The End of the Communist Dynasty

[cobben]

Craig Tindale has 30 years high level experience in China.
He has recently partnered with Steve Keen.

This sounds like fun - something like a East/West coordinated double Ponzi reverse Minsky somersault?
Or iTulip's MAD, in short . . .

The End of the Communist Dynasty

By Craig Tindale
Craig Tindale is the Vice President of the Centre for Economic Stability, Professor Steve Keen’s non-profit research initiative.

. . .

Some may argue that the Minsky market driven instability hypothesis is not suited to China and that they are chiefly a centrally planned state controlled economy. This reflects a fundamental misunderstanding of Minsky’s work. The Western economies’ attempt to centrally plan economic activities from the consumption end, the state based capitalism that China has become known for attempts to centrally control the economy from the production side.


The Chinese production economy cannot be seen in isolation from the consumption economies of the West; debt based consumption provided the umbrella under which the Chinese miracle grew. When the GFC collapsed Western debt based consumption reacted by providing the last line of Minsky Ponzi financing via government bail-outs. Governments faced with banking collapse chose keep the system going by transferring debt from private hands to those of the taxpayers.


The Chinese, faced with a massive collapse in export income, chose to keep the economy functioning by stimulating the economy with massive capital works and lending. In both cases the government was the provider of the last line Ponzi financing to keep the economy rolling. Now that this Ponzi financing has been near exhausted in both the West and the East, profound collapse is the only logical outcome.

. . .

[cobben]

Re: The End of the Communist Dynasty

A follow-up article with some cases.


The Looting of China by the Kleptokapitalist Bourgeoisie Roaders

by Craig Tindale on June 28th, 2012

. . .

If this business elite is predominately made up of Kleptopreneurs and Cadrepreneurs , then capital flight might be bought on by a flight to safety by the political class fearing a purge rather than coming about as loss of confidence in China.

The greatest assumption that the world makes is that the CCP can control and avoid this by implementing more stimulus. When this assumption ultimately proves to be false then Marx’s nether world will rise up

. . .

[jk]

Re: The End of the Communist Dynasty

interesting articles. thanks for posting.

this line jumped out at me: "The money is being funneled to mainland banks via Hong Kong then it leaves via Macau casinos."

i wonder how much capital flight from china is already underway.

and i love the term "the Ka-Ching Dynasty" for the uber-wealthy chinese!

and what a great illustration:

[Shakespear]

Re: The End of the Communist Dynasty

[don]

Re: The End of the Communist Dynasty

in Paul Craig Roberts opinion, China may have company . . .

The Collapsing US Economy and the end of the world


In a recent column, “Can The World Survive Washington’s Hubris,” I promised to examine whether the US economy will collapse before Washington in its pursuit of world hegemony brings us into military confrontation with Russia and China. This is likely to be an ongoing subject on this site, so this column will not be the final word.

Washington has been at war since October, 2001, when President George W. Bush concocted an excuse to order the US invasion of Afghanistan. This war took a back seat when Bush concocted another excuse to order the invasion of Iraq in 2003, a war that went on without significant success for 8 years and has left Iraq in chaos with dozens more killed and wounded every day, a new strong man in place of the illegally executed former strongman, and the likelihood of the ongoing violence becoming civil war.

Upon his election, President Obama foolishly sent more troops to Afghanistan and renewed the intensity of that war, now in its eleventh year, to no successful effect.

These two wars have been expensive. According to estimates by Joseph Stiglitz and Linda Bilmes, when all costs are counted the Iraq invasion cost US taxpayers $3 trillion dollars. Ditto for the Afghan war. In other words, the two gratuitous wars doubled the US public debt. This is the reason there is no money for Social Security, Medicare, Medicaid, food stamps, the environment, and the social safety net.

Americans got nothing out of the wars, but as the war debt will never be paid off, US citizens and their descendants will have to pay interest on $6,000 billion of war debt in perpetuity.

Not content with these wars, the Bush/Obama regime is conducting military operations in violation of international law in Pakistan, Yemen, and Africa, organized the overthrow by armed conflict of the government in Libya, is currently working to overthrow the Syrian government, and continues to marshall military forces against Iran.

