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. Exports have slowed. Change is in the air. Of course it’s been in the air before.
Now it looks like China may have deployed its own version of the “Plunge Protection Team” to hold back reality. Thing is reality is reality.
Sometimes 2 trends will look eerily similar for a good long while and then the 2 trends will diverge. We’ll see in this case.
However there is a very good case to be made for a Chinese stock bubble, hell, a Chinese country bubble in many respects. China is the ultimate crony capitalist state.
That China is rattling its saber with such vigor lately may be a symptom of a Communist Party which is seeking to focus attention away from domestic economic issues.
What’s the old adage? Never engage in a land war in Asia? Well we tossed that one out a while ago and now it looks like we might be heading for one on the high seas. No kidding. China is building island bases in the South China Sea, right over massive deposits of oil and smack dab in the middle of Asian trade routes, and we are not happy about it. In fact we’ve ordered China to essentially stop immediately. They are not complying, and are using diplomatic talk of the kind which isn’t very diplomatic.
We have gotten to the point where sober minded people (well probably most of the time) with serious skin in the game are getting concerned.
They say “don’t fight the Fed.”
This has been especially true from an equities investment perspective since the Crash.
The question now though is how much fight is left in the Fed.
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. But one gets the sense that things are very fluid and increasingly so in the global money game these days. It’s almost like a financial “cold war.” Nothing happening which is too hot. Which forces any drastic moves. But a war is being waged none-the-less. The US and dollar dominance are under sustained attack and unfortunately we have exposed ourselves thanks to our profligate ways.
Can we get our act together? Can we act like adults in coming years? I don’t know. We take too much for granted. We’ve been fat and happy for a very long time. Perhaps we aren’t hungry enough.
I do think America can be hungry (in the good sense) again however. But there needs to be fresh blood in leadership – political, financial, and elsewhere.
China is the ultimate crony capitalist state, surpassing even Russia (see the previous post) in that regard.
I recently had the pleasure of talking with an economist who specializes in China and who works for the US government. He said that getting some types of business done in China, particularly anything around energy is nearly impossible. The Chinese government sets a price for energy, tells the plants how much to produce whether or not that works with the set price (which it typically does not) which then creates all sorts of downstream distortions in other parts of the economy.
This is a bit creepy.
Though it is true that there is lots of misinformation on the web, and that the quest for higher quality search results is very good one, that the most used search engine in the world may soon be in the business of defining what is “true” and what is not is of some concern.
Debt is addictive. Once one gets on the stuff it is nearly impossible to get off of. And like all hard drugs, sooner or later debt will extract its toll. It certainly did in 2008. But instead of getting sober and real after that fateful year the world went on a binge instead. Not a very healthy thing to do. There will be pain, likely quite a lot of pain when the debt stops “working.”
When will reality come calling? It already has in many parts of the globe. But even the instability we see now is likely only a precursor of what is on the way.
Funny, for many people it still feels like we are in a recession, now we’re looking at another one?
China buys more copper than anyone to make the things China makes. If China’s manufacturing slows so to do inflows of copper.
It’s hard to get good information out of the Crony’s Republic of China. But we do know when they stop buying copper, and what that generally means.
Oil is now just under $50 per barrel. The Saudis are flooding the oil market likely for both political and market share reasons while China’s demand for the black stuff slackens as their economy slows.
Oil sends a shudder through the world economy. Japan goes for broke (probably literally) with the Japanese citizenry on board. China fears being sucked into a debasement black hole. Europe clings. We watch.
You know how this goes. The economy slows down and the authorities just introduce some more “stimulus.”
Where does this “stimulus” come from? Who cares!
The stimulus duct tape is so thick around the world economy at this point, things have been “patched” over so many times, it’s hard to remember what the world economic engine is actually supposed to look like.
6 Years ago while watching a video of Ron Paul on Youtube and while reading a fairly sophisticated debate below the video on the nuances of Austrian economic theory I was hit with a bolt of lightning. Social media was about to revolutionize everything. I soon founded a tiny company which specializes in developing social media strategies.
But just 6 short years ago social media was still a fairly tough sell to businesses. It’s hard to imagine but just a few years ago Twitter, Facebook, Youtube, Pintrest, Instagram, and the rest generally weren’t seen as important to almost anyone in the non-tech business world. There was some understanding of social media’s power, but most couldn’t see how vital it would become for pretty much everything. Just 6 years ago.
Fast forward to today and now everyone sees social media’s power including the enemies of information exchange. In the attached article The New York Times examines one such enemy, China’s social media commissar, Lu Wei, and he is not playing around.
Another good one from Charles Hugh Smith.
I wouldn’t say that we’ve ever totally had classical capitalism and truly free prices, but we have been light years closer to them than we are now.