China And The New World Disorder


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    DPC Heart of Chinatown, San Francisco, after earthquake and fire 1906 Nicole Foss: Our consistent theme here at the Automatic Earth since its inceptio
    [See the full post at: China And The New World Disorder]

    Ken Barrows

    Changes in the not too distant future? I am tempted to ask for a specific prediction. However, I am more interested in the trigger for the collapse. For example, why can’t US stock indices double once more despite a stagnant economy? Seems to me that a few gigantic financial institutions would have to fail, but how do we get from here to that point when, for example, an unaudited Fed can provide support as needed?

    Nicole Foss

    The collapse doesn’t need a trigger. It’s an integral part of the ponzi model that when growth can no longer continue, implosion occurs. The ‘trigger’ is endogenous. When the debt created can no longer be serviced by all the income stream of the productive economy, the end has come.

    Gigantic financial institutions are going to fail. The Fed is not omnipotent and cannot prevent people waking up to the realization that we face a crisis of drastic under-collateralization. There are excess claims to underlying real wealth, and they are going to be rapidly and messily extinguished. That is deflation and the Fed can do nothing to prevent it.


    Hi Nicole, the idea that the Fed is working to “save the economy” is pure propaganda. I recommend a good reading of Edward Bernays’ books as he was a key propaganda technocrat and architect of the propaganda state in which we are all immersed.
    The Fed, acting as one of many societal pieces under the direct financial control of the Debt-Money Monopoly, orchestrated this ongoing collapse for Main Street.
    In its most simple terms, it is doing this to maximize profits for the Debt-Money Monopoly’s various corporate fronts – their legal mandate. Tyranny is really simple at its core.
    They understand the nature of debt-money bubble blowing. They also know they’ve broken Section 2A of the Federal Reserve Act for about 40 years running now. They aren’t stupid. They aren’t ignorant academics. They are criminal traitors waging war against ordinary people the world over.


    There are only two ways out of debt. Default through repudiation, or default through massive devaluation of the currencies in which said debt is denominated.

    Only one of the above is politically expedient.

    Hyper inflationary Depression, resulting in the destruction of currency, is where this all ends. THEN you will get deflation, by default, after the printer’s demise.

    John Day

    Wow, what a vast compilation of evidence of overshoot!

    It looks like governments, central banks and hedge funds are preparing for a financial and social shock. I suspect that anything COULD be the trigger, but with the magnitude of this, I suspect one powerful interest group will trigger collapse in the realm of another, through financial attack and/or cyber attack. The US and China are getting that close now…


    Look for a “New Deal” and price supports that will make FDR look like an amateur. Dams in the desert, high speed rails and bridges to nowhere, brushfire wars popping up everywhere,,,whatever it takes,,,Central Planners don’t do deflations.

    Diogenes Shrugged

    Drastic under-collateralization results from the reckless and fraudulent issuance of too much credit, but as the price for the collateral itself falls during deflation … we get draconian under-collateralization? … Desperate under-collateralization?

    Thank you, Nicole, for another fantastic article. Always eye-opening and always impressively well-constructed. Nobody, in my opinion, gives a better overarching view.

    Chris M

    This could have been avoided in this country if we continued to stabilize agricultural raw material prices as we did in the 1940’s during World War II and briefly beyond that. We were essentially monetizing production instead of monetizing debt. There was enough national income being created such that the consumers had the earnings to consume their own production. But this meant that certain people couldn’t make money by cheating someone, so the policy eventually ended and we started accumulating debt both private and public to get where we are today. We could reverse it by bringing back those policies, but there is not the political will to do so. It is a shame. I don’t think this was the economic system the founders of the USA envisioned when they penned the Constitution.

    Here is a good book which talks about the history of it:

    I recommend that everyone here read it. Seriously.


    Chris M… I agree with your recommendation.
    I really miss Charles Walters input in Acres.

