The End of the Com­mu­nist Dynasty

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By Craig Tin­dale

There is a cri­sis of con­fi­dence unfold­ing in China that is likely to end in a full scale cap­i­tal flight and a dis­or­derly col­lapse in both eco­nomic and polit­i­cal cohe­sive­ness. The low­er­ing of the reserve require­ments for Chi­nese banks, while reported in the media as a loos­en­ing of credit, is more likely an early sign of cap­i­tal flight. Sim­i­larly reflec­tive of this, are the large increases of gold pur­chases by Chi­nese cit­i­zens who have few diver­si­fi­ca­tion options away from the RMB.

China’s wealth is con­cen­trated abnor­mally within an elite 1% of high net worth indi­vid­u­als. This 1% com­mand up to $5 USD tril­lion dol­lars in wealth. If these elite should rush the doors to move their wealth out of the coun­try using the mul­ti­tude of avenues that exist to evade Chi­nese cap­i­tal con­trols, then the Chi­nese banks may face the biggest bank run in his­tory.

The prob­lem is that while the pro­pa­ganda machine might con­trol the minds of the masses, the wealthy elite are vir­tu­ally immune to thought con­trol and are likely to be the best informed and have the means to be the first to leave. Reserves are mostly tied up in USD and trea­suries can­not be liq­ui­dated for fear of rais­ing the value of the RMB. Along with fur­ther erod­ing trade sur­pluses, this means a cap­i­tal flight by the elite occur­ring with mas­sive insol­vency in the credit mar­ket could vapor­ize the Chi­nese liq­uid­ity in what will seem like an eco­nomic Cat 5 hur­ri­cane.

The Chi­nese econ­omy is in the final stages of largest Ponzi scheme ever devised. Min­sky out­lined three dis­tinct phases in the credit cycle: In the first phase known as the hedge phase; eco­nomic actors bor­row money to invest in order to cre­ate goods to sell for profit. In the sec­ond stage, the spec­u­la­tive phase, more eco­nomic actors join the econ­omy, bor­row­ing money to invest in assets in the expec­ta­tion that these assets will rise in value. In the last stage, known as the Ponzi stage, eco­nomic actors bor­row in the hope that con­di­tions will improve. This bor­row­ing is designed to avoid insol­vency dur­ing what is per­ceived or hoped to be a short to medium term set­back in eco­nomic con­di­tions.

Some may argue that the Min­sky mar­ket dri­ven insta­bil­ity hypoth­e­sis is not suited to China and that they are chiefly a cen­trally planned state con­trolled econ­omy. This reflects a fun­da­men­tal mis­un­der­stand­ing of Minsky’s work. The West­ern economies’ attempt to cen­trally plan eco­nomic activ­i­ties from the con­sump­tion end, the state based cap­i­tal­ism that China has become known for attempts to cen­trally con­trol the econ­omy from the pro­duc­tion side.

The Chi­nese pro­duc­tion econ­omy can­not be seen in iso­la­tion from the con­sump­tion economies of the West; debt based con­sump­tion pro­vided the umbrella under which the Chi­nese mir­a­cle grew. When the GFC col­lapsed West­ern debt based con­sump­tion reacted by pro­vid­ing the last line of Min­sky Ponzi financ­ing via gov­ern­ment bail-outs. Gov­ern­ments faced with bank­ing col­lapse chose keep the sys­tem going by trans­fer­ring debt from pri­vate hands to those of the tax­pay­ers.

The Chi­nese, faced with a mas­sive col­lapse in export income, chose to keep the econ­omy func­tion­ing by stim­u­lat­ing the econ­omy with mas­sive cap­i­tal works and lend­ing. In both cases the gov­ern­ment was the provider of the last line Ponzi financ­ing to keep the econ­omy rolling.  Now that this Ponzi financ­ing has been near exhausted in both the West and the East, pro­found col­lapse is the only log­i­cal out­come.

