Stein's Law says that trends which can't continue don't. Since our national debt is assumed by virtually all economists to be unsustainable, and since it seems increasingly unlikely that Congress will act before it has a gun at its head, a few analysts are starting to think about when and how a debt crisis will ultimately emerge and how the government will respond.(writes Bruce Bartlett in Capital Gains).
US debt is unpayable but it is not necessarily leading to a crisis. It can be solved by inflation. I read about deflation, but I cant see any. When the media talks about deflation and its horrors, it is in fact justifying the gradual loss of purchasing power of the US dollar (and all the other currencies, because they move in tandem).
Follow Up from the comments:
And the American public is gonna go, "hey, my paycheck is now worth a roll of toilet paper"?
No, it will happen gradually, like the frog acclimatizing to the slowly heating water in the pot.
Follow Up from the comments:
23 comments:
Yes, as I have said before, other governments will not resist the temptation to inflate along with the US $, and because exchange rate ratios will be preserved, the inflation will be, at least to some extent, hidden.
The MSM will not raise a protest, since from their leftwing perspective they view money as a means to an end, to be created or destroyed as circumstances demand, and not as a long term store of value.
So we need to re-think our investment portfolios, to inflation-proof them.
Anon.
The classic question: Is there anything better than gold?
Whoa.
So all the countries that we owe massive amounts of cash to are going to go "hey, that's cool, pay us back in dollars that are worth 200 to a pack of Marlboros-while you're at it, just fuck us in the ass-no, no reacharound, it ruins the experience"?
And the American public is gonna go, "hey, my paycheck is now worth a roll of toilet paper"?
Hmmm...
No, it will happen gradually, like the frog acclimatizing to the slowly heating water in the pot.
Bottom line is, it can't be avoided, so we'll all just have to "suck it up", as it might elegantly be put. Us, the Chinese, and all the suckers who thought "my word is my bond" actually meant something other than middle-finger Marxism.
Listen to Schiff, Haber, Roubini and Rogers; the Four Horsemen of the Apocalypse. And think very very carefully about where you put your money.
Anon.
The alternative is resilient communities, as preached by John Robb of the Global Guerrillas blog and Neal Gershenfeld of MIT Center for Bits and Atoms/Fab Lab fame. Which is why I plant to do the Fab Academy next year, once I get my bachelor's knocked out. If we can decouple ourselves from most of the global networks for a bit of community juche, those networks' cascade of failure should largely pass us by.
Like water boiling, these things do NOT happen gradually. Punctuated equilibrium works here too. There will be no warning sign before a massive cascade of failure, or, rather, we're seeing the warning signs now, and there's no way of telling when failure will precipitate out of the solution.
I do not think that the Chinese will sit idly by and watch their national treasury get flushed down the toilet.
They have no option.
Anon.
What can they do?
Well, I'm not sure. When the Germans coupled their economy with ours in the 1920's, taking out massive loans to finance most sectors of their economy, and then we blew them up, they elected Hitler. We spent the 1930s in a Cold War with them (ish) and everybody knows what happened next. Human nature is not to sit still when you're being screwed and your country/business/life is being destroyed, even if anything you do will make things worse. China will do something.
As it is, they're sitting on a powder keg of poverty and multiethnic simmering conflicts, which they've been able to manage by massive growth coupled with repression. What happens when that growth ends?
I am not sure inflation is an investible trend right now. A 'double dip' could hit the price of oil and other commodities in the short term. If Iraq can boost oil production that might also hold back inflation for a little while.
The longer term might be more inflationary. Democracy makes politicians shift costs into the future. Inflation is only one possible result. Promised benefits could be cut.
Chinese have a smaller minority problem than many countries. Han Chinese are 92% of pop. Of course remaining 8% are equal to 100 million plus people but still the ethnic problems are relatively small and confined. The totalitarian system also means a tighter lid is kept on troublemakers. No doubt there are a few hotspots but they are isolated. at least for now. if economic growth stop and the rulers lose "the mandate of heaven" then watch out but for now the central gov. is firmly in control and anytime there are any outbreaks they are dealt with harshly.
K
Are Chinese one race? There are visible differences among Northern Chinese, who are tall and white skinned, and Southern Chinese who are rather small and swarthy. They speak different dialects or languages. In its history, China was divided into separate political units. There are centrifugal forces working in China. It is a very big and unmanageable country.
The Han consider themselves to be one race despite the regional differences in appearance and dialect (the written characters are always the same even if the pronunciation is totally different, just as the symbol 7 means the same thing in every language). They have a clear sense of being "Chinese" and not owing their primary allegiance to their local province. Sometimes spontaneous patriotic/nationalistic feelings and rhetoric even run ahead of the gov's agenda and the gov. actually has to throttle it back (the gov. doesn't want any force or movement to exist unless they control it.)
There was a many thousand year history of central rule where an ambitious person from any region could join the civil service and be posted anywhere in the country. Only during periods of weakness or breakdown did the centrifugal forces overwhelm the centralizing force. Right now they are in a period where the center is strong and they are managing quite well, thank you.
