Money And Markets Update - China (Yawn. Or Is That Yuan?)
Let’s head back to China for the umpteenth time. Anyone following the financial press in the last few days knows that China just devalued its currency. For the last ten years we have been told time and again that China’s currency would go higher. Or, that China could not devalue their currency because they would experience capital flight. Ahem. All I can say is I told you so. Over and over and over and over. China is unfolding exactly as I said it would for the last decade.
What is happening in China now reminds me of the ignorance that is so prevalent in this world. For the last decade I have written very detailed posts over and again about what was coming in China, I remember cover newspaper and magazine journalism, Wall Street, corporate CEOs and the like raving about the brilliance of China’s commie leadership for much of that time. Did any CEO, politician, military leader, economist, journalist or Harvard-educated Wall Street banker foresee any of what is happening in China today? I mean, for God’s sake, was there a single one? Not a single one that I am aware of. Hell, supposed investment genius Jim Rogers moved to China back in 2006 because he was so sure the U.S. was headed for collapse and the world was moving east to China. I mocked him at that time…. which was right about the time I was calling for a collapse in the Shanghai Index. Soon thereafter it fell 70% and so did the fortunes of Jim Rogers. In fact, as I noted on here years ago, I had a meeting with one of the most prominent hedge funds about that time as well. The arrogance of their chief economist and model builder, a PhD in bullshit, was only surpassed by his ignorance. When I told him what was about to happen in China, to oil, to gold, to U.S. stocks, etc, he literally treated me like a child and mocked me. I politely let him treat me like a dog. I even barked a little bit and licked his boots. Soon thereafter everything I said would happen did and they were on the wrong side of every trade.
My point? We all need to quit listening to the supposed “experts” who are really nothing more than state actors who use their special privilege or rigged rules created by the state to plunder the rest of us. They know how to plunder. They don’t know anything about your journey or what is best for you. Only you or those helping you on your journey know that. Just about everyone who is near the top of this system is wildly incompetent, pathological and even more ignorant. Not stupid. Ignorant. And most often, willfully so. The universe loves ignorance. Because ignorance gives the universe something to do. You know, other than to just expand or whatever mainstream science says it is doing. It gives the universe a chance to teach us lessons. And a big one is coming.
This is why I haven’t watched a single episode of TV news in literally twenty years. The “news” is nothing more than hindsight’s 20-20 vision. None of the supposed experts are really experts at anything. They are rolled out after the fact to give us explanations, almost always wrong, of what just happened. That is, even though none of them ever saw anything coming. Mind you, what is yet to come in China is a terminal failure the likes of which I cannot even comprehend. But even now, after this small devaluation that rocked global markets, we hear the experts giving all of their wrong reasons. But people still believe that these self-interested, pathological corporate, political and banking assholes are gods whether they are in China, Europe, Russia, the U.S. or elsewhere. And that they will steer us through what is yet to come or fix our economy or fix our democracy or fix our social ills or whatnot. Good luck with that. They created this class-based, anti-democratic statist system that f*cked everything up. There is no one coming to save you. You are the person you have been waiting for.
The headlines everywhere are that China is starting a currency war. I’ve beaten this like a rented mule as well. A common false meme perpetuated by useful idiots. Any economic system that relies on class, forced competition and social Darwinism, to name a few wonderful features, is a control system that perpetuates itself through violence. Ditto with any monetary system that forces humanity to effectively wage war against each other to capture enough money to stay alive. Ever since Bretton Woods fell apart under Nixon’s war mongering, wildly corrupt administration, the world has been in one big currency war. China devalued its currency a few percentage points in the last few days. Twenty years ago it devalued its currency by almost half to lure away American and European capital and jobs. And our capitalist masters squealed with glee as they told democracy to f*ck off. (Reagan deregulated private, for-profit capital but Clinton deregulated its national borders. Well, and our current communist president continues those efforts through his global corporate governance agreements.) Currency wars are a part of capitalism. Always. Forever. Period. There is nothing new to what China is doing. Every nation uses its currency to wage war for its own benefit under this system. Or, is a catastrophe as a result of another nation waging war against its currency. Other Asian nations are seeing their currencies weaken considerably so China needed to do the same thing or lose exports. Lost exports mean big juju. This is all consistent with one of the major themes on here that we are going to have a trade settlement crisis. That doesn’t necessarily mean a collapsing dollar as so many people have inaccurately squawked about. The dollar is and has been roaring and will likely continue to do so. Again, all noted on here for ages.
