Wednesday, July 24, 2013

The World’s Biggest Ponzi Scheme Is Unraveling As China’s Manufacturing Output Falls To 11 Month Low … Or Worse

No surprise here.  For all practical purposes China’s economy is in contraction regardless of the GDP numbers being released.  Services really just don’t matter.  You can pay someone to jump rope all you want.   Or run political campaigns, or lobby government, or trade derivatives, or pay actors to make CIA-funded or manipulated films, or do each other’s laundry, or report the ministry of propaganda’s “news”, or spy on citizens, or clog the courts with endless red tape, or serve McDonald’s Happy Meals.  Err, am I talking about China or the U.S.?   I’m not sure there is a lot of difference.  Regardless it’s all meaningless overconsumption make-work. 

This is likely the first time since the Great Depression that the entire world has printed negative production in the same year.  We had a dip in late 2008 and 2009 in various economies around the world but that was driven by the fact that financial markets completely froze and producers couldn’t get their hands on any capital to buy raw materials, pay electricity, pay workers,  pay shippers, etc.   That is not the case in 2013.   Corporate capitalism’s endless make-work has simply run out of overconsumption demand. 

I have to wonder how accurate this PMI data is for various reasons.  Not the least of which is GDP that is reporting over 7% growth.   GDP is likely negative unless we are simply measuring inflation running rampant with negative production.   Another reason to doubt reality is that China’s manufacturers have been fudging export sales and invoices as noted on here before.  They are doing this to convert their holdings out of yuan and into convertible currencies courtesy of the communist central bank.  ie, A lot of informed people in China want to get their holdings out of the country or out of yuan and have found that fudging company exports is a very profitable and easy way of doing so.   Because the yuan isn’t convertible, they are essentially screwing the communists by dumping yuan onto the central bank in return for convertible currencies.  The central planners obviously believe they can control capital flight and their own people by keeping the yuan from becoming convertible.  Baahaaa!   Yuan traded in for dollars, euros, etc.  are then being shipped out of the country or used to buy gold or whatever else they can get their hands on that isn’t denominated in yuan.   Dare I say, you won’t be reading this on the cover of Chinese Communist Daily or in supposed research reports from the central planners at Goldman Sachs who endlessly pumped China.

Remember, the Chinese people have lived through countless communist currency messes in this past and certainly are well more aware of the communist party’s shenanigans than we are.   Screw me once shame on you.  Screw me twice and shame on me.  I suspect the people of China are a lot smarter than their supposed leaders.  Just like  in the U.S.   That conversion into dollars is part of what reflated the U.S. housing bubble as noted on here before - accumulated dollars from China buying U.S. real estate.

As I have said consistently on here, the yuan is headed south.  To zero?  Who knows where the bottom will be.  That  Obama, Geithner and other political morons believe it is going to rise if and when China removes currency controls means what?  They are just as clueless as the communists about what is going on?  Bingo!   If the yuan falters, and it certainly will because it has been in constant devaluation for the last 30 years, that means China is going to have to overproduce and export even more goods at below cost to get their hands on the same amount of foreign currency (convertible currency) needed to keep their Ponzi scheme from collapsing.   But if they do that, foreign exchange markets will refuse to trade the world’s convertible currencies at the current yuan peg rate.  They’ll start demanding more yuan.  And more.  And more.  Can you say trade war as China attempts to dump its excess production at below cost on international markets with a falling currency to boot?   All to stem the unemployment crash that’s coming.  Who knows if this is what they will do.  But it has been what they have been doing for the better part of 30 years.   Why stop now? 

Bureaucrats do what they know has worked in their linear perceptions of reality.   So, now that the world’s biggest Ponzi scheme is starting to unravel, why would they do anything other than step on the gas even harder?   I mean, what the f*ck else is a central planner going to do?   It’s exactly what Bernanke is doing.   And Obama.  Bernanke, Obama, Boehner, the Chinese communists and China’s central bank really are the same bureaucrats that think the same way all central planners do.  That is, rigidly and linearly with an intent of exerting greater control.   

bureaucrat [byoor-uh-krat] - an official who works by fixed routine without exercising intelligent judgment.

Indeed.  And so it will be.

posted by TimingLogic at 10:39 AM

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