Dec 022014
 December 2, 2014  Posted by at 11:39 pm Finance Tagged with: , , , , , , ,

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 so straight-forward. But then, in this convoluted world of pretense, is anything ever anymore? Please allow me to start off with something I wrote yesterday in Oil, Gold And Now Stocks? concerning the nonsense spouted by New York Fed President Bill Dudley, who claimed that money not spent by Americans on gas would actually boost the economy if -and that’s still an if – they spent it on anything else. I said they’d still have the same amount of money to spend, so how can it be a boost? Sure, you can say that a lot of the oil is imported, which would transfer profits abroad, but then so are most of the trinkets people can may buy at WalMart with their gas savings. .

Today Zero Hedge’s Tyler Durden turns that theme into not one, but two different posts. First this morning, ‘Central Bankers’ Say The Darndest Things – Bill Dudley Edition, and then just now the second take on the topic, with a very good explanation of what it is Dudley, perhaps the second-most important man in the American financial world – if he’s not numero uno-, gets so wrong, intentionally or not.

Fed Fischer’s Complete & Bizarre Nonsense: Oil Price Collapse “Making Everybody Better Off”

“I’m not very worried,” explains Fed Vice Chairman Stan Fischer in a very Bernanke-“contained”-like nonchalance about the total collapse of oil prices (and US oil producer stocks). Sharply lower oil prices will boost spending and aid U.S. growth, Fischer stated in a mind-blowingly naive speech for the 2nd-most-important-monetary-policy-maker-in-the-world, adding that lower oil prices were “a phenomenon that’s making everybody better off.” We don’t understand his ignorance: as Raul Ilargi Meijer noted earlier, Fischer is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost? This is just complete and bizarre nonsense. As Bloomberg reports:

Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley, speaking at separate events yesterday in New York, both stressed the positive economic impact from the steepest decline in oil prices for five years. “I’m not very worried,” Fischer told an audience at the Council on Foreign Relations. “The lower inflation that we’ll get from the lower price of oil is going to be temporary.” He also said lower oil prices were “a phenomenon that’s making everybody better off.”

Perhaps Mr. Fischer should ask the owners of oil producer and servicer stocks, the workers in Texas and North Dakota, as well permits collapse..

Here’s some 1st grade math…
• Money people have to spend (the number that is US CONSUMPTION) = X
• Money people have to spend on Gas = GAS
• Money people have to spend on everything else = EVERYTHINGELSE

Now if Gas becomes cheaper by 30%… the savings are merely spent on more of everything else OR ‘saved’ – there is not boost in US consumption… How does it make X any bigger? How does that make anyone better off? Just don’t tell Fischer, Dudley, or anyone on CNBC this!!!

Will Dudley, or the press that covers him, learn anything from this? Does he really not understand why what he says in gibberish, or does he do it on purpose? Do the press too? Will we ever know? All we can do is point it out, and hope people understand it with us.

But I was thinking about another topic today, and it happened to come up in a comment on my article on both The Automatic Earth and Zero Hedge, by an old friend and commenter I hadn’t seen in a while. I started off yesterday saying:

“Is the Plunge Protection Team really buying oil now? That would be so funny. Out of the blue, up almost 5%? Or was it the Chinese doing some heavy lifting stockpiling for their fading industrial base?”

And got this comment:

The Chinese have a “fading” industrial base?! The most spectacular industrial development story of all time, over decades, and they are “fading”?! Are we living on the same planet?

To which I said:

Big things fade too. Or as the French say: Un éléphant se trompe énormement.

Un éléphant se trompe énormement. In English: the bigger you are, the bigger your mistakes. There’s also a wordplay in there with the sound elephants make and a trumpet (trompette in French). But yeah, China’s industry is fading, and I don’t want to get into semantics about the meaning of the term fading. Two days ago, I posted ths from Bloomberg:

China Factory Gauge Drops as Shutdowns Add to Slowdown

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 survey and October’s 50.8. Readings above 50 indicate expansion.