Finding the Muslim adversaries Washington created insufficient for its energies and budget, Washington has encircled Russia with military bases and has begun the encirclement of China. Washington has announced that the bulk of its naval forces will be shifted to the Pacific over the next few years, and Washington is working to re-establish its naval base in the Philippines, construct a new one on a South Korean island, acquire a naval base in Viet Nam, and air and troop bases elsewhere in Asia.

In Thailand Washington is attempting to purchase with the usual bribes an air base used in the Vietnam war. There is opposition as the country does not wish to be drawn into Washington’s orchestrated conflict with China. Downplaying the real reason for the airbase, Washington, according to Thai newspapers, told the Thai government that the base was needed for “humanitarian missions.” This didn’t fly, so Washington had NASA ask for the air base in order to conduct “weather experiments.” Whether this ruse is sufficient cover remains to be seen.

US Marines have been sent to Australia and elsewhere in Asia.

To corral China and Russia (and Iran) is a massive undertaking for a country that is financially busted. With wars and bankster bailouts, Bush and Obama have doubled the US national debt while failing to address the disintegration of the US economy and rising hardships of US citizens.

The charts below are courtesy of www.shadowstats.com


The annual US budget deficit is adding to the accumulated debt at about $1.5 trillion per year with no prospect of declining. The financial system is broken and requires ongoing bailouts. The economy is busted and has been unable to create high-paying jobs, indeed any jobs. Despite years of population growth, payroll employment as of mid-2012 is the same as in 2005 and substantially below 2008. Yet, the government and financial presstitute media tell us that we have a recovery.

According to the US Bureau of Labor Statistics, employment in 2011 was only 1 million more than in 2002. As it takes about 150,000 new jobs each month to stay even with population growth, that leaves a decade long job deficit of 15 million jobs.

The US unemployment and inflation rates are far higher than reported. In previous columns I have explained, based on statistician John Williams’ work (shadowstats.com), the reasons that the government’s headline numbers are serious understatements. The headline (U3) unemployment rate of 8.2% counts no discouraged workers who have given up on finding a job. The government has a second unemployment rate (U6), seldom reported, which includes short-term discouraged workers. That rate is 15%. When the long-term discouraged workers are added in, the current US unemployment rate is 22%, a number closer to the unemployment rate of the Great Depression than to the unemployment rates of postwar recessions.



Changes in the way inflation is measured have destroyed the Consumer Price Index (CPI) as a measure of the cost of living. The new methodology is substitution based. If the price of an item in the index rises, a lower priced alternative takes its place. In addition, some price rises are labeled quality improvements whether they are or not and thus do not show up in the CPI. People still have to pay the higher price, but it is not counted as inflation.

Currently, the substitution-based rate of inflation is about 2%. However, when inflation is measured as the actual cost of living, the rate of inflation is 5%.

The Misery Index is the sum of the inflation and unemployment rates. The level of the current Misery Index depends on whether the new rigged measures are used, which understate the misery, or the former methodology that accurately measures it.

Prior to the November 1980 election, the Misery Index hit 22%, which was one reason for Reagan’s victory over President Carter. Today if we use previous methodology, the Misery Index stands at 27%. But if we use the new rigged methodology, the Misery Index is 10%.

The understatement of inflation serves to boost Gross Domestic Product (GDP). GDP is calculated in current dollars. To be able to determine whether GDP rose because of price rises or because of increases in real output, GDP is deflated by the CPI. The higher the inflation rate, the less the growth in real output and vice versa. When the substitution based methodology is used to measure inflation, the US economy experienced real growth in the 21st century except for the sharp dip during 2008-2010. However, if the cost-of-living based methodology is used, except for a short period during 2004, the US economy has experienced no real growth since 2000.

In the chart above,the lower measure (blue) of real GDP is deflated with the inflation methodology that measured cost-of-living. The higher GDP measure (red) deflates GDP with the new substitution based methodology.

The lack of employment and real GDP growth go together with the decline in real household median income. The growth in consumer debt substituted for the lack of



income growth and kept the economy going until consumers exhausted their ability to take on more debt. With the consumer dead in the water, the outlook for economic recovery is poor.