    I can’t seem to wrap my brain around those phantom cities in China. I have seen the “new Detroit” and remember large swaths of Brooklyn, the Bronx and Manhattan allowed to stand vacant and decay pending insider deals between banks and politicians who stood to make fortunes with so called urban renewal, but entire cities built for no occupants at all confounds me.
    Brand new metropolis’ for no one and entire of cities and their populations here allowed to decay and have their basic services and water cut off….by their govt and legal systems.


    Chris M,

    You are so correct about monetizing production. Instead, rural America has been in a Depression for the last 60 years, hidden by ever increasing debtloads (and false asset values). The mega farms are all massive debt sponges and will implode when credit disappears.

    V. Arnold

    Starting in the late 80’s I started questioning the trends I saw in the housing market; by the mid to late 90’s, I was certain there was something intrinsically wrong with the real-estate market and the banking sector. Not being well versed in economics, I couldn’t make sense of what I felt were nonsensical trends in both real-estate and the markets. I kept looking for collapse, but it didn’t happen; and it went against what I deemed common sense.
    I felt redeemed when 2008 crashed to the basement.
    The U.S. is a wasteland of failed hubris and financial thuggery; and it was fueled by the common greed of fools who drank the koolaide…


    Another excellent compilation of articles, thanks!

    Around here, there is a huge build-up of new shopping centers. Every retail store is building, as well as the usual big box stores, and restaurants too. Seriously, who will be able to shop and eat there. The existing stores are never crowded as it is.

    Then there are also several new beautiful hospitals and expansions of the older hospitals. I do not see how they can be maintained in these pristine conditions, nor people when they can’t afford basic healthcare.


    Random thoughts

    When debt Jubilee comes to China they will have something physical to show for it. Cities, roads, a rail system, machine tools and other capital equipment. Meanwhile in the West we’ve got……………. Well not much. Inflated asset prices and the deterioration of most everything that is of the commons, which is despised now.

    Not to say that all that stuff in China will not simply be abandoned and left to decay. Could be, but still, it’s something physical that can become good collateral again.


    >>There are only two ways out of debt. Default through repudiation, or default through massive devaluation of the currencies in which said debt is denominated.
    Only one of the above is politically expedient.
    Hyper inflationary Depression, resulting in the destruction of currency, is where this all ends. THEN you will get deflation, by default, after the printer’s demise. <<
    Your paradigm is based on the idea that the Debt-Money Monopolist financed politicians care more about the common serf than they do the people who put them in power. In addition, it depends on a foundation that the Debt-Money Monopoly cares more about the serf class than their own wealth.
    Both of those foundational premises in the foundation of your hyperinflationary depression theory couldn’t be more false.
    Look around you – the Debt-Money Monopoly political quisling class couldn’t hold the serfs in more disdain. They passed BanksterCare illegally and screwed everyone. It didn’t originate in the House and the tax isn’t apportioned… MEANING IT IS ILLEGAL.
    They are jacking up prices while cutting back services. Ohhhhh, they are really scared. Yeah, right. They laugh at us because they lie with impunity, they run monopoly scams on us with impunity (including the debt-money system), and the most frequent response is near complete apathy.
    They Banksters aren’t going to zero out trillions in cash under their control and trillions in debt paper under their control. They didn’t do it in Argentina (which was a deflation from the standpoint of the Debt-Money Monopoly – did you know that?), they aren’t doing it in Greece, they aren’t doing it Puerto Rico, THEY’VE NEVER HAVE DONE IT! THEY ALWAYS WIN BECAUSE THEY ARE IN CONTROL!
    Hyperinflation would be a big loss for them. Now, THE BIG WIN is to crash everything and buy it up for pennies on the dollar with trillions in stolen loot. THEN THEY OWN MOST OF THE WORLD OUTRIGHT (via their corporate fronts, anyway).
    Think it through from the standpoint of the shot callers, not their propagandists.


    “Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. ”

    Where will the energy come from …. turn into a pillar of salt ….