K
China has always had massive overhead dealing with the ethnic minorities who, while being 8% (you're not counting the Hakka or the Han Muslims, I'm guessing,) inhabit most of China's periphery. Xinjiang, Tibet, Yunnan, Qinghai all have either a 50-50 split of Han and minorities, or a minority majority, and the Han are concentrated in the cities; I'm willing to bet that at the first serious sign of network failure, there will be an exodus, like the exodus of ethnic Russians from the periphery of the Soviet Union. A significant portion of China's mineral resources is located on the periphery. If the networks feeding their production centers with these resources are disrupted, there will be a cascade of failure.
The Han themselves have historically been more than happy to break off their own fiefdoms when centralized authority blinked. The Hakka Han, for instance, had the Taiping Rebellion back in the mid-19th century. Or you could look at the first half of the 20th century, where everybody was a warlord. If the wealth that's trickling down from exports and keeping the majority of China's population happy, or at least willing to overlook the party's shortcomings in justice and hypocrisy stops, the powderkeg could easily go. You have any doubt that this guy would run his village's armed insurrection? http://www.zonaeuropa.com/20100607_1.htm
Religion is another side of it. The official ideology is completely empty and cynical. People have an inherent religious need, and Protestantism/Islam are filling the gap in China. There are something like 100 million Protestants there today, and these are not our American Protestants, who are mostly politically complacent and go to church because they're cultural Protestants. The Chinese Protestants have carried their faith through serious persecution. They BELIEVE. They're more like the European Protestants of the 16th/17th centuries. Should I connect the dots?
The Korean Protestants are also very serious but they have not promoted civil insurrection. The periphery is clearly a problem and if things go bad it will be a problem, but for now what I saw looked like a stable society, at least as stable as the US or Europe. There has been an unbelievable improvement in material conditions with people going from a subsistence or starvation level to a decent standard for the average person and unimagined wealth for some - it would take a lot for people to want to throw this away in favor of some unknown alternative. My overall sense riding the buses, in the street, etc. (and keeping in mind that I was with a Chinese speaker so we were able to converse and get into places where tourists did not generally go) was that people were basically happy with the direction their lives were going in. Maybe if the Western economies collapse the Chinese export driven economy will collapse along with it but I'm hoping that we'll all continue to muddle thru and I won't be shooting squirrels to feed my family.
K
Yes, the Chinese Communist Party is providing good governance to the people, so it is tolerated in spite of the virulent hate they have earned in their Maoist past. One can only wish them well, since there are the only great power not fomenting unrest in other countries nor carrying foreign wars. BTW, I havent seen squirrels in China, they ate them.
They have certainly earned virulent hate for all they have done, and yet I don't have the feeling that they are actually hated (by the Hans - the minorities are another story). Not just because people are afraid but because they feel the good outweighs the bad, that the "mistakes" (if you can call actions that led to the death of millions "mistakes") were in the past and that the current leaders are not responsible for them. Even Mao, who I consider to be a war criminal,still has his admirers. Last year in Tianjin we walked into a local restaurant (very good & cheap though they did not speak a word of English) and the restaurant was set up as a shrine to Mao - large poster size photos of Mao all over the walls. Not in a kitschy ironic way but in all seriousness to honor him. This was spontaneous and heartfelt by the restaurant owner - the party does not promote this.
K
The Mao cult exists. People queu to see Mao embalmed in the great plaza in front of the Forbidden City. Is his picture still above the main gate?
Yes, it hangs there and his face is on every denomination of currency. The official attitude is that he was the founder of the modern country, a sort of Chinese Washington or Ben-Gurion, whose world historical achievements can never be taken away. But that in his later years he made mistakes and was led astray by bad influences such as his wife. In Russian terms, they think of him as Lenin, not Stalin. To denounce Mao would be to denounce the legitimacy of the party.
But of course as a practical matter, what they are doing is totally opposite to Mao's beliefs - his head would spin if he saw the Ferrari dealers and Western designer boutiques, etc. that are all over China. His picture on the square is just about the only public picture I saw of Mao, but the image of the Colonel (Sanders) is on almost every street corner, on every KFC. The goal of the government is to make their control invisible but real. So if you try to go on a forbidden website, a message does not come up saying so - rather you click and you wait and nothing happens - the site just never loads.
K
Most Communist regimes have mutated to some kind of dynastic despotism a la North Korea. The trend is very strong in the PR of China too and I wonder when it will surface.
Mao's only grandson is an obese, clownish figure who is nowhere close to the center of power. The sons of high party officials are often set up in business and are quite rich but there is no trend toward dynastic succession as in N. Korea & Cuba AFAIK. Maybe the difference is in the size of the country - China is too big to be run as a family business.
K
China always had a dynastic form of government, most of the time a foreign dynasty. May be China is mature for a Jewish dynasty. I just read a diskworld book where barbaric Ghengis Cohen conquered the Chinese throne.
China had foreign leadership only when the domestic leadership was weakened thru infighting with each other (which was often). Right now (though there are plenty of palace intrigues) the domestic leadership is strong enough and united enough that foreign rule is out of the question.
K
Last time I tried to load J's blog from a site in China it didn't load.
Anon.
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