Sunday, January 17, 2016

China's $28 Trillion Debt Non-Problem

If we stopped trading with China tomorrow, it would not matter much to me, whose career has been rather based on China trade.  Chinese products are only 2.7% (I figure 2.96%) of the USA economy, and it is not as though this could not be replaced rather easily.  I understand why many fear what happens economically in China, but their fears only have to do with the amount of financial engineering, false economy activity upon which the livelihood of so many rentiers depends.
Lost in all the Chinese stock and currency market gyrations, policy missteps and mixed data is this economic reality: The government is constrained by a credit bubble that has ballooned to $28 trillion in an economy growing at its slowest pace in 25 years.
QuickTakeChina’s Debt BombPolicy zig-zags have left investors divided over how wedded President Xi Jinping and Premier Li Keqiang are to financial sector reform and shifting their $10 trillion-plus economy from one powered by investment and exports to one more focused on consumption and services.
This is of zero interest to anyone who is productive, defined as providing for customers' needs.  Bankers and bakers don't care.  Bankers will be bailed out, because the USA is a Hamiltonian, ethnic-cleansing, Malthusian hegemon and ultimately the Wasps who run USA will ultimately bail themselves out.  And people will eat the bread bakers bake.  Those two will always be true.

Yes, when their system crashes, those who have bought into the system will be in an existential fight over assets that cannot cover claims, and a sense of entitlement will suffice to induce indolent resentment.  There will be far fewer customers with any money, and the credit they will offer will not command goods and services.  This will be the hyperinflation of mal-credit, when it will take tens of thousands in ETB card credit to get a corndog at a gas station.
New figures that show 42 per cent of Millennials, the generation born between 1980 and the mid-1990s, have turned to alternative finance including payday lenders and pawnshops in the past five years.
On the other hand, the baker's bene-credit will command another delivery truck, for it will be asset-based and solid customer grounded.  The longer the baker awaits payment, the more valuable the payment becomes, in deflationary bene-credit.  Both will happen at once, just as the dollar in fact is declining when you see the price of gold rise.  It takes less gold to gain more currency.... there is the model of two "monies" heading in alternative directions, and analogously two "credits" can head in alternative directions.

When mal-credit is so odious that central bankers must pay corporations to take loans, as Japan now does,  that is hyperinflation of malcredit.

That 2.96% is existential to the false economy, and the layers of rentiers who have built a house of cards upon it and other ephemera. When it goes, for them, it is disaster.  For free marketers, so what?  Will there be world war, well, I suppose, but those who have conscientiously objected to the capitalism that precipitates war will be smart enough to sit it out, baking bread while the resentful indolent slaughter each other over the question who gets to work the least.

There may be fewer people with anything to offer in return for our products, but even if the economy crashes to 80% unemployed  (assuming the govt cuts back massively), that means there would be 20% employed, 20% as customers.  The one thing biz people do is find customers, those customers.

The way to play this is lower your prices slower than your costs drop, giving your customers ever lower prices while your profit margins ever widen.  McD cannot lower prices.  MomandPop certainly can.

Rents need to be lower, and the sooner the better for a economic free market renaissance.  The sooner the crash, the better.

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