Whereas the Min­sky moment in West­ern economies comes by way of over-enthu­si­as­tic pri­vate bor­row­ers, the insta­bil­ity in China is poten­tially more vir­u­lent in that its source is an over-enthu­si­as­tic gov­ern­ment: the for­mer rely­ing on the sol­vency of bor­row­ers and the later rely­ing on the sol­vency of the state.  Some argue that while the Chi­nese state remains sol­vent, no mat­ter how many empty build­ings exist they can con­tinue the game.  The ques­tion then is — Are they sol­vent and how long can they remain that way? The expo­nen­tial growth in Chi­nese debt and mal-invest­ment and the very unlikely return of West­ern demand means the sys­tem will become insol­vent in the short to medium term.

The num­ber of investors who have suf­fered losses due to wide­spread fraud is grow­ing expo­nen­tially and the list of those that have racked up sub­stan­tial losses includes some of the lead­ing investors in the world.  This list of investors includes invest­ment leg­ends like Anthony Bolton one of Europe’s most well-known fund man­agers, leg­endary invest­ment icon John Paul­son have been the vic­tims of fraud, the scale of which has never been seen in eco­nomic his­tory.

Bolton came out of retire­ment in 2009 specif­i­cally to invest in China and his invest­ments have turned into a com­plete dis­as­ter. In fact, Bolton was forced to offer an apol­ogy for his com­pa­nies poor per­for­mance after los­ing 28.9% of its nearly 430M pound cap­i­tal­iza­tion in the last six months of 2011 Anthony Bolton apol­o­gises for China fund’s poor per­for­mance. Ram­pant fraud was evi­dent right at the core of his invest­ment dif­fi­cul­ties. This appears to have reached epi­demic pro­por­tions right across the Chi­nese cor­po­rate land­scape, so much so that Bolton has been forced to turn to pri­vate inves­ti­ga­tors after investors in Fidelity’s China fund suf­fer losses of 21%.

Bolton wasn’t the only one. The leg­endary investor John Paul­son is being sued by his investors after los­ing $462M of his 23B fund invest­ing in Sino For­est Paul­son Fund Sued Over Sino-For­est Losses. The Sino For­est deba­cle was kicked off with a 19 page report issued by Car­son Block of Muddy Water Sino For­est Report. This report didn’t mince words and came out form the start com­par­ing the com­pany to Bernie Madoff’s Ponzi scheme.

Like Mad­off, TRE is one of the rare frauds that is com­mit­ted by an estab­lished insti­tu­tion.  In TRE’s case, its early start as an RTO fraud, luck, and deft nav­i­ga­tion enabled it to grow into an insti­tu­tion whose “qual­ity man­age­ment” con­sis­tently deliv­ered on earn­ings growth.” 

The prob­lem with Sino For­est was that most of the forests the com­pany claimed as assets sim­ply didn’t exist.  Rather than being a few iso­lated cases, these exam­ples sig­nal an epi­demic of sys­temic fraud and cor­rup­tion that per­vades entire Chi­nese econ­omy.  This sys­temic fraud directly cor­re­lates to Minsky’s final Ponzi phase: cheap credit, floods the econ­omy, even­tu­ally exhaust­ing use­ful ways it can be uti­lized. This, together with the lack of sys­temic con­trols that accom­pany cheap credit, ini­tially causes mal-invest­ment into projects that will never return enough to ser­vice their debt. Then, hav­ing exhausted all rea­son­able avenues of mal-invest­ment, large amounts get siphoned into the hands of crim­i­nal oppor­tunis­tic eco­nomic agents who game the sys­tem.

In Decem­ber another Chi­nese stock research firm Cit­ron came out with this report Qihoo : Fraud­u­lent Financials,Terminal Busi­ness, Or Both….You Decide. Cit­ron main­tains price tar­get of $5. In late Feb­ru­ary 2012 they sub­mit­ted this report to the SEC Cit­ron Reports to Secu­ri­ties and Exchange Com­mis­sion. Aus­tralian, John Hemp­ton of Bronte Cap­i­tal, famous locally for uncov­er­ing the Astara Trio Cap­i­tal Ponzi scheme, has been instru­men­tal in uncov­er­ing a long list of Chi­nese frauds includ­ing: Long­top Finan­cial Tech­nolo­gies, Uni­ver­sal Travel Group, China Media Express, and China Agritech

A few weeks ago, Boshiwa Hold­ings the  licensee and man­u­fac­turer of Harry Pot­ter related toys plunged 42% on news that its audi­tor had quit. In late Feb­ru­ary Puda Coal raised a $100M from US investors based coal assets that were never there: A Fraud Went Unde­tected, Although Easy to Spot.

