As China Goes, So Goes the World?
By Alfred Adask
Business Insider reports in "China's Exports Are Plunging," that:
"The world isn't buying what China is selling any more, and it's a big problem for the economy. Export growth in US dollar terms plunged to -25.4% in February year on year from -11.2% in January . . . .
"While some analysts noted the numbers could bepartly explained by the Chinese New Year holiday, slumping global demand is more likely."
Does anyone really believe that the "Chinese New Year holiday" caused China's most recent quarter's economic decline?
That's like the U.S. government blaming the economic slump in the first quarter of A.D. 2014 on an unseasonably cold winter-and then blaming the economic slump in the first quarter of A.D. 2015 on an unseasonably warm winter.
"Slumping global demand is more likely". Yes, indeed-the real cause for China's problems is falling global demand for China's exports.
"Analysts at Nomura said the government would have to boost its stimulus spending to get the economy going again:"
Given that China's economy is declining, China won't be able to easily raise taxes to get the currency needed to "stimulate spending". So, where will China find the currency to spend on stimulus except by: 1) robbing its own rich; borrowing from those dumb enough to lend to a nation that's already overly-indebted; and/or by selling off its foreign reserves-including U.S. Treasuries?
More, how does China propose to "stimulate" its domestic economy if the problem is falling foreign demand? Will China take its stimulus currency and give it to the U.S. or EU to cause Americans or Europeans to purchase more Chinese exports?
Of course not.
* Insofar as no other nation is gaining significantly in global trade while Chinese exports decline, it's obvious that China's problem is based on having an export-driven economy at a time when global demand is falling.
In other words, if China's economic problems were all internal and caused China to lose, say, 50% of its former foreign markets, some other nation (India, Indonesia, South Korea, or even Mexico) should leap into the resulting trade void to snatch up whatever customers China could no longer service. The fact that no other exporter is seizing new markets from China is evidence that China's current problems are not internal but are, instead, external.
No other countries are seizing China's foreign markets because the foreign demand that makes those markets has disappeared. Global demand for exports has collapsed.
* My point is that, so long as China's economic problems are caused by declining foreign demand for Chinese products, there's virtually nothing that China's government can do to "stimulate" their domestic economy. China can't resolve its current problems until global demand rises sharply. Therefore, China is unlikely to escape its predicament anytime soon.
Like the Baltic Dry Index (which has fallen from 12,000 in A.D. 2008 to less than 400, today) China's economic decline is evidence that the global economy is at least in a recession-and arguably, in a depression.
Insofar as any national economy is based on exports, the export segment of that nation's economy should also be in a state of declining sales and/or profits so long as global demand declines.
* Can we have a New World Order without strong Global Free Trade?
I don't see how.
As global trade declines, each nation competes more fiercely for whatever global trade remains. As competition intensifies, export prices and profits should fall. Falling prices are evidence of deflation and economic depression. Commercial conflicts between nations competing for export markets should rise to a point where hot wars are increasingly likely.
* What's all this mean to the U.S.?
First, it means that while the U.S. may be the last economy to succumb to depression, it's unlikely that we'll completely escape the global depression.
Second, it means that the U.S. exports should tend to fall. Our true levels of unemployment should rise slightly. Our standard of living may fall slightly. Nationalism will rise. Tariffs might be restored. Wars will become more likely.
Third, as China's economy craters for lack of global demand, China's government will try to "stimulate" its domestic economy by spending more currency. Where will they get that currency? Some of it may come from higher taxes imposed on China's super-rich-who recognize that threat and are moving themselves, and their wealth, out of China. As their wealth flows out of China, the Chinese currency supply should diminish. That should contribute to more deflation and a stronger push toward depression.
Ultimately, if China can't rob the rich of enough currency to stimulate their economy, much of the currency they want to spend will have to come from China's foreign exchange reserves which are substantially composed of U.S. Treasuries.
Thus, falling global demand may force China to liquidate more US Bonds. As more U.S. Bonds are sold, the price of those bonds may fall. If the world loses its appetite for U.S. Bonds, their prices could fall dramatically and cause an implosion in the U.S. Bond market, a substantial cut in the U.S. government's ability to borrow and, conceivably, a U.S. economic collapse. In the extreme, there's even a chance for political revolution.
* In our brave, new Global Free Trade world, the only way to save the Chinese economy-as well as the Japanese, European and even U.S. economies-from economic depression, possible collapse and even political revolution(s) may be to stimulate increased global demand for imported products.
But, how can Global Free Trade be stimulated? The world's governments and central bankers' QE, ZIRP and NIRP can't even stimulate the Japanese, EU and U.S. economies on a national level. If they can't stimulate national economies, how will they "stimulate" the global economy?