China’s currency is effectively worthless. We are going to experience far larger devaluations than the few percent over the last few days. The disaster is so large that capital leaving the country is never coming back. Even its communist party leaders (class and hierarchy) have smuggled out billions to leave its citizens holding the bag for the mess the state has created. China is finished. I’m curious what happens to Mitt Romney’s private equity-owned factories when China’s currency collapses? Umm, huge unrecoverable losses? Will Apple be able to actually fulfill product out of China if their currency collapses? Because after that comes social unrest. Again. A long time theme on here. Bet those pinheads who have shoved Apple’s stock into the stratosphere never thought of that. What about all of those people who told you China was going to become the reserve currency and replace the dollar? Hahaha. Then there is China’s Asian development bank that every single financial source and blogger noted was doom for the dollar or the U.S. financial empire. But on here, I noted that it spelled doom for the yuan and China. Just months later from the announcement of their development bank, they are devaluing their currency. The Asian development bank is a Hail Mary by China to pay nations to take their massive excess production capacity so that they don’t experience an employment collapse. Which would tank the Chinese communist system and likely lead to revolution or China slamming the door shut on the rest of the world and possibly lashing out through war to maintain its power. Debt schmet. Debt has never been the issue on this blog. Contrarily, debt is an illusion. It’s a control construct that humanity allows to live only in their minds. Vanquishing all of the world’s debt would solve none of the economic problems. Because the problems are the state and capitalism’s endless overproduction and overconsumption cycles that lead to crisis. Then ultimately when that crisis develops, as it has today, no state wants to give up the economic power they have created for themselves by taking out that massive global production slack. So, instead we have a ratcheting up in economic violence and economic warfare that often spills over into military wars. All wars are wars created by the state (class and hierarchy). Taking out production capacity will destroy the state’s ability to control their citizens as chattel so they can exploit them. Taking out production is the real issue because it is going to lead to massive global unemployment. It’s coming. There’s no way around it. But the universe is going to do it for us as the state clings to its intent of control over truth.
Corporate work is how the state controls humanity. If it can no longer provide work, then the state will collapse. Corporate work is not democracy. It’s the state. Hitler provided corporate work. Stalin provided corporate work. The British Empire provided corporate work. So long as it provided enough work, regardless of whether it was exterminating Jews or intellectuals or other innocent people, or sending people to the Gulag to die by the tens of millions, or addicting all of China to opium while murdering untold numbers of people in India, they were able to maintain control over their populations. And that dynamic is still at work in the world today. The United States is no different. Nor is any other state. Clausewitz brilliantly stated long ago that politics is war by another name. Let’s be honest with ourselves. Corporate capitalism is war by another name. And those of us enslaved to corporate work are waging war against our fellow man. Ignorantly, might I add.
I want to again reiterate a point I have made on here over the years. China is embracing capitalism as it is possibly in the midst of terminal failure. That’s the brilliance of communism, the state and central planners. China is in a very unique situation but make no mistake this is a global phenomena. Hundreds of millions of China’s citizens led a generally rural and agrarian existence. The state and its inventions of communism, capitalism and the like really had little control over these people’s daily lives. At least comparatively. These people were in some ways self-sufficient to some degree or created local economies, some of which was certainly underground and barter-based, that benefitted the localities and people rather than the state. But China has now “lifted” hundreds of millions of people out of this “poverty”. What really has happened is that taking someone out of a generally rural setting and stuffing them into a high-rise apartment (or in this country, into Section 8 housing) now means they are completely reliant on the state. They have little to no ability to fend for themselves other than to serve the state, corporations, bankers, etc. Or to serve those who serve the state. The question now becomes, with the state under massive pressure around the world, will it be able to continue to loot, steal and pilfer (in the case of corporations – extract enough rent) from enough people or enough other nations to be able to continue to provide corporate/state work or “employment” to those that are now completely reliant on it for their survival? Don’t bet on it. That is possibly the biggest crisis of our times.
==>>World War III may very well be that humanity is now at war with the state to rid itself of that virus. And a part of that is states warring with each other, whether it is politically, economically or militarily, to continue to loot and pillage in an effort to maintain that control over their own chattel by providing them corporate/state work.
So, as China’s mess becomes more and more apparent, how much money do you think the United States, as one example, is going to exchange China for its yuan as their crisis metastasizes? The current rate? ie, about six yuan to a dollar? Maybe they will eventually require China to hand over 5, 10 or 20x what the current exchange rate is. One hundred yuan for a dollar instead of six yuan for a dollar? Maybe. Would you give China six yuan for a dollar if you knew that their currency was effectively worthless and their economy was teetering on the precipice? Hell no. In fact, maybe you would refuse to even give them any exchange rate. Maybe any price is too risky. Maybe the United States will instead start to demand that China pays them in dollars or gold or they won’t accept any exchange rate. Then what? Oh, yeah. All of China’s Treasuries will need to be cashed in or it will be forced to start selling gold. Oh, well, what a surprise. They have already started to do that because they are in the early stages of a liquidity crisis. That’s why they are devaluing. Because they need cash. Specifically dollars. So they need to keep their exports attractive in dollar terms. What comes next? Maybe China’s national investment fund that has been going around buying dollar-based assets (and other denominated assets) will have to start liquidating those assets. Look, all of this has been anticipated and written of ad nauseam on here. China is an unprecedented mess. It always has been. There was no brilliance seven or eight years ago that turned into incompetence and fraud today. It always was incompetence and fraud.