What is China’s response to this plague of fraud in Chi­nese US listed stocks? They intend to make it very dif­fi­cult for the Big 4 to con­tinue to work in China ‘Big Four’ audi­tors brace for big changes in China. In the case of Long­top Finan­cial, Deloites, the firms’ audi­tors have been unable to pro­vide the SEC with any doc­u­men­ta­tion about the col­lapse for fear of break­ing China’s state secrecy laws.

These frauds are extremely sophis­ti­cated and have gone unde­tected by the large audit firms. They are not just the result of a series of inde­pen­dent events under­taken by sim­i­larly dis­hon­est busi­ness peo­ple act­ing alone. Rather, a recent report sug­gests they are part of a sys­temic net­work of agents act­ing inside and out­side of China whose main pur­pose is to per­pet­u­ate invest­ment fraud on a scale never seen before in eco­nomic his­tory.

One of the cen­tral play­ers in uncov­er­ing Chi­nese invest­ment fraud research is the firm Muddy Waters who recently pub­lished a white paper enti­tled Fraud­u­ca­tion Part I: in this paper the author out­lines how Chi­nese busi­ness­men are taught and spon­sored by experts, who spon­sor and coach fraud­sters in sub­jects like fal­si­fy­ing records, account­ing, assets and  the var­i­ous meth­ods needed to pull off  grand frauds. When a char­ac­ter like John Paul­son gets taken for nearly half a bil­lion there is a lot of moti­va­tion on the crim­i­nal side to get things right

The fraud school’s assis­tance went well beyond pro­vid­ing doc­u­ment and account­ing tem­plates. The fraud school pro­vided a net­work of “friendly” audi­tors that would help the com­pa­nies get through the ini­tial due dili­gence processes. The fraud school also helped com­pa­nies game the due dili­gence process by pro­vid­ing the com­pa­nies with con­tact infor­ma­tion of sup­pli­ers and cus­tomers to give to poten­tial investors. The

sup­pli­ers and cus­tomers were frauds – the school hired them merely to play a role and answer ques­tions accord­ing to the script. (Source: Muddy Waters)

Fraud is cen­tral to the Chi­nese sys­tem, it has emerged via vir­u­lent muta­tion of the ancient trib­ute sys­tem.  In the past, these trib­ute sys­tems reflected an ancient form of pri­vate reg­u­la­tory order. In the past there was often a lim­ited basis for the rule of law to gov­ern trans­ac­tions. Through­out Chi­nese his­tory, trade relied on sys­tems of trib­ute to ensure secure busi­ness and polit­i­cal out­comes.

These old sys­tems were still essen­tial through­out Asia up until only a few decades ago because, trans­act­ing par­ties could not rely on the rule of law to ensure the secu­rity of terms gov­ern­ing a trans­ac­tion. In China this has evolved into gov­ern­ment spon­sored sys­temic cor­rup­tion with West­ern moti­va­tions of greed and crim­i­nal­ity. It infects every level of the pri­vate and pub­lic sec­tor.

A small piece of it was exposed recently in the “Bo” scan­dal, where there are reports of it infect­ing the fam­i­lies: Not only the Bo Lai fam­ily but even to the high­est level of gov­ern­ment- up to and includ­ing the fam­ily of Pro­pa­ganda Min­is­ter, Liu Yun­shan .Who 16 elder retired  elder states­men peti­tioned to have sacked

Rather than being seen as iso­lated inci­dents, these exam­ples reflect a cul­tural meme, a way of doing busi­ness that rep­re­sents the stan­dard oper­at­ing pro­ce­dure for a large seg­ment (if not all) of the Chi­nese econ­omy.