    >>This could have been avoided in this country if we continued to stabilize agricultural raw material prices as we did in the 1940′s during World War II and briefly beyond that. <<
    No it couldn’t. Nicole likened the importance of the monetary system to society as to that of an operating system to a computer system.
    The debt-based monetary “operating system” is corrupt. It doesn’t matter what programs run on top of the corrupt operating system
    When money is lent into existence, if creates an artificially defined zero sum game. The lenders systematically accrue the debt-money credits via interest, therefore, the rest of society is FOREVER AND ALWAYS IN DEFICIT. This means people in society will go bankrupt (not enough money for all debts to be paid) and asset stripped by the lenders who create debt-money out of thin air and a debt agreement.
    This effect is mitigated as long as debt is growing exponentially (now you know why there is an inflation – exponential debt growth – target!), but all exponential debt functions must eventually collapse upon on themselves due to excessive “weight.” Nicole’s whole mission is to warn people about this exponential debt-money growth implosion, whether she realizes the mechanics of this or not (I suspect she does, but she doesn’t like to discuss what it really is – a societal asset stripping form or war on nescient / ignorant ordinary people).
    However, what you suggest is a positive, it just isn’t enough to over ride a corrupt monetary operating system. Also of note is that Carroll Quigley, the world renowned historian to the oligarchs, explained in his book Tragedy and Hope that the property tax was engineered to force people out of self-sufficiency. A completely self sufficient operation became dependent on the one thing they didn’t need or have – debt-based money – overnight and with the stroke of a pen.

    Debt Is Not A Choice

    How To Be A Crook


    I’m afraid I have to agree with PLnL. Once the deflationary spiral begins, there will be enormous political pressure to “do something”, and that will translate into the central banks saving the system (nominally) at all costs by buying up all the bad debt. This will not be out of concern for the serfs, but out of concern for the holders of all that debt (serfs don’t own it). The lenders want to be paid 100 cents on the dollar, and sooner rather than later. They do not want massive defaults, where they have to foreclose on collateral they do not know how to manage or maintain. Hyperinflation will not help the serfs. The serfs will be the last in line to touch the new money will all the new zeros, and they will be wiped out by the blowout costs of necessities. Hyperinflation will help the political class because they are the ones closest to the printing press. When the dust settles they will be miles ahead of the serfs and they will still own everything. Hyperinflation will help everyone who cares about nominal performance — like pension fund managers who cannot survive with interest rates at zero. Think about it: Deflationary collapse is bad for social stability and can easily lead to revolution. Hyperinflation is no picnic, but usually had more social stability and is usually short lived. If you are one of the elites, which outcome do you favor when looking at it from that perspective?

    Nicole Foss

    Trivium, I don’t think for a moment that the Fed is trying to save the economy. Of course the endgame of ponzi fractional reserve banking (after years of creaming off revenue streams for having created money from thin air) is to claim all the assets for pennies on the dollar. The bankers end up owning everything. The only way to prevent being dispossessed is not to hold debt and to have cashed out in advance. Even then it’ll be difficult for little guys to hold on to what they have, but at at least it gives them a chance. Connections and indispensable practical skills will be very useful too in the coming economy of favours (see Russia’s ‘blat’ economy)…


    Prof. Like me, you have been a lurker round here for a long time. So I assume you generally agree that inflation is a monetary phenomenon; too much money chasing too few goods and services.

    What Nicole is describing is the other end of exactly what you have suggested, the hyperinflation has already occurred, but it has occurred almost entirely in the financial world in shares and other derivatives, real estate, commodities etc the prices of which have been bid up, and paid up, to levels far beyond any rational relationship with the underlying asset.

    The reason this has happened is because all the printing has been in the form of debt, accessible only to financial institutions who have zero incentive to lend it into the real economy, creating the kind of price rises that everyone associates with Zimbabwe, the Weimar Republic etc. There is no pathway for that money to reach your bread shop so the traditional form of hyperinflation is off the table.

    How, for example, can you see the prices of consumer goods rising because people have too much money in their pockets to pay for them? How can they rise at all when the underlying resources, from energy to metals to milk powder are falling in price like a rock?