The only way I can imagine that the major economies might be able to stimulate demand is by flooding their economies with freshly-printed fiat currency given directly (not loaned) to the ordinary people. That might stimulate more global demand, but it will also stimulate more inflation, even hyper-inflation, that will diminish or even destroy the value of most fiat currencies. Can global free trade survive and prosper in an arena of high inflation or even currency destruction?
If China falls, the rest of the Western World's economies will be adversely affected and at least pushed closer to economic depression. If flooding the world with more fiat currency saves China but causes hyper-inflation will we really be better off?
Implication: China's economic decline is not a "thing in itself" so much as a symptom something larger-a global economic depression. The U.S. economy may be able to postpone succumbing to that depression, but I doubt that it can be permanently avoided.
They Pretend to Pay Us
We Pretend to Work
by Alfred Adask
During the former Soviet Union's final 15 to 20 years, there was a "joke" that was both cynical and popular among Communist workers: "They pretend to pay us; we pretend to work."
I believe the attitude expressed in that "joke" was a fundamental cause for the "evil empire's" demise. The government wasn't really paying the people for their work. The people weren't really working for their "pay".
Everyone was lying. The Communist government lied about paying people. The people lied about working.
The resultant breakdown in the relationship between the government-employer and the worker-employees destroyed what was once the second most powerful nation the earth had ever seen.
There's a lesson in the USSR's demise about the need to really "pay" people for their work and stop all the lying.
The Associated Press published an article entitled "Japan spins wheels as wary consumers stash their cash". According to that article:
"Japan's economy is stuck in neutral, as wary Japanese consumers and corporations opt to hold onto their cash rather than spend it.
"The latest data showed Japan's GDP contracted at a 1.1 percent annualized pace in the last quarter in further evidence the economy is failing to gain traction despite unprecedented effortsby the central bankto spur more growth.
"A monthly consumer survey for February showed families were likely to cut spending further following the recent spate of turmoil in financial markets."
Bunk. The Japanese people's refusal to go deeper into debt and spend more is based on something more than recent "turmoil in financial markets".
Something has happened to the mindset of people in the US, EU, Japan and China to diminish their confidence in their economies and central planners.
I believe that many of the people in the First World's controlled economies have become infected with the same attitude seen in the Soviet Union before it died. That attitude was expressed in the joke that, "They pretend to pay us, we pretend to work." Soviet workers knew they weren't really being paid. They knew that no matter how hard they worked, they couldn't get ahead. They knew that they were being used as draft animals. They didn't like it and so they stopped working.
Without the voluntary support and enthusiasm of the masses of ordinary people, the Soviet Union collapsed. In the end, the Soviet central planners' contempt for ordinary people's ability to manage their own affairs was sensed and the ordinary people stopped making the "extra effort" that's required to hold a business, economy or a communist government together.
Despite all the power of the Soviet police state, Soviet workers no longer believed Soviet propaganda and no longer really worked to support Soviet goals. They knew they were being lied to and rejected lies as a form of "payment". They refused to work for lies.
Something similar is happening in much of the world today. Today's people know that the global and national economies are rackets in the same sense as the former Soviet Union. Many of us know that we're being persistently lied to and exploited by our own governments. Many of us are increasingly unwilling to expend full effort in our work. The economy tends to contract.
* I find the "They pretend to pay us; we pretend to work" adage to be especially apt for any economy where people work for fiat currencies like paper and digital dollars.
When we receive Federal Reserve Notes for our work and services, we aren't really being "paid" with an asset. We're only receiving a debt-instrument that's a promise to pay, rather than an actual payment for our work, our efforts and even our lives. By giving us intrinsically-worthless fiat dollars, the central planners in Washington DC are only "pretending to pay us". Many Americans are therefore only "pretending to work".
I'm beginning to see that Americans (like Soviet workers of 25 to 40 years ago) are beginning to understand government's pretense and are beginning to respond with pretense of our own: we pretend to work; we pretend to borrow; we pretend that we and the government will someday, somehow, repay our debts in full; we pretend to support the central planners' economy when, in fact, we're dragging our heels and refusing to support the economy-not by accident, but by intent. We know that most of the promises to pay can't be kept.
I'm beginning to see that, globally, people are sick of being manipulated, controlled and treated with contempt by the central planners in our central banks.
What "contempt"?
The contempt that's inherent in central planners' plans that treat us as children and subjects who are unfit and unable to manage our own lives. If central planners are going to do our thinking for us, they must inevitably view us as incompetent and therefore contemptible.
We're increasingly sick of the lies, sick of the liars, sick of the politicians and special interests who think they're entitled to control and exploit us in order to serve their best interests.