The epi­demic of fraud sits like a struc­tural ele­ment across both the pri­vate and gov­ern­ment sec­tor fur­ther mag­ni­fy­ing the mal-invest­ment caused by the mas­sive credit expan­sion. For exam­ple: The high speed rail project  audits reveal mil­lions have been siphoned toward cor­rupt con­trac­tors and gov­ern­ment offi­cials. This amount merely rep­re­sents the siphon­ing on the core bud­get and doesn’t reflect the extra costs loaded by each of the con­trac­tors.

Take for exam­ple Hollysys, the provider of sig­nalling and con­trol sys­tems for many the Chi­nese high speed train projects. This com­pany man­aged to earn ‘154M (2009)-175M(2010) with a tri­fling $3.1 M in cap­i­tal equip­ment. Their expla­na­tion for this is they out­source all man­u­fac­tur­ing, which is a lit­tle odd since they have such mas­sive build­ings, cov­er­ing hun­dreds of acres and $24M in inven­to­ries.

On its web­site, the com­pany boasts of over 40 major projects cov­er­ing every­thing from Nuclear Power sta­tion instru­men­ta­tion to cut­ting edge high-speed rail. All of these projects com­bined require no more than $3.1 mil­lion in cap­i­tal equip­ment? In a coun­try where cor­rup­tion is evi­dent at every level, the cor­rup­tion appar­ent in the high-speed rail project was even too much for the Chi­nese sys­tem to carry. China’s Com­mu­nist Party has expelled a once-pow­er­ful for­mer rail­ways min­is­ter accused of seri­ous cor­rup­tion, state-run media report.

China is a coun­try that is essen­tially a directly funded fiat sys­tem, whereas in a tra­di­tional fiat funded sys­tem the state prints money to directly pur­chase goods and ser­vices. Here, the Chi­nese sys­tem achieves the same out­come by lend­ing with lit­tle prospect of repay­ment.  A sys­tem that per­pet­u­ally rolls over debts does not con­sti­tute a credit based money sys­tem. Whether they are cor­po­ra­tions or indi­vid­u­als, many of state affil­i­ated eco­nomic agents sim­ply can­not default because the lender is unwill­ing to fore­close on an influ­en­tial polit­i­cal player. If you can­not pay you can sim­ply ring the party to arrange a rollover the bal­ance.

The funds are effec­tively fis­cal stim­u­lus car­ried out gov­ern­ment-con­trolled inter­me­di­aries, state and local gov­ern­ments, who then spend these funds on projects dreamt up by cor­rupt local politi­cians. These projects are built with bor­rowed money by var­i­ous state aligned eco­nomic agents. These agents have lit­tle hope of repay­ing the debts incurred. This in turn means that the debts are roll over when they fall due. In real­ity the State is sim­ply print­ing money, spend­ing it and then at some point writ­ing it off. This is being done at a speed and scale never before seen in human his­tory.

Jim Chanos the famous hedge fund investor who fore­saw the sub­prime cri­sis described the entire Chi­nese econ­omy as “1000 times worse than Dubai”. In 2008, when the world expe­ri­enced the GFC, China dou­bled down and sim­ply spent their way through via mas­sive credit stim­u­lus. When China’s mas­sive export mar­kets shrank due to the West­ern debt cri­sis the Chi­nese elected to con­vert their econ­omy from an export based one to a con­struc­tion based econ­omy.  Mean­while, the West­ern media per­pet­u­ates the myths of China’s sup­posed ascent to dis­place the US as being the world largest econ­omy.

The prob­lem is that the West­ern economies never recov­ered and the Chi­nese have had to con­tinue their mas­sive growth purely based on con­struct­ing roads, bridges, air­ports, dams and var­i­ous other con­struc­tion based infra­struc­ture

If one starts with the offi­cial eco­nomic sta­tis­tics and works down through the account­ing, tax­a­tion, bank­ing sys­tems and then across Chi­nese indus­try, there is ram­pant fraud, poor report­ing and out­right pro­pa­ganda at every level. The Chi­nese econ­omy is largely a cen­tral gov­ern­ment bud­getary sys­tem of fis­cal spend­ing; each local gov­ern­ment sub­mits spend­ing plans to cen­tral party author­i­ties, who in turn rec­om­mend expen­di­ture up the line.