    The vast amount of unfounded money is already loose in tne world and right now it is being extinguished, the deflation is no longer in the future, it is underway.

    Nicole Foss

    We are NOT facing hyperinflation. We have already had the equivalent through credit hyper-expansion. The endgame of such a period is always deflation, as the vast majority of the money supply that is credit disappears in a puff of smoke. It is vital to understand this. Deflation will bring our crisis of under-collateralization back into some form of balance over time, by eliminating the vast majority of the excess claims to underlying real wealth. Then the small amount of remaining debt will be acceptably collateralized to the few remaining creditors.

    There may well be a period of currency hyperinflation following this, as the resulting upheaval will break the power of the bond market to constrain actual money printing (as opposed to debt monetization) at some point. Once governments can no longer borrow from abroad, they will likely crank up the printing presses and add a few zeros to their banknotes, but this is years away. We have to live through a deflationary crash first.

    Nicole Foss

    Boogaloo, there really isn’t a choice. Deflation is baked in the cake whether it suits anyone or not. It is going to ruin everyone, not just the serfs. While the endgame of a ponzi scheme is ownership of all assets in the hands of the elite, that doesn’t imply that they get to keep those assets or be able to use them productively. Many of those ‘assets’ will end up being worthless anyway, like the excess productive capacity that will sit idle until it rots, and the luxury properties that no one will be living in, unless they fill up with squatters.

    The largest bubbles ruin both creditors and debtors when they burst. There is too large and too tangled a web of obligations to prevent a horrible period of conflict over ownership that will see many assets that might have been productive one day destroyed. We will have much greater equality in the end, but at a very low level compared to the present. Over their whole cycle, bubbles are nature great wealth distribution mechanism. We see a huge concentration of wealth that proves to be impossible to maintain (for one thing it takes energy that won’t be available to maintain such a concentration), then that concentration dissipates and the cycle begins again Dissipation can take many forms, very much including revolution once people at the bottom of the heap (which will be most people) have nothing left to lose.

    These cycles of expansion and contraction are beyond human control, even by the largest and most powerful human institutions. The powers that be have no choice to make that can prevent the inevitable from happening. They are not omnipotent. They will be powerless in the face of the tsunami of financial woes that is coming. It will sweep everything before it. Some people will find themselves on metaphorical higher ground or fortuitously find some piece of floating debris to cling to. When the ‘waters’ recede, they will rebuild with what’s left after the giant reset.

    Nicole Foss

    Rapier, all that infrastructure stands little chance of ever being useful. It won’t be maintained for many years. It’s grossly over-built in proportion to any use it could ever have, and bubble infrastructure is always really badly built. It’s lifespan will be much shorter than it should have been. Think concrete cancer on a massive scale for one thing…


    Dear Ms. Foss, thank you for your reply. I think we are 99% on the same page. The only point where we disagree is about the political response at the very end of the process. I think that TPTB, though they cannot prevent the collapse, can and will “do something” after it happens — they will destroy the currency by buying all the bad debt with new base money. The precedent was already set in 2008. TPTB prefer bailouts, and they have the political power to make sure they get bailouts. Even if there is political opposition to bailouts, the central banks can and will execute the bailouts through the back door of monetary policy. The central banks will purchase the bad debt. Base money as a percentage of bank assets will continue to rise until it first reaches 100%, then exceeds 100%, then the whole system will go up in a short lived hyperinflationary conflagration. The central bankers and politicians will have political cover because they are doing whatever it takes to save the system. As you say, many assets will be destroyed. Many who hold vast sums of financial wealth will see it go up in smoke. But on a relative basis, the people who are now rich will still come out ahead on the other side (though with major casualties, and psychologically they will not see it as coming out relatively unimpaired), and those who are in debt now will be massacred even with a hyperinflationary reset.

    We both agree on the play up until the final act . . . .


    Thank you Nicole for this extensive post!

    It seems logical to hold cash or equivalent in a deflationary environment. However, how would you hold it and where? Do you carry USD, Swiss francs, or a combo of currencies? T bills? Other?