There are three recent stories regarding China that are worth mentioning. One is that China is seeking to “rewrite” the internet in order for the state to maintain a degree of ignorance needed for the communist grip on Chinese citizens aka people are chattel of the state. This is consistent with western state efforts to “regulate” the internet. That includes manipulating public opinion by even hiring online trolls to sway opinion as was exposed primarily by the British press in the last year. But was also exposed by Sharyl Attkisson. The second is that China is now cracking down hard on freedoms as the mess communist central planners have created destabilizes just as I wrote they would many years ago. And the last is the communist party in China feared that the CIA may have been trying to bribe its officials through the assistance of American corporations. I find this unusual report very interesting because it’s clear this is a standard method through which the U.S. dominates other nations. The United States clearly puts officials in other countries in compromising positions then exploits that to their benefit. Everyone has a price and the U.S. finds a way to exploit that dynamic. Not that China, Russia or other states don’t do the same thing. They certainly do.
Shanghai Composite with potential support lines drawn.
Let’s look at the Shanghai Composite. This chart is some days old but it really hasn’t changed considerably. We have had waterfall declines numerous times in numerous parts of the world since 2008. And those waterfall declines have been followed by massive rallies again and again. That is a symptom of a collapsed global economy. ie, In a functioning economy of any sort, money is first created to produce something. And it must flow through the economy until it eventually becomes some type of excess that can be used by some economic entity to buy assets. Do you think that is what is happening today? Money is created out of thin air to magically buy assets and create an illusion of wealth not just in the U.S. but around the world. Yet, no wealth is actually being created with that money. This is how corporations and class privilege steals democracy’s wealth or steals from the poor and working class. It’s what is happening today in Greece with the debt for equity swaps that grant foreign corporations, under the direction of foreign states, the rights to steal public and democratic resources in return for some degree of debt relief or whatnot. (The United States and its corporations have perfected this technique and has made it an art form.) So we have seen these massive rallies and declines over and again in financial assets around the world. Is this time in China different? Well, China’s bubble is unprecedented on many levels. I noted a few posts ago that China’s stock markets could go much higher before it collapses. Or not. We just don’t know. There is no precedence for this type of Rube Goldberg machine that is in China. Specifically, a generally closed society with a nonconvertible currency. But the interventions and attempts at stabilizing their exchange looks a lot like the United States in 1929 and so far they are not having any different effect than 1929 either. At least not yet. It should look a lot like 1929 because as noted on here many times, China, like the U.S. in 1929, is the biggest turd in the pool. And the biggest problem in China is that they own all of the world’s gold just like the U.S. in 1929. But, while it was physical gold for the U.S. in 1929 when gold was money, it’s proverbial gold or the dominant money today which is the dollar. (As well as gold itself) China has the biggest hoard of dollars because of their mercantilist, looting economic structure. That statement has been written on here time and again over the years and it’s far different than the infatuation with the gold bugs who believe China is their savior. Or the people who thought China was going to take over the U.S. economic mantle. Both of which are absurd and are now starting to expose themselves as such.
We really have two major possibilities in China as I see it. One is that the Shanghai market will push to substantially new highs. That is looking dubious given the continued instability and loss of liquidity that has been developing for quite some time. China may have to start the printing presses again for this to happen. But there is a gargantuan amount of yuan savings already in the country that cannot leave so, again, this is really unprecedented. Or, the other possiblity is that this waterfall decline will be followed by a failed attempt at stabilization for some time and the market will break. It could break to the highlighted areas in the above chart and then attempt to rally again or it could be a break similar to 1929. In 1929, there was an initial waterfall decline in the U.S. that is shown by the arrow on the chart below, followed by a lot of rhetoric from “the system” that big buyers were stepping in to restore confidence and there was nothing to worry about. Then, within a reasonably short period of time the market cracked and fell 95%. If that is where China is headed, you can see from the 1929 fall in the Dow below how much further China may have to yet fall. Many of the responses from Chinese officials and financial industry clowns are similar to the responses made by U.S.counterparts after the first waterfall decline in 1929.
Regardless of what happens next in China, it is now setting up for a currency crisis or outright currency collapse. Remember when the world was universally calling for China to unpeg its currency so that it would rise? That included U.S. politicians who were responding to the economic threat of a cheap yuan. What do you think the U.S. will do if the yuan craters from here? They will do what I have been stating they will do. Slap import tariffs on Chinese goods or witness their own economic collapse. As the dollar rises violently, the flip side of that most of the world’s currencies are now collapsing to record lows. Again, another long term call on here. Their currency is pegged to the dollar for now but they will be forced to abandon that peg just as Russia did. And when Russia finally abandoned its peg, the ruble collapsed and so did the economy. Russia is now literally in a depression. And that is where China is headed.
100 year chart of the Dow with 1929’s initial break highlighted.
I noted about half way through last year that liquidity was draining out of the global economy at a far faster pace than leading into 2008’s collapse and now we are starting to see some of the early consequences with China, Puerto Rico, Greece, emerging market currencies, the miserable economic data in the BRICs, etc. This is a much more dangerous moment than leading into 2008. While I don’t involve myself in shorter term market moves any more, I will say that total financial system collapse could start at any time this year or into next year. We shall see. I still subscribe to a commodities pricing service and prices of steel in parts of Asia have recently collapsed to the lowest levels on record. Ever. That Asian “miracle” too is a farce whether it is India, China, Singapore, Taiwan, Korea or anyone else.