In 2008 in order to counter the shock of the GFC the Chi­nese Com­mu­nist Party (CCP) engaged in mas­sive stim­u­lus pro­grams just as the West did. The dif­fer­ence though was in the way the stim­u­lus was deliv­ered. In Aus­tralia, stim­u­lus was deliv­ered as gov­ern­ment spend­ing. This is tra­di­tion­ally known as fis­cal stim­u­lus where the gov­ern­ment bor­rows money to spend on projects like the new fibre optic NBN Net­work. In China, though the stim­u­lus was deliv­ered much less tra­di­tion­ally; the increase in expen­di­ture was deliv­ered through banks who were encour­aged to offer mas­sive amounts of debt to provin­cial gov­ern­ments, state owned and spon­sored owned enter­prise.

The impe­tus for the stim­u­lus might have been cen­trally planned, but the spend­ing was decen­tralised. Provin­cial gov­ern­ments in China are not able to issue bonds, so state owned invest­ment vehi­cles bor­row the money, often using state gifted real estate col­lat­eral as secu­rity. The real­ity is that the major­ity of these invest­ments, do not or will not pay a return any­where near that required to make debt repay­ments. These projects born of cor­rup­tion, nursed by self-serv­ing bureau­cracy fail to thrive due to the defec­tive finan­cial DNA.

Provin­cial credit expanded at a rate of +35% of GDP per annum and many of the loans need­ing to be rolled over, with no prospect of ser­vice­abil­ity. For this lunacy to con­tinue, what is pri­mar­ily a con­struc­tion econ­omy must build more infra­struc­ture this year than last and more again next year and the year after into per­pe­tu­ity. If these projects had no chance of becom­ing sol­vent going con­cerns in the past, then new projects are even less likely to repay their lenders in the future. In this envi­ron­ment of manic over­pro­duc­tion, elite cap­i­tal at some point will panic and run for the exits.

To a large extent the Chi­nese pro­pa­ganda machine has cap­tured an unques­tion­ing West­ern media;, the meme that China is the next ris­ing super power and will shortly over­take the US is a part of this pro­pa­ganda story. West­ern­ers imbue their view of China’s future with cul­tural qual­i­ties that have sim­ply never been reflected in his­tor­i­cal fact. In fact, pro­grams like the one child pol­icy reflect the oppo­site

If the projects in 2009 and 2010 can­not pay ade­quate returns to ser­vice debt then what hope do the new projects have? Fur­ther­more, due to the epi­demic of cor­rup­tion through­out China’s pub­lic and pri­vate sec­tor, the projects rarely reflect good value for money. This places the entire Chi­nese econ­omy in Minsky’s last phase of expan­sion: The Ponzi phase, where lend­ing is per­pe­trated in the hope that con­di­tions will improve and with lit­tle hope of repay­ment.

In the West debt is to be freely given but even at its worst it is done on some basis of return. When an eco­nomic sys­tem loses its way, to the extent China has done, the ten­sion it cre­ates on a soci­ety becomes unbear­able. When the even­tual day of reck­on­ing comes and the abil­ity to expand debt is exhausted, then the physics of com­plete col­lapse come into play.

A bleak harsh real­ity will descend on a polit­i­cal sys­tem that’s run out of options. One unique fea­ture will come the fore: That China uniquely spends more on inter­nal secu­rity than exter­nal defence.  China will at once face a great leap back­ward forc­ing a mil­i­tary coup and the effec­tive end of CCP rule. Whether the mil­i­tary can hold the coun­try together through a Soviet style col­lapse is anyone’s guess. One out­come could see the wealth­ier provinces seek­ing inde­pen­dence, how­ever it ends it will be the end of a dynasty that started with Mao.

China will not be be the world’s biggest econ­omy this cen­tury.  It will fal­ter, due to its demo­graphic arthri­tis and debt explo­sion. The denoue­ment of its cor­rup­tion will pull it down like no other col­lapse in his­tory. China will shortly have “inter­est­ing times.”

Craig Tin­dale is the Vice Pres­i­dent of the Cen­tre for Eco­nomic Sta­bil­ity, Pro­fes­sor Steve Keen’s non-profit research ini­tia­tive.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Glenn Stehle

    Steve Hum­mel said: 

    What I get from it is that truth and real­ity is eas­ily mis­in­ter­preted with dis­as­trous con­se­quences even by well mean­ing men.