    Would you keep money in the banks? Aren’t the banks at risk of collapsing or you losing money via bail-ins?

    What if you are outside the United States? Especially in a country that is maintaining a USD currency peg.

    So many questions… Things are not looking good out there.

    Thank you!


    I am not so sure banks will demand bail-outs. However, there very likely will be bail-ins instead. Remember Cyprus…..the banks will just take a percentage of the money in our bank accounts. And install capital controls where a limited amount of money can be withdrawn on any day.

    It seems an easy way to avoid bank bail-ins is to purchase Treasury Bills, and redeem, as needed, via online to one’s financial institution, then withdraw cash using ATM. However, couldn’t the government install holds on the redemption of the T-bills to one’s bank account? As far as I know, there is no way to call the Treasury to send a physical check to redeem T-bills.

    Nicole Foss

    Hotrod, I totally agree about the mega farms and debt. Here’s my take on finance an food insecurity from last year: .

    Nicole Foss

    Gezelle, those ghost cities get built because the people who do so make money upfront whether or not the buildings will ever be of any use to anyone. That what corruption in the SOE sector does for you. That’s why they’re badly built as well, so they can be finished quickly and the same things done again somewhere else as quickly as possible for even more money. Bubbles lead to tons of bad construction destined to fall down in a few years without ever having served a purpose in the meantime.

    If parts of China those places have been bought up, not to live in, but on margin for the prospective capital gain. When the real estate markets tanks and the prospect of those gains goes away, those building will have no value at all and will be left to rot (which they will do quickly). There’ll be so much property inventory on the market at the same time that the value of all properties will be drastically undermined for many years. The leverage that paid for them will be defaulted upon, feeding further deflation. Welcome to the vicious circle…

    Nicole Foss

    Chris M, those policies will be revived, but not yet. We are not in the equivalent of the 1940s New Deal era, so there’s no political will for that kind of intervention. There may be much later, but much too late to prevent much of the pain before it happens. We’re at the equivalent of the very early 1930s in many ways, at the very beginning of the depression, when most people don’t even acknowledge that we’re in one. The ‘generals’ are still giving lip service to fighting the last war (inflation) in many ways, even as we tip into horribly destabilizing deflation.

    We’ll wake up and re-regulate the financial sector once it’s too late – shutting the barn door after the horse has bolted. Then we’ll hang on to those regulations until we feel safe again, after having forgotten hard-won lessons, then we’ll deregulate again and watch the whole credit cycle take off again. That’s what human beings always collectively do, and why boom and bust is an endogenous feature of the human condition.

    Nicole Foss

    Diogenes, thanks 🙂 Yes, as the value of collateral falls, or the collateral is destroyed in the resulting upheaval, the disparity between claims to wealth and wealth to be claimed would get even larger, if the claims weren’t also being destroyed. The claims will go ‘poof’ far faster than the value of the collateral will fall though, because the claims are purely financial (virtual) and have no physical substance, whereas the collateral is real. Real things change value much less quickly.

    Nicole Foss

    Kibbinayye, cash, but not in banks. Bank deposits are going to get wiped out in this kind of crisis, along with other assets in the grip of the system (eg brokerage accounts). Cash means cash on hand, generally in the currency in use where you live. USD should increase a lot in value however, so if you have enough resources to do so, you could engage in some currency speculation, with a certain amount of risk of course or perhaps not being able to change back later). Swiss francs would be good too. The value of both currencies should skyrocket on a flight to safety, despite any attempts both governments may make to keep the relative value down. The Swiss have already had to drop their expensive peg to the euro for instance.