Politicians and the Federal Reserve are making the outlook even worse. At a time of high unemployment and debt-stressed households, politicians at local, state, and federal levels are cutting back on government provision of health care, pensions, food stamps, housing subsidies and every other element of the social safety net. These cutbacks, of course, further reduce aggregate demand and the ability of income-stressed Americans to survive.

The Federal Reserve has interest rates so low that retirees and others living on their savings can earn nothing on their money. The interest rates paid on bank CDs and government and corporate bonds are lower than the rate of inflation. To live on interest income, a person has to purchase Greek, Spanish, or Italian bonds and run the risk of capital loss. The Federal Reserve’s policy of negative interest rates forces retirees to spend down their capital in order to live. In other words, the Fed’s policy is destroying personal savings as people are forced to spend their capital in order to cover living expenses.

In June the Federal Reserve announced that it was going to continue its policy of driving nominal interest rates even lower, this time focusing on long-term Treasury bonds. The Fed said it would be purchasing $400 billion of the Treasury’s 30-year bonds.
Driving interest rates down means driving bond prices up. With 5-year Treasury bonds paying only seven-tenths of one percent and 10-year Treasuries paying only 1.6%, below even the official rate of inflation, Americans desperate for yield move into 30-year bonds currently paying 2.7%. However, the the high bond prices mean that the risk of capital loss is very high.

The Fed’s debt monetization, or a drop in the exchange value of the dollar as other countries move away from its use to settle their balance of payments, could set off inflation that would take interest rates out of the Fed’s control. As interest rates rise, bond prices fall.

In other words, bonds are now the bubble that real estate, stocks, and derivatives were. When this bubble pops, Americans will take another big hit to their remaining wealth.

It makes no sense to invest in long-term bonds at negative interest rates when the federal government is piling up debt that the Federal Reserve is monetizing and when other countries are moving away from the flood of dollars. The potential for a rising rate of inflation is high from debt monetization and from a drop in the dollar’s exchange value. Yet, bond fund portfolio managers have to follow the herd into longer term maturities or see their performance relative to their peers drop to the bottom of the rankings.

Some individual investors and foreign central banks, anticipating the dollar’s loss of value, are accumulating gold and silver bullion. Realizing the danger to the dollar and its policy from the rapid rise in the price of bullion during 2011, the Federal Reserve has arranged offsetting action. When the demand for physical bullion drives up the price, short sales of bullion in the paper market are used to drive the price back down.

Similarly, when investors begin to flee Treasuries, thus causing interest rates to rise, J.P. Morgan and other dependencies of the Federal Reserve sell interest-rate swaps, thus offsetting the effect on interest rates of the bond sales. (Keep in mind that interest rates rise when bond prices fall and vice versa.)

The point of all this information is to establish that except for the 1 percent, the incomes and wealth of Americans are being cut back across the board. From 2002 through 2011 the economy lost 3.5 million manufacturing jobs. These jobs were replaced with lower-paying waitress and bartender jobs (1,189,000), ambulatory health care service jobs (1,512,000) and social assistance jobs (578,000).

These replacement jobs in domestic services mean that on a net basis US consumer income was moved out of the country. Potential aggregate demand in the US dropped by the differences in pay in the job categories. Clearly and unambiguously, jobs offshoring lowered US disposable income and US GDP and, thereby, employment.

Despite the lack of an economic base, Washington’s hegemonic aspirations continue unabated. Other countries are amused at Washington’s unawareness. Russia, China, India, Brazil, and South Africa are forming an agreement to abandon the US dollar as the currency for international settlement between themselves.

On July 4 the China Daily reported: “Japanese politicians and prominent academics from China and Japan urged Tokyo on Tuesday to abandon its outdated foreign policy of leaning on the West and accept China as a key partner as important as the United States. The Tokyo Consensus, a joint statement issued at the end of the Beijing-Tokyo Forum, also called on both countries to expand trade and promote a free-trade agreement for China, Japan and South Korea.”

This means that Japan is in play.

