Tuesday, July 16, 2013

China Collapse Update And China’s Equity Market Return Over The Last 20 Years Is 1%

The communists in China are starting to have a hard time keeping the lid on the reality that is their massive economic mess.  “Experts” generally want to tell us their issue is debt.  Well, that is, if they still don’t believe there is a mess.  Debt? Schmet!  The fundamental problem in China is NOT debt.  Not to say that debt isn’t a form of predatory state-based enslavement and violence.  It is.  But debt can be forgiven, wiped away or paid off in a sustainable economy.  The issue is, as noted on here ad nauseam, that China is in a capital bubble.  That has led to massive, unsustainable overproduction capacity.  Massive.  Not to mention the massive ecological damage created in the build out of this bubble.   There’s enough production capacity in many sectors of the Chinese economy to supply the world’s needs ten to twenty times over. 

All you needed to do to open a steel mill in China is to be the brother-in-law of the local communist official.   You can wipe away debt.  But, if demand for production collapses or doesn’t meet anticipated demand, that means a massive loss of jobs courtesy of the bullwhip effect talked about on here.  In other words, the greatest economic shock to any supply chain is that furthest removed from the customer.   Global supply chain shocks are coming as noted on here many years ago.   Frankly, they are likely to be broken permanently in most cases. 

China’s issue is not debt but it’s going to be the massive unemployment created due to the massive overproduction capacity.   Well, and the massive state-directed movement of rural peasants into urban areas needed to create this system of overproduction.  Did I say massive?  The communists are likely to have massive social unrest in urban areas.  Possibly even see many of these new centrally-planned cities or neighborhoods abandoned in a return to sustainable rural living.   Um…  that is not likely to be a China-only phenomenon as noted in many of my corporate capitalism posts.

China’s capital bubble has already collapsed as noted on here before.  That happened in 2008.  It has tried to reflate its economy with massive, unprecedented stimulus that flowed into domestic overconsumption.  It found a home in overconsumption because that was the only way to save its massive overproduction.   That is why we now see a massive debt bubble in China where one was never apparent until relatively recently.   It’s why real estate and autos, both consumption items, have exploded with unprecedented inflation since 2008.  Sometimes running over 200% per annum in certain Chinese markets.  The debt was taken on by a society encouraged to overconsume in order to stop the collapse of its capital system.  That is impossible.  Because the capital bubble is far larger than any ability to consume its overproduction. 

Sound familiar?  lol  This bullwhip dynamic and the collapse of China’s capital bubble will almost certainly be exacerbated as Europe and the U.S. collapse or recapitalize their economies or both.  (In that order.)  Although that recapitalization almost certainly will not look anything like past capitalist efforts at doing so.  ie, It will likely be driven by fundamental demand for basic necessities rather that what private, for-profit capital wants us to overconsume.  And it won’t be because of neoliberal comparative advantage that makes it cheaper to hire a corporate slave in the U.S. for a nonliving wage than in China, although the corporate state is seeking this outcome as a rebalancing act to the global corporate capitalist Ponzi scheme.

I have been well out in front of the China issue for a very long time.  Well ahead of anyone else in economics or finance that I am aware of.  Oftentimes when writing of the coming demise of China such a position was mocked because their economy seemed invincible at the time.   Just like Wall Street seemed like invincible masters of the universe before their collapse.  Those who think with their eyes are almost always wrong.   Observational science is more often junk science than anything else because the world is seldom, if ever as it seems.   That’s one reason why economics is such a miserable failure. 

China’s outcome, to some substantial degree, was preordained a long time ago.  It’s just a matter of picking the top.  The top was 2008.  And I wrote very close to the peak that their equity market was on the verge of collapse as the communists had lost control of their economy.   

Some years ago I showed an absolutely ludicrous analysis that projected China’s GDP would grow to $123 trillion in the next 25 years.  An absurd bastardization of reality that is so typical of the pervasive dumbing-down of science and reason that we call the bureaucratic corporate state.  Now anyone other than the fool who wrote that article can see with their eyes that something is very wrong in China as reality begins to reveal itself.

We have never seen anything like what is going on in China on such a massive scale.  Never.  When have you ever seen real estate prices rise 200% in a year in such a large economy?  The collapse is going to be brutal and likely unprecedented, thus as noted on here many years ago, may lead to war, starvation, massive crackdowns, revolution, etc.  We could even see nation fragmentation across the many ethnic/cultural boundaries, etc.  (Although I believe Edward Snowden’s revelations may have been so profound to possibly preclude global war as a possible outcome.)    Whatever happens, the corporate capitalist investment in China by western companies is at substantial risk for loss.  That could be communist nationalization, a bust in consumption demand, trade wars, etc.  Just like Nazi Germany and the western capitalists who re-armed and rebuilt Nazi Germany only to see it all be lost.  Again, discussed on here before.

While I haven’t noted it on here, I have written elsewhere that China’s electricity numbers for 2009, 2010 and 2011 were flat to down at 3.4 trillion kilowatt-hours depending on what quarter we were talking about.  The economic data during that time showed substantial growth.  Something isn’t right.  Either the economic data is a lie, the energy usage is a lie or they are both a lie.  The statistics coming out about China’s exports were recently documented to be a massive lie as noted on here some months ago.  We know tens of thousands, if not hundreds of thousands of factories in China have closed.  China manipulates what its citizens and the world see.  Substantially much more than even the propagandized U.S.   Here, the truth is available if one is willing to do the diligence and open their mind.  There, the Ministry of Propaganda has nearly complete control and can  bar journalists from reporting on economic crises.   Here the state just investigates journalists to intimidate them from reporting the truth.  Well, if we back up even further, the state allowed the corporate takeover of journalism and the widespread ending of investigative reporting replaced with infotainment and talking mouthpieces who believe news is promoting government talking points.  So, most journalists in this country today are just competent enough to read a teleprompter.  You know.  Like Obama.  Get them out from beyond their teleprompter and their true competence shows through.

What will happen when China sees massive unemployment as globalization’s corporate capitalist make-work overproduction and associated overconsumption unwinds?  

I find it ironic that the Chinese communists may have actually embraced corporate capitalism just as it was in the process of  dying.  That by the time communist central planners decided they wanted to embrace the economic system that supposedly defeated the Soviets, they sealed a fate of their own destiny.  Communism’s central planners who embraced corporate capitalism’s endless need for more make-work overproduction…..  A marriage of two bureaucratic, predatory statist “ism’s” made in hell.

Title link here.

By the way, believing that wealth comes from money used to make money is preposterous.  ie, China’s equity market returns.  Believing you can buy a financial asset and sit back to watch it grow without having any responsibility to the underlying economy to create sustainable wealth is a recipe for doom.  And doom it will be for this global system.

The cycle of volatility continues.

posted by TimingLogic at 9:31 AM

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