Jim Grant is someone with whom everyone should be familiar.
China is, as we say, The Ultimate Crony Capitalist State. Business and government are an amalgam. Long a crony paradise where a premium was placed on compliance and government favor and not on real pricing.
It looks like reality is finally starting to hit however.
About 6 months ago I was talking to a China energy markets analyst and he explained the complexities of implementing a carbon tax regime in the country to me. One bit I found particularly interesting. He explained that no one knew what the real price of energy coming from a particular plant actually was. A mandate from Beijing had been handed down, that energy would cost X amount, and that was the number used for “business.” Everyone knew the official price was way below the actual market rate but it sounded like no one really knew what the market rate was.
One can’t keep running a country like this. One must have real pricing for long term prosperity. The problem is that real pricing can create problems for the political establishment, anywhere, but particularly in China.
Things just keep getting wackier in The Ultimate Crony Capitalist State.
Hey, why not just have the government come in and buy up the stock market? That ought to do the trick. Nothing could possibly go wrong with that. It’s not like this whole crash was precipitated by central planning and malinvestment or anything.
Isn’t this fun!?
The good news is the market is up right now. The bad news is the Dow was up yesterday for most of the day but then closed 200 points down.
It should be remembered that even in tumultuous moments like the one we are in the market rarely goes straight down.
Not sure when this screen shot was taken today but you get the point.
It could have been a whole lot worse. The Dow opened down over 1000 points this morning. Then markets rallied. Then they fell off again. Massive shifts in markets. Craziness.
Now the world looks to Asia.
So lots of people are asking WHY? Here’s a big reason why. This video is from back in 2014, but it’s worth another view.
Why is the stock market turning down now? Why the current carnage?
It’s hard to overstate how important it is that despite massive, massive, intervention from the Bank of China and huge political pressure from Beijing the Chinese market continued and continues to sell off. This is the first instance of a central bank post-2008 really losing control. And this is happening in the world’s second largest economy and arguably the world’s chief engine of growth.
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.
Self dealing. Fiat declarations from on high. Accounting which probably barely passes for accounting. The problems are immense. The Chinese “miracle” isn’t looking so miraculous.
Are we saying that China is now going to revert back to the 3rd World? (Though much of China is still very much 3rd World.) No, definitely not. But we are saying that China faces a systemic crony capitalist problem and that the gaps within the Chinese economy which are filled with lies will and must collapse if China is to go forward in the way China wants to go forward.
Please note that I say how CHINA wants to go forward, not how the Chinese Communist Party wants to go forward.
The worst instances of pollution the world has ever seen have been in highly managed and regulated economies. The Soviet Union, East Germany, India, China. (Not that the West hasn’t had plenty of disasters.) Yet many environmentalists (and we consider ourselves environmentalists) insist that if things were just regulated more a green utopia would emerge. Problem is that in a centrally planned economy the cronies are in charge and get to cheat whenever they want. There is no feedback mechanism because the state won’t allow it.
China’s crony confab.
To be fair, if one is going to plot world domination one might as well do it at the beach. Get some rays. Consider currency moves. Get some sand between one’s toes. Drink a mai tai. Ponder whether the Spratly Islands are really worth starting a war over. Then maybe some miniature golf.
The engine which is China is misfiring and China’s commodity suppliers across the globe are feeling the pain. This contributes to geopolitical instability which in turn can further impact economic instability, which can eventually impact your household stability.
Once the dominoes start falling they are hard to stop.
OK. So you go to the 1st Bank of Bankertown or whatever. You deposit a check. Take a little cash out. But you wake the next day to find – surprise – the 1st Bank of Bankertown isn’t actually a bank at all. Granted some would argue that banks aren’t really “banks” at all anyway in the Fed system. But you get the point.