The Chinese government, more intelligent than Washington, is responding to Washington’s military threats by enticing away Washington’s two key Asian allies. As the Chinese economy is now as large as the US and on far firmer footing, and as Japan now has more trade with China than with the US, the enticement is appealing. Moreover, China is next door, and Washington is distant and drowning in its hubris.

Washington, which flicked its middle finger to international law and to its own law and Constitution with its arrogance and gratuitous and illegal wars and with its assertion of the right to murder its own citizens and those of its allies, such as Pakistan, has made the United States a pariah state.

Washington still controls its bought-and-paid-for NATO puppets, but these puppet states are overwhelmed with derivative debt problems brought to them by Wall Street and by sovereign debt problems, some of which were covered up by Wall Street’s Goldman Sachs.

Europe is on the ropes and has no money with which to subsidize Washington’s wars of hegemony.

A government, whose military was unable with the help of the UK to occupy Iraq after eight years and was forced to end the conflict by putting the “insurgents” on the US military payroll and to pay them to stop killing American troops, and a government whose military has been unable to subdue a few thousand lightly armed Taliban after 11 years, is over the top when it organizes war against Iran, Russia, and China.

The only prospect Washington has of prevailing in such an undertaking is first use of nuclear weapons, of catching its demonized opponents off guard by nuking them out of the blue. In other words, by the elimination of life on earth.

Is this Washington’s program revealed by the neoconservative warmonger, Bill Kristol, who had no shame to ask publicly: “What’s the good of nuclear weapons if you can’t use them?”

http://www.paulcraigroberts.org/2012...omy-end-world/

[jk]

Re: The End of the Communist Dynasty

this whole thread calls into question paul craig roberts' statement: "As the Chinese economy is now as large as the US and on far firmer footing..."

this issue of u.s. military activity is a real one, though. time to pull out paul kennedy's "the rise and fall of great powers," which looks at the spanish, dutch and english empires, all brought down by "imperial overstretch," excessive military spending.

[c1ue]

Re: The End of the Communist Dynasty

The End of the Communist Dynasty

By Craig Tindale
Craig Tindale is the Vice President of the Centre for Economic Stability, Professor Steve Keen’s non-profit research initiative.

Certainly fairly detailed prediction, but I personally disagree on the Chinese government's inability to curtail capital flight.

If Russia was able to tame its oligarchs, I frankly do not see why China cannot do the same should the need to do so manifest itself.

In Russia, the oligarchs pulled out hundreds of billions if not trillions in literal cash. Yet ultimately the government of Russia was able to survive as well as reassert control.

For that matter, 'capital flight' has been occurring out of Russia for decades:

http://onlinelibrary.wiley.com/doi/1...00209/abstract

The Problem of Capital Flight from Russia

1. A. Abalkin¹,
2. J. Whalley²

Article first published online: 17 DEC 2002

http://online.wsj.com/article/SB1000...197448030.html

Capital flight from Russia more than doubled last year amid European sovereign-debt worries and political instability at home, with almost $38 billion leaving the country in the fourth quarter alone, the largest quarterly outflows since the 2008 financial crisis. Capital flight totaled $84.2 billion in 2011 compared with $33.6 billion in 2010, according to central-bank data, far exceeding initial official forecasts and analysts' expectations. The exodus of capital has weighed on the ruble, which finished 2011 weaker by more than 5%, even as the average price for Russian oil set records.

i.e. for more than 2 decades, almost every year sees 'capital flight' - yet the government of Russia has not collapsed.

As for corruption - I do find it interesting that Tindale somehow thinks the scale of corruption in China is greater than was seen in the great privatizations in Russia. Russia saw massive privatizations of already existing revenue streams in all sorts of natural resources - resulting in significant standard of living losses; China's privatizations are of new revenue streams associated with development of various types - admittedly a significant part FIRE related, but by no means all - but with significant standard of living increases.

I absolutely agree there is all sorts of misallocation of capital in China, fraud, and so on and so forth. However, before I can agree with the conclusion Mr. Tindale draws from the agreed upon phenomena, I'd have to be convinced that what is occurring is in fact unique. Even excluding the obvious Russia parallel, the precedents during the Industrial Revolution in the US and UK/Europe also exhibit similar characteristics.

