Debt Rattle April 13 2015

[Raúl Ilargi Meijer]

George N. Barnard Nashville, Tennessee. Rail yard and depot. 1864 • China’s March Exports Shrink 15% Year-on-Year In Shock Fall (Reuters) • China’s Ma
[See the full post at: Debt Rattle April 13 2015]

[Dr. Diablo]

Certainly China is in big trouble, but that trouble was coming anyway. Let’s be Dr. Devil’s Advocate and see what the other side shows:
China, enormous housing bubble, stock bubble, and capacity bubble. Check.
Revenues dependent on building boom, and associated power-bloc likewise. Check.
Dependent on manufacturing production to a world market that has collapsed, leading to massive shutdowns, unemployment, unrest, and lack of revenue. Check.
Shadow banking system that depends on levering/compounding the bubble or collapse. Check.

Okay, on the other side of the ledger:
China has the world’s manufacturing for which there is little replacement.
China owns her own assets and her debt and can alter them at will.
Is familiar with internal strife and internally has strong support for the nation.
Has used debt (printed Yuan) and bought up most of the world: Spanish houses, U.S. agriculture, African mines, South American companies.
Has collected as much as 30,000 tonnes of gold and bunkers of oil, copper, and iron.

So let’s look at it another way: China is planning to make the transition from being the manufacturing slaves to being the rent-collecting masters. If the world goes down–which it already has–then Chinese economic activity will go with it. This is what we see above. But how far can they fall when they are collecting the profits generated by owning real assets worldwide? Copper mines may not be making much, but what they are, China gets a cut. Spanish homes may remain low, but bought at the bottom, they are still valuable and what value they have supports China. China now has a floor because Europe, Africa, and North and South America now subsidize them via “profits.”

Chinese industry presently rests on the low-cost solution. But that industry is already tanked, just like the rest of world. So what harm is there now in re-valuing the Yuan sharply upward, backed with gold, production, and worldwide ownership? It is claimed high currencies stop economies, but in fact the reverse is true. Who is richer? Argentina or Switzerland? Germany or Italy? The U.S. or Mexico? The stronger currency leads to a higher standard of living, which prevents civil unrest. China is in a position to have this higher currency and higher standard of living for their people at a time of their choosing. The more they can hold out and the more worldwide assets they buy–such as 2/3 of Manhattan real estate, Detroit, Ohio, Indiana, and Pittsburgh–the more they can support this higher currency and better living for their people on the back of the Detroiters, Ohioans, Spanish and Greeks.

They are simply swapping the production model (low pay/low cost/low currency) for the rent-seeking ownership model (high pay/high currency). Whether they can accomplish this remains to be seen, but there’s no reason it shouldn’t work.

The same idiocy is commonly said that bad currencies make good countries and there’s no way it can happen, ignoring that the U.S. at the turn of the century did exactly this. They converted from the world’s factory to the world’s owner, and although bumpy, set the stage for 100 years of power and high living. They gave that away with NAFTA and WTO favored-nation, converting themselves back into slaves as nations do. But China is on the other side of the wheel. What puts the U.S. down puts China up and vice versa.

So why couldn’t they, why shouldn’t they, and haven’t they taken every requisite preparation to do so? They just need pull the lever from DC to AC and the conversion process starts.

[John Day]

“Demand will peak way ahead of supply”, at $100/bbl, of course, and for reasons well-explored here, since a $25/bbl economy cannot be sustained at $100/bbl energy cost.
It was a “clever” statement at the time. This year looks like the peak. The Saudis have a strategy, as must China and Russia and the US/NATO/Israeli empire.
It is clear that containable destructive war at the periphery to punish non-compliance, and destroy demand, while maintaining global capitalist structures is the imperial plan.
Other plans may show more subtlety.
Grow food, resist imperialism!

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Hi Nicole and Raul – I enjoy your posts. I’ve put together some ideas on how we might transition this funk – have a look at http://www.ruleof150.net, which explores the interesting potential of Dunbar’s number. Good luck and all the best. Trevor.

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