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.
There was a time when good “liberals” in the United States railed against military spending. Granted it wasn’t because they wanted to reduce the size of government or to cut taxes, but because they wanted more money for social programs.
But that general disposition seems to have disappeared. Now, many big welfare state people are also big warfare state people. Military spending you see is a form of “stimulus.” Bombs, guns,whatever. Just get that money into the system.
Of course that the money for these bombs comes from the productive economy one way or another is forgotten, simply not understood, or is ignored for political reasons.
Cheap money feels good initially. Nearly everyone is happy when central banks open the floodgates (or helicopter doors) and cash spills into the economy. Hooray! Money! Why is it here now instead of yesterday? Who knows? Get while the getting’s good. Look, the stock market’s rising – whoopee! Monetary tequila. Bottoms up!
But the morning, the aching, head thumping morning always comes after such a binge.
“All I know is Ben Bernanke was tending bar. Goldman Sachs was buying me drinks. Everyone was having a great time. (Except those teetotalers the Austrian economists sitting in the back. They’re never any fun.) But everything after that is hazy. Where am I?”
“Son, you’re smack dab in the middle of an economic depression.”
“Oh man, really? Who are you?”
“I’m the Austrian economist who was sitting in the back of the bar. Get your hat. I’ll drive you home Mr. Keynes.”
“No, no. What I need – what we all need is more tequila.”
“Suit yourself.” Said the Austrian economist as he walked out level headed and sober into the blinding summer sun.
There is some debate around here as to the world’s most crony company. There are many candidates but consistently in the top 5 or so is Goldman Sachs, Government Sachs.
Few companies have exploited the taxpayer and political connections to the extent Goldman has. Truly it is a company built fundamentally on cronyism.
In 2008 Goldman Sachs was leveraged more than 100 to 1 on its assets. (That is probably a conservative estimate.) When the economic tide turned it was fully exposed. It should have died the disgraced death it deserved. It should have been crushed under the wheel of the market.
Goldman however had a former CEO at Treasury, Hank Paulson, who bailed out his buddies with money taken from taxpayers.
As we’ve said before, the Fed is independent. It is NOT sovereign.
But the Fed thinks that it is above Congress, and the law in many regards. That any effort to shine light into the dark halls of the Eccles Building is too much to ask. That even a little bit of sun would undermine the system.
Consider that for a moment. If that were true, which it’s not, but if it were, I ask whether we should be concerned that Federal Reserve system is so fragile.
If you really want to understand why the crony capitalist system is so insidious as well as ubiquitous I highly recommend listening to this bit from the master Murray Rothbard. If you really want to get what is so messed up about government and the “privavte sector” partnering up, one must know at least a little bit of his work.
Warning though. Rothbard can rattle one’s whole understanding of politics and economics.
This would be fun to watch if it wasn’t for the fact that an unstable China creates a number of problems for us, the USA, economically and perhaps in other ways. But here’s a good bit of advice from the author of the attached article.
When Shanghai was peaking at 5,000 in June, I gave you five words of advice: Get. The. Hell. Out. Now.
To which I’ll add five more: And. Stay. The. Hell. Out.
Click here for the article.
Ron Paul calls out the Plunge Protection Team on CNBC. I don’t think I’ve ever heard it mentioned on financial television. Seriously anyway.
And boy is he right. There is an assumption that the Fed will never let stocks (and other assets) revert to real levels.
The thing is the Fed for all its power is still subject to the laws of thermodynamics, just like the rest of us. That is, even the mighty central bank will feel the sting of its hubris.
Of course so will the rest of the planet. Which let me tell you is a real bummer.
Attached is the podcast of an interview I recently did with Marc Clair at Lions of Liberty, an excellent resource for the freedom inclined. I encourage everyone to check them out.
Many people wrongly believe that politics is to a large extent a battle between government and business. That the 2 represent opposite dispositions. This is a foolish notion. Business and government are more often partners than adversaries. Especially now.
But crony capitalism has a long history in this country.
Fundamentally it comes down to whether one thinks one can get something for nothing. If it has been your experience that something can actually be gotten for nothing, no work, no money, no “other people’s money,” no blood, then congratulations. You live in an easier world than the rest of us. If however you are inclined to think that for every action there is an equal and opposite reaction, then perhaps you should be concerned about the piles of sovereign debt stretching into the wispy stratosphere.
The stakes are now so high for the proponents of central bank debt creation that even if they saw the error of their ways (unlikely) they will still run us off a cliff if unchecked.
We are starting to approach what many economists call “full employment.” The point at which the people who are unemployed really are “just between jobs.” There is little long term unemployment. Jobs are plentiful. There is upward pressure on wages. In short, general prosperity.
Can’t you feel it?
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.
A friend of mine refers to the money which flowed to the plethora of “green” energy projects in 2009-2010 as “special welfare for the rich.”
He’s right. I know personally of a handful of prominent lefties who scored big time on the deal(s). The green energy initiative was politically connected money. It was a direct line from taxpayers to the pockets of “investors.” But everybody felt fine about it because “they were doing good while doing well.”
Uh huh. If you buy that I’ve got an algae farm to sell you. No, literally.
Paul Krugman is famous for having said essentially that one of the ways the US could pull itself out of the current recession/depression is by mobilizing for an alien invasion. A War of the Worlds would do the trick. Everyone could build space ships and laser guns and whatever to fight the otherworldly menace. Stimulus. Full employment!