Perhaps traders should thank Beijing for the warning. Perhaps they should see it as desperation from the Chinese government. Either way trading the yuan (the Chinese currency) is a pretty crazy way to place a bet these days. The state can (and has in the past as the attached article points out) just completely intervene to counter market forces in the short term. This hammers anyone who is betting that the Chinese currency is going down over the short term.
Anyone who has read us for very long knows that we’ve long been skeptical of the “Chinese Dream.” Back in 2011-2012 when union leaders and others were explaining to us that “state capitalism,” that is crony capitalism, worked because it was in China we urged caution. We argued that the economic data which came out of China was of poor quality. We argued that an economy based on patronage and centralized decree was destined for trouble. We argued that since prices weren’t free in China it was just a matter of time before real pain was felt.
Image: The Economist
The free market is often blamed for pollution. The the unbridled greed of capitalists is the reason rivers flow red, forests are felled, and air is made hard to breathe. And historically speaking there is some truth to this. However what is often left out of this critique is the degree to which governments encourage environmentally damaging actions.
Who are you going to complain to? The government? Good luck.
People don’t want to do business where the whole system is rigged. Sure lots of legal graft can be tolerated if the location for whatever reason is especially good. California comes to mind. But eventually capital, human and otherwise, leaves. People are only going to be jacked for so long.
One of the ways people can be stolen from is through externalities like pollution. As Charles Hugh Smith explains,
China is going all coo coo bananas here lately. Not that arresting journalists and other people is outside the norm for The Ultimate Crony Capitalist State, but still. Tianjin, the yuan devaluation, the stock crash, this new explosion, the big military parade on the 3rd. Lots of stuff going on. Lots to keep the jailers busy.
Why is the stock market turning down now? Why the current carnage?
Is all this going to crumble into the ground? No way. But China does have some serious soul searching in front of it.
The point we’ve made with China, The Ultimate Crony Capitalist State, is that much of the “growth” the country has seen has been driven by central planning, which in the end is doomed to fail. One can not centrally plan an economy the size of China’s over the long term.
China, the country we often refer to as the Ultimate Crony Capitalist State is in the midst of serious upheaval. Its stock market has been in precipitous decline, the government has devalued the currency, and now this, a truly massive explosion in a vitally important port city a stone’s throw from Beijing.
Initially reports were suppressed by the government but footage is hitting the broader world. So, in case you missed it, here it is.
This will have impact (so to speak) on the already tenuous Chinese economic situation.
In case you haven’t noticed things aren’t so hot in China. In fact the country, the Ultimate Crony Capitalist State is in serious trouble. Today it devalued the yuan, its currency.
We have been sounding the alarm on China for a very long time. Not that we’ve been the only ones. That China has been headed for real trouble has been obvious to many for quite a while, years. Regardless, trouble is here now. The world’s second largest economy is pretty much in crisis mode,
A few posts ago we made the point that we should all count our lucky stars that we were not some newly middle class guy in China who leveraged his home to play the stock market.
If however you are that guy and you are reading this know that at the very least you have our sincerest sympathies. Though that doesn’t pay the margin call we understand.
The Ultimate Crony Capitalist State is feeling a bit unstable right now. Instability is the great enemy of the Chinese Communist Party. The market mechanism continues to bleed through all across the Chinese economy and Beijing is getting (more) nervous. The state “capitalism” miracle is looking a lot less miraculous these days.
The Chinese stock market is off over 20% since mid June. (Though still up more than that for the year.) A property bubble continues to pop.
I remember seeing this image on TV as a kid. I remember the thousands of students in the square. The paper mache statue of liberty they’d erected. There was a feeling that communism was about to come crashing down in China.
Then the army came and laid waste.
He who is prudent and lies in wait for an enemy who is not, will be victorious. – Sun Tzu, The Art of War
Being unconquerable lies with yourself; being conquerable lies with your enemy. – Sun Tzu, The Art of War
As we’ve said before, the SHTF moment to watch for is the day the dollar loses reserve currency status. As we’ve also said, this day is still probably pretty far off.
This is a big deal and reflects the profound lack of confidence the world has with the current global banking regime. That Britain would do this, in spite of our general objection, is very significant.
As we have said in the past, an important thing to watch for is the moment the dollar is no longer the “world reserve currency.” When that happens the game fundamentally changes. We can’t print forever any longer and the reality of the market hits.