    But that’s the rub, isn’t it? How do we deter­mine what is “truth” and “real­ity.”

    Renais­sance thinkers like Mon­taigne believed, as Michael Allen Gille­spie explains in The The­o­log­i­cal Ori­gins of Moder­nity, that sci­ence would result in “a flow­er­ing of human mul­ti­plic­ity, because he did not believe that any two humans would ever rea­son alike.”

    With the Mod­ern counter-Renais­sance, how­ever, and its quest for absolute cer­tainty, a very dif­fer­ent view­point emerged. As Gille­spie goes on to explain: “Descartes, by con­trast, was con­vinced that any­one who is freed from the prej­u­dices of the world and uses his good sense will arrive at exactly the same con­clu­sions he did.”

    The U.S. Con­sti­tu­tion fol­lowed Montaigne’s phi­los­o­phy. In it we have the sep­a­ra­tion of pow­ers between the exec­u­tive, judi­ciary and leg­is­la­ture, as well as between the states and the cen­tral goven­ment. This sep­a­ra­tion of power was designed so as to impede any one fac­tion from cap­tur­ing the gov­ern­ment. Madi­son also hoped soci­ety would divide itself into many com­pet­ing fac­tions.

    Madi­son, in the Fed­eral Con­ven­tion of 1787, had observed the way in which “Debtors have defrauded their cred­i­tors. The landed inter­est has borne hard on the mer­can­tile inter­est. The hold­ers of one species of prop­erty have thrown a dis­pro­por­tion of taxes on the hold­ers of another species.”

    Wher­ever “a major­ity are united by a com­mon inter­est or pas­sion,” Madi­son con­cluded, “the rights of the minor­ity are in dan­ger.”

    The proper rem­edy, he said, was to “enlarge the sphere” of repub­li­can gov­ern­ment

    and thereby divide the com­mu­nity into so great a num­ber of inter­ests and par­ties that, in the first place, a major­ity will not be likely at the same moment to have a com­mon inter­est sep­a­rate from that of the whole or the minor­ity, and in the sec­ond place, that in case they should have such an inter­est, they may not be apt to unite in the pur­suit of it.

    In the first part of the 20th cen­tury there was still enough of an oppo­si­tion of inter­ests between diverse cap­i­tal­ists to break the grip that monop­oly finance cap­i­tal­ism had on Amer­i­can gov­ern­ment. We saw monop­oly indus­trial cap­i­tal­ists (i.e. DuPont, Melchett, Lev­er­hulme, Rock­e­feller, Ford, Nuffield) squar­ing off against monop­oly finance cap­i­tal­ists (i.e. Roth­schild, Mor­gan, Mirabaud, Bar­ing, Mon­tagu Nor­man, Mel­lon), with the indus­trial cap­i­tal­ists finally emerg­ing on top by the 1940s. Mellon’s com­ments before the Inter­na­tional Cham­ber of Com­merce in 1932 are telling:

    I do not believe in any quick or spec­tac­u­lar reme­dies for the ills from which the world is suf­fer­ing, nor do I share the belief that there is any­thing fun­da­men­tally wrong with the social sys­tem…

    Of course today we no longer have “cap­tains of indus­try” as we did in the 1920s and 30s, but the anony­mously man­aged super­firm, which quite often is just as involved in finance, or even more so, than it is in man­u­fac­tur­ing. So cap­i­tal­ists are per­haps more uni­fied today than then, which will make it more dif­fi­cult to break their monop­oly of polit­i­cal power.

  • Steve Hum­mel


    MMT’s main prob­lem from my per­spec­tive is it remains re-dis­trib­u­tive and much too sub­ject to priv­i­lege when Dis­tri­b­u­tional eco­nom­ics does the same thing and even bet­ter, and tends to place more power in “the many hands” of indi­vid­u­als.

