobbling up prime agricultural land for industry. It is corrupt (although so are most other countries these days…) It’s going to have huge unemployment problems when its currency gets revalued and its manufactured items shoot up in price. And who is going to buy their stuff? Globally, consumption of “stuff” is going to tank once real things of value like energy and resources get revalued higher to where they should be.
Mark, I agree with most of what you write but have the Chinese not been spanning the globe and doing “raw material (energy) for dollars” deals? Of course they will run current account deficits and the whole cycle will repeat but they have leap frogged the world in gold holdings and a modernized infrastructure. Is it perfect or economic nirvana? No, but it certainly was in my opinion a smart response to our faulty economic and financial logic.
The runt of the litter(China) does not care how they get to the head of the table. They just care that when the decisions are being made they will have a say. When all the problems arise as Mark_BC mentions, it will not be only a China problem but a world problem. Just like America makes the world help in dealing with their problems.
Absolutely brilliant article, Mr. Holter.
Only a few people get it; only a few people can look through the propaganda, the ‘short-term’ gyrations. You are of course one of them.
China, as you say, is looking decades ahead. They have gladly handed the ‘USSA’ enough rope with which to hang themselves.
I eagerly look forward to the gigantic implosion (or sucking sound, as Ross Perot dubbed it). If civil war should break out in the USSA, I equally look forward to the criminal cartel – and particularly the Slumlord-in-Chief and Queen Hitlery – being strung up (Mussolini-style) for having perpetrated massively high crimes.
Including of course high treason.
If anyone out there thinks this is about Democrats and Republicans, you are falling into the trap that MiLords have set for us. Obama is no less and no more a puppet than George Bush. I will spare you the Rothschild quote. If we are going to have any chance of putting together a new system after the reset we need to stop playing the gladiators in the coliseum game (to the great amusement of MiLords) and start figuring out ways to communicate to those who just don’t get it what has been going on from 1913 to 2013. Obviously anyone who thinks Obama and Hillary are the root of the problem just doesn’t get it. I refer you to my blog for a definition of MiLords and Rehypothecation (the fractional reserve system as applied to asset classes). While you are there you can take a look at what constitutes Critical Thinking and begin the historical journey of figuring out what is really going on here and stop fracturing the small camp of people who at least hear the thunder of the waterfall just around the next bend.
http://visualizingintrinsicvaluealignment.blogspot.com/2013/12/milords-are-not-united_9261.html
http://visualizingintrinsicvaluealignment.blogspot.com/2014/01/rehypothecation-and-shadow-banking_317.html
http://visualizingintrinsicvaluealignment.blogspot.com/2014/01/are-you-critical-thinker.html
good stuff Larry.
Thanks Bill. I would like to add that the word treason does appear in my analysis. The question is do we have time to go back to 1971 and figure out who is guilty of treason? When it is confirmed that Fort Knox is empty it shouldn’t take much to figure out the pathway and the timing of gold to the east. (gold is not the only commodity manipulated but it serves as a good proxy) Maybe that is a good use of time as a deterrent to future Banksters. I would love to hear what your readers have to say on the matter.
The important thing is that we don’t hang the puppets and let the real villains get off with $13 Billion fines. Even more important is the value in understanding the mechanisms used (rehypothecation, leasing, credit default swaps, derivatives and the like)so that we don’t let it happen again. I know a lot of really smart people who glaze over when you start talking the nature of high crimes going on in the last 100 years. How to educate at least 10% of the population is a very high priority.
My biggest fear is that a narrative will emerge that says it was important to steal the gold and sell it to preserve our lifestyle. It bought us 40 years of partying and lets crown the villains as heroes for paying for the kegs with silly gold. Make no mistake, it was high treason.
agree
You need to stop putting your words into peoples’ mouths.
The current administration (for want of a better word, and which included Hitlery), are obviously the focus of attention. That just goes with the territory.
Note: I said ‘criminal cartel.’
And I don’t need you to tell me how the corrupt political system works.
Both sides are obviously corrupt; that goes without saying.
As just one small example, when an imposter and infiltrator can make the comment that ‘from 40,000 feet in the air [on his way to another round of golf!] no crimes were committed’ are you saying that this should be ignored just because he happens to be a puppet?
Some puppet!!! He is and should be the focus of our gaze because he LIES CONSTANTLY, IS AN ILLEGAL ALIEN AND AN ILLEGITIMATE PRESIDENT, HAS MUSLIM BROTHERHOOD CONNECTIONS, ETC, ETC, ETC.
Your condescending attitude means I won’t be going within spitting distance of your articles or your blog.
Velikovsky, sorry I have no idea whatsoever what you are talking about? I wrote this piece about China and the recent press of potential defaults over there. Rarely do I write about politics, maybe you responded to another blog?
Not you Bill.
Someone called Fusion Enterprise.
Apparently, he – and he alone – knows all about how the world works; about secret societies and other esoteric subjects.
I agreed with you entirely.
Both views are correct. The Chinese have the upper hand when it comes to strategy, in fact in that regard they’ve kicked our ass. But the whole human race has a HUGE fossil fuel (and thus infrastructure)problem. We hear that in just 100 years we’ve burned through half [the easy half] of the total world supply. That’s far from correct. During the first half of the last 100 years our consumption was miniscule compared to the last 50 years. And now with countries like China and India burning fossil fuels at rates that are increasing by the year we will burn through the second half of them in a very short period of time.
The current world human population is vast beyond comprehension, and this has only been made possible due to the burning of fossil fuels to feed all these people; once we’ve burned through this resource watch out! If the human species cannot come up with alternative forms of energy to drive the machines needed to feed this swarming mass of humanity – that alone will doom our civilization.
The Chinese have built cities that are empty. No one lives there. We scratch our heads in disbelieve. Are they crazy? Are they brilliant? Given they are now relaxing the one child per family policy I would say they are executing a well prepared plan. Forward thinking. Brilliant.
Thanks Bill,
yes correct I believe.