[cobben]

Re: The End of the Communist Dynasty

"If Russia was able to tame its oligarchs, I frankly do not see why China cannot do the same should the need to do so manifest itself."

The RF got a Putin, we will have to wait and see what happens in China now - the timing may be similar.

The RF exports only oil & arms I read somewhere, whereas China exports only slave labor. Both are extractive models of exploitation, the difference in apparent guvm'nt style may be at least partly due to the Chinese penchant for speculation/gambling, I've been thinking, resulting in pyramiding ponzi schemes, which of necessity always blow up at some point.

I've never noticed that Tindale knows anything about the RF, he has never claimed to. He is an Australian who has worked for multinationals in China for decades.

[c1ue]

Re: The End of the Communist Dynasty

The RF got a Putin, we will have to wait and see what happens in China now - the timing may be similar.

What seems to be lost in these Tindale articles is that the CCP is the entity that decided to open China up to trade and a limited free market policy.

Thus to say that there are no statesmen in the CCP, you'd have to explain first why the above decision was made.

The question is one of peculation vs. outright theft. Peculation is a form of embezzlement, essentially a skim-off on an existing economic transaction.

In Russia, the transactions were outright theft.

In China, it cannot be outright theft as almost all of the existing economic value being stolen didn't exist in 1978, the start of market reforms, and mostly did not exist even in the late 1980s.

As for the perpetrators of the theft - many of the exact same people who were in charge in 1978, in the late 1980s, in the 1990s, 2000s, and today are still in charge, so once again the question arises: what has changed, how, and why?

The RF exports only oil & arms I read somewhere, whereas China exports only slave labor. Both are extractive models of exploitation, the difference in apparent guvm'nt style may be at least partly due to the Chinese penchant for speculation/gambling, I've been thinking, resulting in pyramiding ponzi schemes, which of necessity always blow up at some point.

What the various nations export are frankly irrelevant.

As for Ponzi schemes - while I certainly do think, as do many others, that there are all sorts of financial shenanigans in China - there is a huge difference between the utter collapse Tindale is picturing vs. the reality of an ongoing value creation stream in the form of Chinese labor/manufacturing.

Simply arguing that there is corruption is meaningless; corruption exists everywhere in some form.

The means of collapse is poorly defined by Tindale as is the scope of what is fictitious vs. what is not in China.

It is particularly interesting that many of the fraudulent listings noted by Tindale were not in the Chinese equity markets - they were to victimize foreign investors in foreign stock exchanges. This is deplorable, but unless the type and scale of fraud also exists in the Chinese equity markets, the conclusion I'd draw is more of caveat emptor than the emperor has no clothes.

I've never noticed that Tindale knows anything about the RF, he has never claimed to. He is an Australian who has worked for multinationals in China for decades.

Unless Mr. Tindale has been buried in a hole for the last 2 decades, the wholesale transfer of the Russian aluminum, nickel, oil, natural gas, gold, diamond, and other state commodity producers to private hands is very public knowledge.

[jk]

Re: The End of the Communist Dynasty

i could be wrong, but i infer that tindale's model is that more and more of the economic activity occupying chinese labor is malinvestment, building empty buildings and non-functional railways, and that the collapse of the ponzi scheme [as he sees it] will lead to widespread unemployment and thus social unrest.

compare this to russia where goods of intrinsic value are extracted, albeit with most of the proceeds skimmed. employment, though, continues.

[raja]

Re: The End of the Communist Dynasty

What's different this time around is the Internet.
The genie is out of the bottle . . . and when the pain gets severe, it's off with their heads!

[c1ue]

Re: The End of the Communist Dynasty

i could be wrong, but i infer that tindale's model is that more and more of the economic activity occupying chinese labor is malinvestment, building empty buildings and non-functional railways, and that the collapse of the ponzi scheme [as he sees it] will lead to widespread unemployment and thus social unrest.

My reading of the 2 Tindale articles is different. His primary assertion is not mal-investment, but outright corruption: not only is malinvestment occurring, but that the rationale for said malinvestment is outright theft. The collapse will occur/is occurring as the massive amount of proceeds from said theft exfiltrates China.

And while this could be true, it would be far more credible if some scale were to be put forward as to what is vs. what is not malinvestment.