“Today’s official PMI reading points to continued downward pressure on manufacturing activity,” said Julian Evans-Pritchard, China analyst in Singapore at Capital Economics. “The recent cut in the benchmark rate will do little to boost economic activity unless followed by a loosening of quantitative controls on lending, which policymakers will remain cautious about given concerns over mounting credit risk.” The final reading of another manufacturing PMI for November from HSBC and Markit was 50.0. It was unchanged from a preliminary reading.

My comment then: ‘It’s close to contraction, and that’s a long way away from 7.5% growth.’

Between the lines, we’ve been able to see for a while that China is quite a ways away from that 7.5% growth target, and a near contraction PMI reading would certainly seem to confirm that suspicion. Of course, nearly everything we get from China are ‘official’ numbers, and having faith in those wouldn’t seem to make a lot of sense.

Which made it sort of amazing to see an official government report issued that Jamil Anderlini wrote about for the Financial times on Friday, but which Reuters had already covered 10 days before that. These are government researchers, and that makes you wonder what the message is, and how it’s sent: is Beijing exaggerating the waste for political purposes, or acknowledging just a part of it? My bet would always be on number 2, Xi and Li are not sitting pretty or relaxed these days, and making their own faults look even bigger than they are does not seem to be the way they would go. Here’s some excerpts from Anderlini’s piece:

China Has ‘Wasted’ $6.8 Trillion In Investment

“Ghost cities” lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape – the outcome of government stimulus measures and hyperactive construction that have generated $6.8 trillion in wasted investment since 2009, according to a report by government researchers. In 2009 and 2013 alone, “ineffective investment” came to nearly half the total invested in the Chinese economy in those years, according to research by Xu Ce of the National Development and Reform Commission, the state planning agency, and Wang Yuan from the Academy of Macroeconomic Research, a former arm of the NDRC.

China is this year on track to grow at its slowest annual pace since 1990, and the report highlights growing concern in the Chinese leadership about the potential economic and social consequences if wasteful investment leaves projects abandoned and bad loans overloading the financial system. The bulk of wasted investment went directly into industries such as steel and automobile production that received the most support from the government.

To wit: iron ore stocks are down 50%. That’s all China not buying anymore, plus the industry that invested hoping they would. Overcapacity everywhere. US shale, you name it. What does not have overcapacity these days? Oh well, yeah, care for the poor and the elderly, you’re right. I sit corrected.

Mr Xu and Ms Wang said ultra-loose monetary policy, little or no oversight over government investment plans and distorted incentive structures for officials were largely to blame for the waste. “Investment efficiency has fallen dramatically [in recent years],” they say in the report. “It has become far more obvious in the wake of the global financial crisis and has caused a lot of over-investment and waste.” [..]

Much of the investment in recent years has been funnelled into real estate projects, but apartment sales and prices have fallen this year, leading to fears of an impending property crash. Most of the industries that feed the real estate sector, such as steel, glass and cement, are awash with overcapacity and have been hit hard by the property downturn.

Misallocation of capital and poor investment decisions are not the only explanation for the enormous waste in China’s economy. A significant portion of China’s post-crisis stimulus binge was simply stolen by Communist Party officials with direct responsibility for boosting growth through investment, according to separate estimates by Chinese and overseas economists. Jonathan Anderson, founder of Emerging Advisors Group, the consultancy, estimates that about $1tn has gone missing in China in the past half-decade as a result of weak oversight and the enormous opportunity provided by the investment boom. “That translates into maybe 5% of GDP per year worth of skimming off the top,” he says.

“Think about it: every local government wakes up one morning in 2009 and finds that the central authorities have lifted every single form of credit restriction in the economy,” he says. “With no one watching the till, it would be awfully hard to resist the temptation to sidetrack the funds, squirrelling them away in related official accounts or paying them out through padded contracts to other connected suppliers and friends.”

That last bit doesn’t cover he situation. Beijing has relied on the shadow banking system, not just tolerated it, to get China to grow at the numbers it has. And local governments have taken the bait, and taken the shadow loans, so they would look good to their superiors, building whatever they could build, useful or not, roads, bridges, apartment buildings.

