Is China About To Drop A Devaluation Bomb?

 

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  • #26413

    Berenice Abbott Broome Street, Nos. 504-506, Manhattan 1935 Though she had no intention of being funny, we laughed out loud, as undoubtedly many did w
    [See the full post at: Is China About To Drop A Devaluation Bomb?]

    #26416
    Ishkabibble
    Participant

    I have to wonder if China isn’t going about their problem all wrong. They are a command economy in which the multitude of people are focused on saving. The currency to labor exchange rate is so low that the people who have currency are more apt to send it home for essentials or to save this scarce currency than to use it as a consumable. In essence, they cannot shift their economy unless they make money more plentiful to the common people, for it is those people alone who can drive their consumption engine.

    It stands to reason, that in a command economy, one means of increasing demand would be to offer credits to each household, such that they can use but not save them. Each individual might receive, as an example, the equivalence of $500 USD in credits. These credits could only be used to purchase China made goods, and this would result in the credits returning to the Chinese factories (government) where workers would again earn wages. This would stimulate demand. It would not burden the households they seek to make consumers of. In essence, it wouldn’t be all that different from trading real goods for the fictitious… sorry, fiat currencies of other nations. The Chinese government is already using their foreign currencies to prop up their market. This would be a means of increasing demand and stimulating local activity/spending more directly.

    China has long had a trade surplus. They are trading real goods for promises that will be defaulted upon. This supports their industry but does nothing to make China sustainable in the long term. It would seem a shift in that paradigm might enrich their own society enough that the burden on people is lessened enough for them to start spending. Of course, the weight of retirement savings, and savings for personal calamities, must likewise be addressed. In China, those who don’t save for a future don’t have one. They need a system to secure people in their old age, or ill health, such that spending isn’t seen as the risk it is today.

    I guess in short, what I’m saying is that they need a @#%@’n plan. It’s not enough to pressure citizens to spend, or to decide they are shifting towards a more service driven economy. They need the structure in place to make Chinese people certain of their personal futures. They need to remove the burden of risk. When you really look at it, this means they need to empower their people. And there’s a culture shift if I’ve ever seen one.

    #26418
    Raleigh
    Participant

    Ishkabibble – “I guess in short, what I’m saying is that they need a @#%@’n plan. It’s not enough to pressure citizens to spend, or to decide they are shifting towards a more service driven economy. They need the structure in place to make Chinese people certain of their personal futures. They need to remove the burden of risk.”

    China’s very own social security system. Anything to get them spending. No wonder the elite agreed to social security: it got the people feeling secure about their futures, removed the burden of risk, compelled them to go out and foolishly spend, buying up all of the elite’s products. Yeah, how’d that turn out for the American people? Got them feeling secure that the amount they would receive in old age would actually buy something? Not.

    Had the American people not relied on this system, had they foregone extravagant spending, instead saved a good deal of their hard-earned money, they would have been better off. BUT the corporations would not have been better off. Who would have bought their planned-obsolescence products up the wazoo? Who would have turned their CEO’s into billionaires?

    The elite in China are no different than the elite everywhere else. They have made out like the bandits that they are. Corruption Inc. And now they want the people to start spending? Ha! Hopefully the people are smarter than that and that they realize that whatever programs the elite put in place, they are never – ever – put there to “help” the common man. Only to help vested interests get richer.

    #26419
    Ishkabibble
    Participant

    I agree completely. My point was more about them making this transition than the wisdom of doing so.

    I do not see the path to materialism as positive. I should feel much happier to see a moral and spiritual revival. An economic crash can direct people’s attention back to what really matters… family, friends, a connection with nature instead of a desire to conquer it. How satisfying it would be to see moral and ethical foundations thrive once again.

    Many fear this deflationary conflagration; I see good in it. There is opportunity for localization to take place. Perhaps some will grow gardens on their soil instead of turf, and in turn will find joy in reconnecting with the land. People will learn they must depend on each other, resulting in local relationships where once the dollar was the impersonal binding force. Those who seek success sans relationships will fail; those who embrace others and enable their communities will thrive. People will have to do with much less, yes, materially. Balance will be found in all the immaterial that is restored to their lives.