We can all agree that there is at least a large scale of malinvestment in the residential construction sector. However, given the stampede to property/property bubble that going on in China, to say that this is all due to Chinese corruption is more than a bit unsupported since the exact same dynamic went on in the US.

compare this to russia where goods of intrinsic value are extracted, albeit with most of the proceeds skimmed. employment, though, continues.

While the commodity export sectors certainly saw a more or less continuation of trade, employment was not by any means continued. Many/most of the workers in said industries were highly compensated both directly and indirectly because of the locations and strategic importance of said industries.

The conversion to the 'free market' saw huge increases in absolute pay, but more than offsetting losses in everything else - which is why the 'closed cities' where many of these extraction operations take place saw rapid depopulation after privatization. See Norilsk.

Equally so the impact to the Russian government's bottom line cannot be said to be anything but massive.

[cobben]

Re: The End of the Communist Dynasty

i could be wrong, but i infer that tindale's model is that more and more of the economic activity occupying chinese labor is malinvestment, building empty buildings and non-functional railways, and that the collapse of the ponzi scheme [as he sees it] will lead to widespread unemployment and thus social unrest.

compare this to russia where goods of intrinsic value are extracted, albeit with most of the proceeds skimmed. employment, though, continues.

Yes, and aside from the private profit motive generally behind ponzi schemes driving malinvestment, there is another aspect brought up in the piece below, the perhaps overwhelming desire to achieve "national greatness".

A Buyer's Market


China should delay its bid to pass South Korea as the world's biggest shipbuilder to prevent a flood of new vessels extending industry-wide losses, said Clarkson Plc's Managing Director Martin Stopford. 'This sort of target really should be put aside for the time being,' he said in an interview Wednesday at a conference in Shanghai. China has asked state banks to boost financing for new ships to prevent order cancellations, safeguard jobs and support a plan to pass South Korea in ship production by 2015. At the same time, the global container-ship fleet has as much as 20 percent excess capacity...." -- China Shipyards Should Delay Bid to Pass Korea, Business Asia, December 4, 2009

"Jiangsu, the dominant province in Chinese ship manufacturing, received 61.7 percent fewer orders for ships in the first five months than in the same period of 2011, due to a slump in the global shipping market, new official figures have indicated....The sluggish world market and excess of transportation capacity contributed to the drop in orders, according to the commission." -- Chinese Ship Orders Drop Drastically, Xinhua, July 2, 2012

The unwinding of the commercial shipbuilding market will appeal to a small group of investors. It can be viewed more broadly as representative of value investments to come. The characteristics apply to assets that were ordered and built with projections of ever-increasing demand. Or, as described in the objective of Chinese shipbuilding above, to achieve national greatness, buyers or no buyers.

[jk]

Re: The End of the Communist Dynasty

the best goods to build in order to maintain production and achieve national greatness are military goods. no commercial buyer need be found. i'll be interested in whether some of these ships-to-come get redirected to the military.

[cobben]

Re: The End of the Communist Dynasty

Here are a few more related articles.

Bronte Capital
Follow up to the China kleptocracy post


My thesis was

(a). The savings rate in China was abnormally high driven by the one-child policy,
(b). The options for investing those savings for most the population were extremely limited - mostly bank deposits.
(c). The bank deposit market was rigged so that deposit rates were consistently below the inflation rate.
(d). That repressed interest rates were mainly used to subsidize state owned enterprises and that
(e). This funded the widespread looting of State Owned Enterprises by party officials.

. . .

Deflation of course will challenge the status-quo anyway. If 400-500 percent of the profitability of SOEs comes from financial repression then the end of financial repression will result in the collapse of the State Owned sector and the collapse of the wealth and privilege led by "hundreds of thousands of Communist Party members and their families". I suspect that the centre would find it increasingly hard to control their regional elites and the regional elites would revolt. [Revolution is almost always an affair of the second-tier elite versus the first-tier elite - the masses rarely drive it. This would be no exception.]

However in the face of that the centre would do anything to keep the inflation rate high. Ben Bernanke might not literally be prepared to throw dollars out of helicopters. The Central Committee - they might go there...