China is a prime candidate to be the site of the next financial crisis. Speculation in real estate and the stock market has been a favoured activity among people who feel they are getting very little interest from their savings in the banks owing to the policy of limiting interest to depositors in order to subsidize the influential export-oriented manufacturing lobby. The Shanghai stock market lost 40 per cent of its value in 2015, bankrupting many investors. That event led many to shift to real estate speculation, with the property sector now overheating in key Chinese cities, like Beijing, which has also translated into a social problem since housing for workers are becoming less and less affordable. Though many local governments are said to be taking measures to dampen housing prices, the speculative fever continues and prices continue to rise.Another article analyzing China as if a Western capitalist country or a Western colony. I cite it as an example of how the West in general gets China wrong, although this is much more reasonable article than most on the subject.
Speculation in real estate and the stock market is one threat. Another big threat is posed by the rise of shadow banking, which has grown to meet demand for credit that cannot be met by the formal banking institutions, which are tied to privileged borrowers in the export sector. By the end of 2013, the assets of the shadow banking sector came to 51 per cent of GDP. A large part of shadow banking loans was invested in the property sector, so that the bursting of the property bubble could bring down the shadow banking sector. And if the shadow banking sector were to collapse, this would likely bring down the formal banking system as well since many of the creditors in the shadow banking sector have built up their financial resources by borrowing from the formal banking sector....
China is not a capitalist county. As President Xi just emphasized to make perfectly clear to all, the official philosophy of the People's Republic of China is Marxism. albeit with Chinese (Confucian) characteristics and updated for contemporary conditions. While China allows a veneer of capitalism to "fit in," it would be a mistake to view China and its economy as resembling the West closely enough to apply Western standards and Western analysis. Indeed, the Western approach to economics is Anglo-American and it doesn't even completely fit the Europe, which is less individualistic and more socially aware than America and Britain, let alone China, where harmony and place in society are prioritized.
China is not a market state. When there is a crisis in China the government steps in with it enormous power of dictat and the knowledge and tools to deal with it. China has yet to float the currency, for example, and Western analysts were surprised when Russia did in order to deal with sanctions, saving Russia from the corner that the West was attempting to put it into.
The debate in China is over the amount of influence "capitalist" principles have and how much China needs to "fit in." In the case of a crisis that the existing government failed to deal with promptly and effectively enough, hard liners would take over.
The West needs to get over the notion that "the markets" rule China. China is not going to fall apart for economics reasons based on Western bourgeois liberal economics.
Similar speculation is bandied about regarding "Russian banks." Recently, a moderate size privately held Russian bank did "fail." It was immediately nationalized and folded into the state system. No problem.
As Bill Black point out, according to US law, the TBTF banks should have been put into resolution ("nationalized") if they were insolvent, which many analysts believe to have been the case. Instead, the banks were saved and the people were left hung out to dry. Result? Rising social unrest in the US and the election of a populist candidate that ran on "draining the swamp."
This doesn't mean that China (and Russia) won't have economic problems. It just means that they will affect these countries differently than the West surmised and the government will deal with them differently than Western countries do. This is already shown by recent events on those countries, the outcomes of which surprised Western analysts.
Triple Crisis
From Japanese Bubble to Chinese Time Bomb
An Interview with Walden Bello
I wouldn't suggest the IQ distribution and particularly the mathematical ability differential between Chinese and western/european populations directly implies a higher level of collective consciousness in Chinese populations but it is hard to ignore how effectively and completely they've dominated every western system with which they've had to engage and compete while at the same time designing their own domestic systems which were able to solve problems in years and months which took years and decades in the west.
ReplyDeleteWestern economists and government leaders attribute magical forces and superstitions to much of what happens in our society from equilibrium, credit cycles, democracy, beacons on hills, natural rates of unemployment, natural rates of interest on and on, there is always an assumption about some super "natural" constraint from above.
There is clearly a innate disadvantage in the cognitive abilities of the vast majority of westerners such that western European majority rule systems are left in shambles when they have to compete against much higher intelligence adversaries.
Funny money emissions destroy and impair honest and realistic pricing of everything leading to an inevitable crash, regardless of how bright the populace thinks it might be.
ReplyDeleteAnd Democracy in a multi-ethnic society leads directly to ethnic conflict, especially when "public goods" predominate.
The two themes of "MMT" don't cure anything and are the cause of the coming disaster.
I watched a video recently where the interviewer was surprised by how the UK was so different to the US in the way we have this collectivity. When a region experiences financial problems in the UK the government is expected to help out. There's a collectivity in the UK and all the other regions feel they share some responsibility. But in the US, he said, if a region fails, say like Detroit, the other states don't feel that they have any obligation to help. I find that hard to comprehend.
ReplyDeleteI sent that article that Tom put out where that US politician complained about how the Chinese government supports its businesses giving them an economic advantage over the US. 'We weren't going to stand for it', he said. For one thing, the US bailed out all its banks, the other, the Chinese can run their economy any way they wish. But what it shows is that Western classical economists have simply got it wrong.
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