    If your currency is pegged to the dollar, expect that peg to come under attack by speculators as the value of the dollar rises, or expect domestic unrest from the effects of an artificially strong currency to cause pressure to drop the peg. We will be living in a world of competitive beggar-thy-neighbour devaluations soon enough. When such a currency leg falls, the local currency will devalue very sharply. As in Argentina in 2001, the government will probably convert everyone’s saving to local currency if it was held in dollars before, but leave their debt in dollars, so the saving disappear and the debts remain. The middle class will be crushed, as it was there.


    oh, Nicole I fully realize that these cities are built for immediate profit both in materials and bribes across the board. My naivete is such thatI am confounded and disgusted by a world that builds massive cities for nobody and actively destroys existing cities and their populations all for immediate, virtual profit….and I realize that at some level up on the pyramid no doubt the very same people and corporations are involved in both actions.

    As for intentionally and poorly built structures, I saw first hand what happens with this swindle when NYC taxpayers coughed up a tidy sum in 1960’s $$ for the buildings and venues at the Worlds Fair site. These were allegedly to be left as a great asset to the area in particular and the city in general. They crumbled almost immediately and had to be destroyed in less than 5 years.
    This is one reason we fought the Olympics so hard here. Once again we were promised that we would be left with a wonderful selection of buildings and sites …paid for with our money..built by the same motley collection of bankers, politicians and crooked business entities.


    When you can not borrow the legal tender to pay the interest you are bankrupt.


    I cannot see another cycle of “boom and bust”.
    We are on the other side of “peak everything”.


    to survive during & after DEFLATION – DEPRESSION :
    1. forget about SS & PENSION checks?
    2. please suggest some place(water, grow own food, safety,…) in & out of USA
    3. when should I start to create a combo : cash, gold, silver,..?
    4. should I deposit cash, gold in Bob Prechter’s SAFE BANKS?
    thanks in a million for someone like u & Illargi who care for LITTLE people

    Nicole Foss

    Ivnbearbull, yes, forget about SS and pensions, unless you can get hold of pension fund money in advance and hang on to it outside of the system. As for a good place for food, water, safety etc, you could try NZ. That’s what I did and I love it. A combo would be good now. If you want precious metals you won’t be able to get them later, but you will take a financial loss if you buy them now IF you have to sell them again in the next few years. Prechter’s safe banks are a good idea for people who can afford them. They’re in Switzerland and Singapore if I remember rightly. Remember it may be difficult to travel later though, so getting assets back might be a challenge. It’s a risk, but so is everything else. You can;t get away from risk, but you can choose which risks you’d rather take, based on which ones you feel best placed to manage.

    The little people are our focus here, all the time. We would like to see the world a fairer place, but right now everything is stacked against the little guy. We aim to redress the balance 🙂

    Nicole Foss

    Jal, there will always be cycles, so long as we operate at or near civilizational scale. Of course we won’t reach these heights of complexity again without fossil fuels, but there will still be empires, just much smaller and simpler ones. Probably not for quite a long time though. Peaks on this scale tend to lead to long periods of Dark Ages, at least decades, and quite possibly on the scale of a few hundred years. We had Rome without fossil fuels, and others, just not technological civilization…


    The banks will get bailed out. It might not be from fiscal spending authorized by legislative bodies, but instead from central banks through the back door. Banks will offload their bad assets for cash from the central bank. You suggest that there may be bail-ins. So it is true, some depositors may also take a haircut. But bail-out or bail-in, the purpose is still the same: to save a failed institution, to save the system. In the end the politicians and power brokers will save the system — in nominal terms. Base money will replace credit money and the deflationary spiral deepens and the central banks save the TBTF banks, and then one day there will be a spark that ignites all that base money and the whole forest will burn down.


    I got the impression that commentators like to have responses from Nicole and Raúl.


    Thank you Nicole for laying it all bare,

    Now if only my inner circle of family and friends would read it!

    Yes, deflationary death spirals work , for a while, in nations like Japan, with a homogeneous population, high savings , and good infrastructure. But as we see the social fabric is beginning to tear as the first casualty, the yen is devalued . Good in the short term, but now Mrs. Watanabe is really beginning to strain the purse strings.

    And we see a nation like the USA with huge energy and Ag. sectors can survive, for quite a while so long as king dollar is bought.

    With China struggling to prop up everything, will they be the event to kick this all off?


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