I don’t know if we will ever know the size of the shadow banks in China, but there can be no doubt that it’s mind shattering. And if an official government report says $6.8 trillion was spent on nothing, do we even want to know how much shadow loans were spent that way?

In 2009 and 2013, the report says, ‘half the total invested in the Chinese economy’ was ‘ineffective investment’, i.e. money wasted on bridges to nowhere. A more or less accepted number for total official Beijing ‘invested’ is $15 trillion in 5 years, and we now know that the ‘waste’ got bigger as time went on, and totaled about half of the total investment. And that’s just what Beijing put in; it’s anybody’s guess what da shadows added, and how much of that never went anywhere.

Here’s an idea of how that compares to the US, itself not exactly a slacker when it comes to stimulus:

Reuters, 10 days earlier, said this about the report:

China Wasted $6.9 Trillion On Bad Investment Post 2009

China has acknowledged that it is overly-dependent on investment to power the world’s second-biggest economy, but re-ordering the growth model takes time. Investment contributed to 42% of China’s economic growth between January and September this year. Exhorting caution, Xu and Wang said China wasted between 4.7 trillion yuan and 13.2 trillion yuan each year between 2009 and 2013 on investment with zero efficiency. The money wasted on such projects peaked in 2013 at 13.2 trillion yuan, or 47% of China’s total fixed capital formation for that year, their calculations showed. Investment quality had fallen so much recently that nearly two-thirds of the 67 trillion yuan that China wasted from 1997 were spent after 2008.

I don’t know if you can still follow it, but this adds up to absolute insanity. The $6.8 trillion number for money spent on ‘zero efficiency’ is but a cautious estimate by people who both have no access to, and are not supposed to know about, the Chinese equivalent of Don Corleone and the five families. Here’s a bunch of GDP numbers in the west for comparison, PPP GDP data from Wikipedia, for perspective:

France Population 66 million, GDP $2.6 trillion
Britain Population 64 million, GDP $2.45 trillion
Germany Population 87 million, GDP $3.6 trillion
Japan Population 126 million, GDP $4.8 trillion
USA Population 319 million, GDP $16.8 trillion
China Population 1,357 million, GDP $16.1 trillion

When you see those numbers, the $6.8 trillion spent on absolutely nothing productive in China should make you cringe and shudder. China took a big lighter and burned off half of Britain or France’s GDP each and every year just to look better. And not because it was so independently rich and could easily afford it, but because it wanted to look richer than it was, if only for a day, or a year. We all have had that wish at times.

And that’s without adding in the shadow banks, who were pivotal in making the local officials look even twice as grandiose than Beijing’s loose policies were already allowing them to be. China has been running on free debt for years, and who cares about paying it back? It’s no different from the US, is it? Or Europe, or Tokyo. It’s all just a big collection of big debt bubbles. And China looks like it might well be the biggest of them all.

If that PMI number, shaky as it may be both because it comes from the Communist Party and because of its own inherent flaws, dives below 50, and China starts contracting and moving even further away from it 7.5% growth target, I’d literally say there’s no telling what will happen. But it won’t be pretty, that I can tell. It won’t even be funny. Look at all the steel, copper, aluminum, producers in the west who have heavily invested in and on China growth. And don’t get me started on oil producers. Yeah, China’s going to stockpile and save the industry. Sure.

China, like the entire world, is doing much worse then anyone’s willing to tell you. But the entire world still is. And so is China. Enter Elephant stage left.

Home Forums 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.

    Golden Oxen

    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.

    Goner Pyle

    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!”

    Danny B

    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.

    Kerry Wilson

    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.

    John Day

    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:

    Oil, Gold And Now Stocks?

    Oil, Gold And Now Stocks?

    Oil, Gold And Now Stocks?

    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.

    Golden Oxen

    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.



    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.



    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!
    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:
    108 Giant Chinese Infrastructure Projects That Are Reshaping The World

    Yes, 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?

    Posted on 5 Aug 2014 by Koos Jansen

    Guest Post: 5 Chinese Ghost Cities That Came Alive


    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.


    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.


    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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