Capitalism, Communist Style. The Big Red Machine And The End State
Good day comrades. Another interesting article today from the ministry of propaganda. Sounds implausible? Well, your friendly communist government does indeed have such a post. And, that means China has one. The article really isn't from the ministry of propaganda but since all Chinese communications are cleansed before being released, draw your own conclusions.
I posted a link to a story some time ago where China was overproducing over a million cars annually. Exactly what happened in the former Soviet state. I don't know what happens with those excess cars but the article said they were slated for export. Export to where? Maybe they are simply broken down and recycled to create more new cars to be broken down. And so on and so on. That would be a very industrious process worthy of employment for fellow comrades. In any event, it appears the Chinese government has realized they have an automotive capacity glut growing to unmanageable proportions. Remember, this article is cleansed so the situation is likely worse than reported. 20 million units of production and expected demand for 9 million units?
In addition to gluts in basic materials, steel, chemicals, real estate and just about everything else the communists have centrally planned, we now have a glut in auto production capacity. Now that significant malinvestment exists in every "planned" sector of the economy, where do the communists "plan" to create their next mess? The continual creation of over investment is a situation the communists cannot win in the end.
What will be the ultimate unintended consequences for this centrally planned economy? Does anyone remember Perestroika? Is history repeating itself and is China following in the footsteps of the Soviet Union's collapse? Eric Hoffer postulated that a broken or beaten people or society proved little resistance to total control. (China before the current economic reforms.) But, once a people or society had a glimpse of what is possible, society ultimately becomes unmanageable if opportunity is taken from them. In other words, in a bit of irony the Chinese communists had unknowingly created their own demise once they opened the door to economic reform. I am quite confident we will get to the point of communist collapse before the Chinese government reforms domestic controls. Why? China has more people working for the communist party than the total population of Britain. It would be a very unusual act of altruism for a corrupt, inefficient, self-serving bureaucracy to work themselves out of power for the benefit of the masses. In other words, those reforms will not come without strife.
There must be a trigger for such events. I expect that trigger to ultimately be China's ever expanding trade imbalances with Europe and the U.S. I'm not sure what circumstances will arise surrounding these imbalances but I am quite confident exchange rate reform will not even begin to solve them. Such an approach might work for a smaller economy or a smaller imbalance but China is simply too large and, therefore, the imbalances too great. Europe has already started imposing trade regulations. Expect the U.S. to follow in some form with the humiliating failure of the high level U.S. trade delegation to China. We don't need to see a total curtailment of trade. A reduction in Chinese export growth would stifle job creation and create unrest in the Chinese economy. If unemployment claims in the U.S. start to rise significantly, we will likely see the beginning of the end for communism in China in the forms of U.S. protectionism and reduced consumer demand for Chinese produced goods. I expect this to happen before 2012. My next prediction? Come back in 2012.
Update: It never ceases to amaze me that people have called for an improvement to the U.S. current account deficit for the last thirty years. I say this as I see a guest on Bloomberg making such an argument. On what, may I ask, do people base such ridiculousness? The only way that is going to happen is recession. The current account deficit is based on a combination of two primary facts. One, the U.S. doesn't produce enough of what the world and American consumers want. Two, and most importantly, in order for global demand to outstrip our consumption and reverse the current account deficit, global economies must reform domestic agendas to stimulate demand for American goods and services. Neither is going to happen in the foreseeable future. Do they think some miraculous shift is going to take place? Do these people get paid for this?
I posted a link to a story some time ago where China was overproducing over a million cars annually. Exactly what happened in the former Soviet state. I don't know what happens with those excess cars but the article said they were slated for export. Export to where? Maybe they are simply broken down and recycled to create more new cars to be broken down. And so on and so on. That would be a very industrious process worthy of employment for fellow comrades. In any event, it appears the Chinese government has realized they have an automotive capacity glut growing to unmanageable proportions. Remember, this article is cleansed so the situation is likely worse than reported. 20 million units of production and expected demand for 9 million units?
In addition to gluts in basic materials, steel, chemicals, real estate and just about everything else the communists have centrally planned, we now have a glut in auto production capacity. Now that significant malinvestment exists in every "planned" sector of the economy, where do the communists "plan" to create their next mess? The continual creation of over investment is a situation the communists cannot win in the end.
What will be the ultimate unintended consequences for this centrally planned economy? Does anyone remember Perestroika? Is history repeating itself and is China following in the footsteps of the Soviet Union's collapse? Eric Hoffer postulated that a broken or beaten people or society proved little resistance to total control. (China before the current economic reforms.) But, once a people or society had a glimpse of what is possible, society ultimately becomes unmanageable if opportunity is taken from them. In other words, in a bit of irony the Chinese communists had unknowingly created their own demise once they opened the door to economic reform. I am quite confident we will get to the point of communist collapse before the Chinese government reforms domestic controls. Why? China has more people working for the communist party than the total population of Britain. It would be a very unusual act of altruism for a corrupt, inefficient, self-serving bureaucracy to work themselves out of power for the benefit of the masses. In other words, those reforms will not come without strife.
There must be a trigger for such events. I expect that trigger to ultimately be China's ever expanding trade imbalances with Europe and the U.S. I'm not sure what circumstances will arise surrounding these imbalances but I am quite confident exchange rate reform will not even begin to solve them. Such an approach might work for a smaller economy or a smaller imbalance but China is simply too large and, therefore, the imbalances too great. Europe has already started imposing trade regulations. Expect the U.S. to follow in some form with the humiliating failure of the high level U.S. trade delegation to China. We don't need to see a total curtailment of trade. A reduction in Chinese export growth would stifle job creation and create unrest in the Chinese economy. If unemployment claims in the U.S. start to rise significantly, we will likely see the beginning of the end for communism in China in the forms of U.S. protectionism and reduced consumer demand for Chinese produced goods. I expect this to happen before 2012. My next prediction? Come back in 2012.
Update: It never ceases to amaze me that people have called for an improvement to the U.S. current account deficit for the last thirty years. I say this as I see a guest on Bloomberg making such an argument. On what, may I ask, do people base such ridiculousness? The only way that is going to happen is recession. The current account deficit is based on a combination of two primary facts. One, the U.S. doesn't produce enough of what the world and American consumers want. Two, and most importantly, in order for global demand to outstrip our consumption and reverse the current account deficit, global economies must reform domestic agendas to stimulate demand for American goods and services. Neither is going to happen in the foreseeable future. Do they think some miraculous shift is going to take place? Do these people get paid for this?
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