We're sick of politicians who lie about the unemployment rate and sick of mainstream media outlets that lie about the benefits of Global Free Trade and refuse to report dangers of a New World Order. We're sick of the smoke, mirrors and "pumpable" sunshine. And therefore, we're refusing to go deeper into debt to buy enough "stuff" to keep the economy's hamster-wheel spinning and the rich getting richer while the middle class disappears and the poor can't find jobs.
* Most Americans don't understand the details, but they know the economy is a racket, the central planners are racketeers and the government is a criminal enterprise. Therefore, as much as we might like to buy another new car, new house, or new computer-some of us are learning to "make do" with what we've got. We're learning to save rather than borrow and spend. Some of us are holding back in order to hurt the money-loving central planners where they live: in their wallets. In short, many Americans are so fed up with the contempt and injustice that's inherent in a manipulated and centrally-planned economy, that they're withdrawing their support for the "establishment" by refusing to borrow more of the central planners' worthless, fiat currency.
"But more recent data suggest Japan's growth has remained tepid in early 2016, raising the likelihood of further government moves to help boost growth.
Further government moves?
Like what? QE hasn't worked in Japan for most of 25 years. ZIRP hasn't worked. And NIRP is already failing.
"Nobuteru Ishihara, said Tuesday that ahead of that meeting, the government would convene several seminars with top economic expertsto study the global economy and how to cope with slowing growth."
"Seminars," huh? As if that will solve the global depression.
These "seminars" will teach nothing but the usual lies and propaganda repackaged in a bright new wrapper so people might again believe.
"Study the global economy"? Shouldn't they have been required to "study the global economy" before they took jobs as "central planners"? Is central planning an earn-while-you-learn program? If it is, one implication is obvious: our central planners don't really know what they're doing.
A return to "seminars" to learn economics is an implicit admission that they already know they're in over their heads, that they don't know what they're doing, and can only hope that a "brush up" on Econ 101 will show them a new, previously unnoticed means to "stimulate" the economy.
What about the seminars' alleged purpose: to learn "how to cope with slowing growth"? Apparently, these seminars won't teach how to restore or increase economic growth. They'll only teach how to "cope" with "slowing growth". That implies that Japan's central planners expect economic growth to continue to slow on into the foreseeable future-and there's nothing they can do about it but learn how to "cope".
All of which implies that Japan's central planners can't fix their economic problems because they don't really understand economics. They think economics is all about mathematical formulas when it's really about people.
* The world's economic problems aren't fundamentally about mathematics. They're about the tyranny of central planners, the central planners' contempt for the public, and the injustice that's inherent in every effort to manipulate and control the economy.
What injustice?
Every time central planners offer us a "free lunch" as a bribe to do something, that "free lunch" is really an act of theft. There's no "free lunch". Somebody has to pay. Maybe it's the rich, maybe it's the poor, maybe it's future generations or maybe it's people dumb enough to lend their wealth to government.
You might not have to pay for your next "free lunch" but someone else will. Insofar as we accept (or even demand) a free lunch we are parasites and accomplices-after-the-fact to the crime of robbing whoever is finally forced to pay for our "free lunches". That's true for the poor people on welfare and it's true for the rich people on subsidies. If you don't earn your wealth, you're a parasite and an accomplice to theft.
People who aren't parasites and thieves are sick of the injustice of central planning and are increasingly unwilling to act as accomplices to that injustice. We want freedom. We want justice. We even want personal responsibility.
Central planners' efforts to manipulate and stimulate the economy will continue to fail until they figure out how to run an economy without diminishing freedom and justice while increasing personal dignity.
There is no dignity in a free lunch. There's no morality in free lunches. But that's all the central planners have to offer us: immoral, free lunches. We're tired of doing "tricks" for free lunches. We want the dignity of doing an honest day's work for an honest day's pay.
Unfortunately, while we want freedom, justice, personal responsibility and dignity, the central planners want control. I doubt that any compromise is possible. If so, it appears that the conflict between central planners' demand for control and the people's demand for dignity is inevitable and potentially violent.
* The simple truth might be this: All the PhDs and associated academics who presume to run this economy can't run it without the consent, cooperation and good will of the people.
As long as the economy runs on lies and enriches only racketeers, the people will withdraw their support and the economy will "mysteriously" slide into depression.
As long as "they pretend to pay us," we will "pretend" to work, borrow, spend-and someday, even repay our debts.
But the National Debt is simply the world's biggest "liars' loan". America's debts are too big to ever be repaid in full. Therefore, the promises to repay the National Debt are lies. So long as both central planners and the people pretend that our enormous debts can and will be repaid, our economic "house of lies" is doomed to implode.
Want to restore the US economy? Start telling the truth. Start dispensing justice. Stop pretending to pay the people with lies (fiat dollars). Start actually paying people with real money (gold and/or silver)-and demand that all of us, and our government, be responsible for living within our means.
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