    MMT: Okay all man­ner of busi­ness enti­ties, here’s your guzil­lion $ now you and your cus­tomers have to give us back a guzil­lion — 6 Quid, 6 Schilling and 6 pence. And you’re wel­come for the 1 Quid pen­sion you’ll receive from all of the wise debt invest­ments on the Moon, Mars, Infin­ity and beyond. Oh, and don’t mind the Finan­cial CEO, indus­trial tycoon and politi­cian lol­ly­gag­ging on the yacht moored out beyond all of the sam­pans and junks bob­bing in the pol­luted har­bor.

    Social Credit/Distributional Eco­nom­ics: Okay all man­ner of busi­ness enti­ties, there’s plenty of elec­tronic fiat/bank credit around, all you need to do is present us with a good busi­ness plan and rely upon the suf­fi­cient pur­chas­ing power that indi­vid­u­als have from cra­dle to grave in the form of a citizen’s div­i­dend and whose value is main­tained by using the cred­i­tary nature of the mon­e­tary sys­tem to level the cost of pro­duc­tion to the cost of con­sump­tion every month with a retail dis­count. You can make lots of profit, indi­vid­u­als can make lots of money with their jobs and div­i­dends, and they won’t need pen­sions with the cra­dle to grave div­i­dend and what they may or may not have saved dur­ing their 4 score years of eco­nom­i­cally secured self deter­mined employ­ment choice, con­vivial, famil­ial, increas­ingly con­tem­pla­tive and free­dom laden exis­tence. Mean­while there are no longer any wel­fare, food stamp and social secu­rity taxes to be paid, only a small­ish tax for the bridges for the high speed Mag-Lev rail and the occa­sional replace­ment of a mag­net or two on the same sys­tem. And you’re wel­come for the world that increas­ingly effi­cient tech­nol­ogy and sci­ence has pro­duced so that the sky is still blue if not per­fectly so. Oh, and the Finan­cial CEO, indus­trial tycoon and even some of the politi­cians may still have their yachts, but they are always on their bio-mechan­i­cal cell phones mak­ing sure that they are doing the best to sat­isfy the sev­eral hun­dred mil­lion indi­vid­u­als who with their suf­fi­cient pur­chas­ing power money-votes.…..are actu­ally THEIR bosses.

  • peteryo­g­man

    You have cor­rrectly iden­ti­fied mal-invest­ment and cor­rup­tion but have dis­counted the fact that China (as you point out) is not a pri­vate debt-based money sys­tem. The debt can always be writ­ten off so the Chi­nese goven­ment is free to spend into the econ­omy. This is very pow­er­ful and we must stop ana­lyz­ing the Chi­nese econ­omy in the con­text of a pri­vate money sys­tem. They are not the same. We are left with a huge oppor­tu­nity cost but not a debt over­hang so China has the chance to still get it right. I would not bet against them until demo­graph­ics catches up in about 20 years.

  • Trevor Grig­son

    Look­ing at it from the point of view of some­body who builds stuff, I can see Aus­tralia hav­ing another bite of the cherry if the Chi­nese jug­ger­naut does keep rolling along. At some stage pretty well every­thing they’ve built in the last ten years is going to need to be torn down and rebuilt. Really…no choice. I was talk­ing to my guide and chauf­feur about jobs with a future in China and the best one I could see was con­crete reme­di­a­tion engi­neer. Bridges, high rises, the Birds Nest Sta­dium, all are going to have seri­ous struc­tural issues due to their poor con­struc­tion. They will have to roof over streets to pro­tect pedes­tri­ans from chunks falling off build­ings. Road bridges are going to col­lapse because rein­forc­ing has insuf­fi­cient cover and the con­crete will fail sooner rather than later.
    So not only has a huge amount of money been burnt due to cor­rup­tion, the trickle down has been phys­i­cally wasted too.
    So they’ll need a bunch more coal for con­crete and a fair bit more iron ore too to rec­tify it all, either that or invent a lev­i­tat­ing umbrella/hard hat that can cope with a 10kg chunk of con­crete falling from 10 sto­ries. If it’s the for­mer, Aus­tralia wins and the envi­ron­ment looses.

  • Craig Tin­dale

    Trevor agreed my first visit was in 1981 and Ive been back many times since the shelf life of most of what they are build­ing is very short due to con­struc­tion qual­ity.

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