The Wheels Finally Falling Off...China?

[bcassill]

Okay, anyone who has seen me post here in the past knows what an uber upbeat attitude I have towards China. Anyhow, as what passes for the Chinese main stream media (government controlled, of course) likes to say, things are only getting better and better. That's why one of China's most notable scholars and an adviser senior government leaders publicly came out with this little doozie the other day:

China Insider Sees Revolution Brewing

Along the same lines:

China Faces Rising Crime Rates, Increased Social Unrest

With the world's governments having thrown everything at the deflationary spiral except the kitchen sink...okay maybe the kitchen sink too..., things are looking increasingly grim. Several factors are converging simultaneously to create the perfect storm:

For the U.S.
1. A collapse in domestic state and municipal revenues
2. A bond market made of up same said state and municipal governments ready to go bust
3. Alt-A mortgage time bomb
4. Commercial real estate
5. Building inflationary pressures

For Europe
1. De facto insolvency of one or more European Union states (think PIIGS and the UK)
2. The unraveling of the monetary union
3. The continued banking fallout from problems in Eastern Europe
4. Increasing social and political unrest
5. Continued tensions between native and immigrant Muslim populations

For Asia:
1. The collapse of the Japanese economy with the resulting political and social fallout due to increasing public sector debt
2. Increasing social tensions and economic imbalances in the Chinese economy
3. Peak productive population for major Asian producers including South Korea, Japan, Russia, and soon to be China

Middle East:
1. Iran gets the bomb

Any of these will either cause or help facilitate the next leg down. Of all these, Asia is the most worrisome. The existing political order in Europe and N America are fairly well baked in. Asia is a different story with a major emerging power in China and one that is sun setting in Japan. A collapse in either would result in a seismic shift in the geopolitical landscape. As Marc Faber says, "Everyone will go to war" in order to distract attention from internal failings. Problem is that China has lots of factory space for making guns and bullets when the shooting starts.

It will be interesting to see what the next 12 months bring. :eek:

"Those who live by the bubble will die by the bubble." - A really bad biblical parody

[don]

Re: The Wheels Finally Falling Off...China?

Immanuel Wallerstein's two cents....

Governments wish to survive. To do this, they need to spend enough money to prevent a "maelstrom" and civil uprising. And if they don't take in enough taxes to do this (both because they don't want to raise taxes further and because a weaker economy means less overall tax income), they must "massage" their accounts by borrowing. And covert borrowing (from banks, for example) is better than overt borrowing, since it enables governments to avoid criticism, until the day when the secret gets revealed, and there's a "run on the bank."

Greece's problems are indeed Germany's problems. Germany's problems are indeed the United States' problems. And the United States' problems are indeed the world's problems. Analyzing who did what in the last ten years is far less useful than discussing what, if anything, can be done in the next ten years. What is going on is a world-wide game of chicken. Everyone seems to be waiting for who will flinch first. Someone is going to make a mistake. And then we'll have what Barry Eichengreen has called "the mother of all financial crises." Even China will be affected by that one.


immanuel.wallerstein@yale.edu.