Here It Comes

We have been writing for four years that rising nationalism is coming. And since this crisis started we have posted many rising tensions as they develop. Russia has already slapped enormous tariffs on many foreign goods and China isn't far behind. China already has one of the most closed anti-competitive markets in modern history in this racket elitists and ideologues call "free trade". The term Free Trade is a perfect example of Hitler's propaganda technique termed the Big Lie. (A tactic also used extensively in George Orwell's mind-controlled society, Oceania in his novel 1984.) In other words, if you repeat a completely preposterous lie enough, the general population will come to accept it as true. At least until they are jolted into reality. Any other Big Lies you can think of in today's Orwellian world? They are countless. Almost all are propagated by media, the financial engine, politicians and mass marketers.

Accommodative monetary policy and quantitative easing are nothing more than pretty words for nationalistic monetary policy - a race to the bottom of the barrel being undertaken in some form by every major economy on earth. Who will win that race to make its economy more competitive in this world of "free trade"? In neoliberal economics embraced across the world today, destroying one's currency is a primary requirement to attract unregulated global capital - a dynamic we have been critical of on here. Hence our many remarks about a race to the bottom of the barrel. Everyone is attempting to devalue their currency in a strategy embraced by the mentally-challenged economics community, financial mobsters, central bankers and political stooges benefiting from multi-national business "contributions". Contributions which specifically assist in setting policies friendly to "free trade".

China is in a substantially unique position in that it has benefited more than any country in modern history from an influx of foreign capital, foreign investment and foreign know-how. This is easily seen in the fact that somewhere north of 80-85% of exports out of China are from foreign multi-national firms, something we have highlighted often over the last four years.

Dominant technology and manufacturing firms from Japan, Taiwan, America, Europe and other countries have plowed substantial knowledge into China allowing for a metamorphosis of knowledge that would have taken fifty to one hundred years to develop itself. Instead this transfer of knowledge has taken place in a little more than a decade. National sovereignty, intellectual property rights and national wealth are irrelevant in this neoliberal economic charade. Instead the world has become a playground for banksters and multi-national firms using national wealth to speculate across the globe regardless of the consequences, benefits or costs.

China's policies are turning nationalistic just as we said they would. And they have far and away the most to lose by doing so. Foreign investment and technology transfer could suffer substantially leading to the depth and length of any substantial downturn. China must have continued access to foreign know-how or lose any momentum gained by heretofore foreign investment. China's comparatively stagnant domestic economy, weak research infrastructure and other substantial dynamics require continued outside investment for any level of sustainability. The U.S., as an example, still dominates global scientific research spending one out of every three dollars. Add in Europe and Japan and the remainder of scientific research around the world is a rounding error. In fact, much of China's research is actually intellectual property of foreign multi-national businesses with facilities in the country.

As China's economy collapses, a knee-jerk reaction from communist leaders would be to devalue their currency as is the policy accepted by the status quo of every economy on earth. But, now with fickle international investors having much to lose in China, such a move would have the effect of destroying returns on capital. A death knell for future investment. So, a much more palatable approach to is to accomplish the same objective without appearing to harm foreign investors. Foreign investors are substantially more important in today's economic landscape than national sovereignty, whether trade is free or fair or otherwise, etc. That "palatable" approach would obviously be to subsidize exports and increase regulation of imports in lieu of overtly devaluing the yuan. This is something we have obviously highlighted before but is very relevant to this post.

China has no alternative other than to do something to stem the collapse of its economy and corresponding massive loss of jobs while attempting to retain future foreign investment.

The actions of Chinese officials are becoming more overt. As an example, a recent trade filing showed that import tariffs were raised on nylon for no other reason than they are hurting domestic nylon suppliers. Much of China's economy has always been predicated on this type of protection but now the press is finally picking up on it. Future actions will almost assuredly be even more flagrant as it pertains to today's economic ideology.

This brings us back to a point we have made on here before. The yammering ideologues citing Smoot-Hawley tariffs as a cause of the Great Depression are completely ridiculous. Just as today, global trade collapsed at the start of the Great Depression. Tariffs were a response to the race to the bottom of the barrel we have highlighted above. A strategy employed by all nations at the start of the Great Depression. Just as today. And many countries were more vigilant than others in their race to the bottom of the barrel because they had accumulated such substantial debts from World War I. In order to repay these international debts, they had to do anything possible to keep their economies humming. Even if that meant selling goods below cost. Sound familiar? Smoot-Hawley as a cause of the Great Depression is one of the biggest Big Lies of our time. A Big Lie perpetuated by ideologues and special interests and mouthed by idiots doing their will. It is completely ridiculous. Global demand had already evaporated and there was massive excess supply just as today - a dynamic we have written of for four years. So, embracing the same neoliberal economics as we see today, will the outcome be different? Is the recession over? Or are we witnessing more Big Lies?

Not only is China going to experience a depression but I have complete confidence the communist government will make exactly the wrong trade and economic decisions which will lead to maximum economic pain. And most likely semi-permanent to permanent flight of foreign capital and investment.

You won't read any of this elsewhere. That's a good thing. Because the entire economics community, political leadership and Wall Street mobsters have succumbed to the Big Lie. A dynamic created by incredible hubris and ego. The truth is almost never is it seems.

This past week China takes another step in creating their own destiny by putting an even tighter yoke on an already very closed market.

Party hard! And buckle up.