    This is the future I prepare for, one where we live in harmony with others and our environment. I believe it far better than the one we’ve been experiencing.

    #26426
    Raleigh
    Participant

    Ishkabibble – Well said.

    #26433
    Dr. Diablo
    Participant

    China now has factories, workers, infrastructure, and demand. What do they lack to have a grand economy? If they woke one morning and found themselves in a pre-built city, filled with supplies and tools to accomplish human tasks, wouldn’t they feel themselves the luckiest people of all? That is what they have, yet like the U.S. in 1931, somehow having all the tools to make life–the same tools that made everything hum in 1928 or 1921–suddenly don’t work? Did the people stop wanting things? Did all the people who knew how to make those things die? Did they run out of materials to create the things people wanted? No. In fact they had more things cheaper than ever. So what’s the real problem?

    The problem is the signals telling them HOW to work were curtailed, stopped, like a sort of financial leprosy. The system doesn’t know how to respond, focus, heal itself. How can that happen? Well if you hijack the signals to make your personal fortune, rig and lie and bend and twist until no truth is left in the signals, then yes, you’re going to have enormous problems, here as well as there. That’s the hazard of command economies, ours as well as theirs. If there is no incentive for truth –bankruptcy, shame, ridicule–and instead well-rewarded incentives to lie, where anyone peddling fraud, illusion, falsehood, and spin get control of the resources of the entire system, then of course very shortly the system no longer knows what’s true or false, what’s real or unreal, and therefore where to apply itself productively. Like the leper, it will rot and die not because leprosy itself is harmful, but for lack of honest signals about what the national body is doing and needs. There’s another way to name this: there is no feedback in the system. Voices, objections are not heard, pain in the outer members is ignored. There is no “or else”, no arrests, no bankruptcies, and so the body dies.

    As a command economy, China’s one party *could* just re-distribute the wealth, erase the counters, and re-set the clock. Erase the debt (which is almost all internal), so all the old signals hanging like a millstone allow the Chinese people to respond to today’s challenges, not to debt and poor planning from decades ago. Problem is, power structures are always the same: they get control of the system, then inefficiently and unjustly allocate themselves goods they don’t deserve. On a fair field most would then lose their fortunes, so they must prevent justice, truth, and order which would rectify this wrong. So they use the full resources of the state to perpetuate the lies, frauds, and prevent true signals at all costs.

    But if the problem is really lies and the acquiescence to them, don’t we really have a moral problem, not an economic, resource, or population problem? And isn’t this what Ilargi has said? That we don’t have an economic problem but a political one? A moral one? Any suggestions on how to solve a world-wide moral collapse?

    #26442
    Ishkabibble
    Participant

    Morals erased through wanton pleasures are restored with pain. The world must experience the fruits of their collective poor choices. We’ve fallen far, and so much pain will be required for a lasting restoration of values to ensue.

    Your answer is atonement. There is no short circuiting this process. Mankind must change. The pain will purge as fire. It won’t be comfortable, but it is necessary, right, and good.

    #26444
    Birdshak
    Participant

    I admire James Howard Kunstler’s definition of money as a “narrative construct. In other words, a story explaining why we behave the way we do around certain things.” Everybody trying to massage the story to suit their ends. Ultimately, we gotta eat, stay warm, and get around.

    #26460
    John Day
    Participant

    I think China has a very good historical understanding of the collapse of fiat monetary systems. Chinese study Chinese history hard (I hear).
    Gold is the antidote. China is accumulating gold. So is Russia. Oil and minerals are essential, too, and Russia, China, Iran and even central Asian Republics can coordinate those.
    China has built a hundred years of stuff that’s in mothballs. Maybe this was the best time to do that for the next hundred years. Maybe it was intentional.
    The middle kingdom may have regained it’s traditional “long view” of the unfolding of history.
    The revaluing of the yuan/renmenbi must be used as an attack, not a surrender.
    Obvious, right?

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