The Widdershins

We’re so vain…

Posted on: August 26, 2015

Apologies to Carly Simon, but…Carly Simon

We’re so vain, we probably think this economy is about us,
We’re so vain, we bet future swaps this economy is about us,
Don’t we? Don’t we?

A few years ago, when the Chinese economy was booming, politicians said it was an orchestrated plot to take America down.  Now that the Chinese economy is struggling desperately, those same politicians are just as convinced it is – wait for it – a plot to take America down.

The political discourse around this issue is genuinely unhelpful.  Just like Seinfeld’s Soup Nazi, Scott Walker snapped, “No state dinner for Xi,” the Chinese President Xi Jinping scheduled for a formal state visit.  I guess the closest Benihana will have to do.  Given the impetuous inanity passing for policy, here’s what you need to know about the China Syndrome of the Chinese economy in less than 800 words.

Chinese Stock MarketChina’s stock market is relatively small.  It’s mostly mom and pop investors who have borrowed the money to buy stocks – a majority of them don’t have a high school education.  After gaining 140% last year, this year the Shanghai Composite Index has fallen 40% in the face of a tremendous amount of active intervention by the Chinese central government.  It seems as though the Politburo can’t stop the crash.

The reason all these unsophisticated investors got into the stock market was the implicit support of the Chinese Communist Party.  It appears to have been an overly optimistic act of faith in the Chinese Politburo’s economic stewardship.

With an abundance of labor, China bet the farm on being the world’s low-cost manufacturer and assembly line.  Such an economic model is not sustainable for an economy needing to grow at a double-digit multiple to service a burgeoning middle class.  The Chinese government has been notoriously optimistic in its economic forecasts (some say notoriously deceiving).  There are more than a few economists who believe the Chinese economy is on the verge of recession, if not already there.

This is how it happened:  When global demand went kaput in 2008, China decided to focus on massive domestic Empty cityconstruction projects.  There has been a massive, and I do mean massive, overbuild in China with unused stadiums, skyscrapers, and even whole cities.  They sit empty.

Add to this the relocation of 250 million Chinese from rural settings to cities in just twelve years as official state policy.  In essence, this top down policy from the Politburo turns China into a majority urban country in a dozen years.  Put another way, it would be the equivalent of relocating 5 of every 6 Americans in the span of three presidential terms.

Chinese leadership is terrified of political unrest reminiscent of Tiananmen Square.  Without sustained growth at a level sufficient to service a growing middle class, the leadership of China is at a crossroads.  At once they are both risk-willing to try just about anything to thwart economic upheaval and at the same time, risk-averse against any potential calamities resulting from their actions.

Chinese Stone SoldiersThere is a group of millennial Chinese numbering about 300 million – about the size of the total U.S. population.  This group is better educated and likes its taste of the middle class lifestyle.  The Communist Party worries most about this group.  Quelling political unrest in this group would be difficult, almost impossible, because of the nomadic nature of these 300 million workers and their widespread geographic dispersion.

In its simplest terms, the problem is transforming a manufacturing, rural economy into an urban, consumption-based economy in less than a generation.  For perspective, it took Great Britain 200 years, the U.S. 100 years, and Japan 50 years to do the same thing.

As with all instances of massive historical change, there are naysayers within the Chinese system.  China’s top-down, hierarchical structure ensures elites have control over policy and decision-making.  These traditionalists are wary of many of the enacted economic reforms.  This current economic tsunami strengthens traditionalists at the expense of reformers like President Xi Jinping.

How does this affect us?  Throughout history, when absolute control is threatened in China, it retreats back in on itself.  Hibernation of the world’s second largest economy would be the equivalent of a worldwide recession and catastrophic to our economic well-being and the world economy in general.Chinese Stone Soldiers

Even more sobering is this:  Political instability in a country with a standing army of 200 million soldiers and perhaps 3,000 nuclear warheads is indeed a worrisome thing.  This is especially true in a region where China is surrounded by emerging economies – the “if you can’t make it, take it philosophy” would indeed present existential threats.

Again, my apologies to Ms. Simon:  “Instead of clouds in my coffee, clouds in my coffee,” there are clouds on the horizon, clouds on the horizon.

Take the conversation in any direction you might like.

 

 

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44 Responses to "We’re so vain…"

From the link in Prolix’s comment:

Some now say that may have led to an overcorrection in global markets, as investors read mayhem in China’s highly volatile stock markets as a signal of what is happening in the larger economy.

So our highly educated financial folks in the market acted probably no better than the peasants in China who borrowed money to invest in their market. Ooookay.

From the Vox piece:

China’s stock market isn’t that big, and because of regulations sharply limiting foreign investment, it isn’t that integrated into the world economy. So the consequences of a stock market crash aren’t that severe.

But tell that to our well-educated professional finance people.

I understand the idea that the social issues China’s market problems could cause in China, but I have to wonder if our traders think that far in advance.

@2, what really becomes problematic is that all of this stock is bought short. There are lots of Chinese folks who can’t afford to make good on their loans. Many of these people are in that 300 million cohort of millennials who worry the central committee.

@3, I guarantee our traders don’t think that far in advance. From our MBA programs to the boardrooms, everyone is taught and everyone only cares about the next set of numbers, ergo, no long-term strategy.

Just got a call from chat via her cell phone Comcast is totally down in her area: no phone, no tv, no Internet. 😥

She said they told her it could be out for 24 hours.

@4: Oh..like our millenials with their student loans.

WWTD. What would Trump do?

@8 Trump has already blamed Obama.

Great post Prolix. How could we not be vain considering how exceptional we are?

GAgal@9: But of course. it’s all his fault.

“Great post Prolix. How could we not be vain considering how exceptional we are?”

Ditto that!

We are all going to be so sick of Trump by the time this circus is over.

My internet is c-r-a-w-l-i-n-g. I hit either refresh or post comment and then I get up, fix a cuppa, take a stroll, then come back to see things have *maybe* finished up. Wonderful. :p~

@9 and 11 — thanks. Ah yes, the vanity of exceptionalism, just another excuse to spend time looking in the great collective mirror and marveling at the reflection we see.

I told someone once the greatest reason America is exceptional is the exceptionally large amount of time we spend telling people just how exceptional we are.

@13, Fredster, I am so glad you said something. My internet is so s-l-o-w today. I figured it was just some varmint had chewed through the cable for its dining pleasure.

Given the historic gains on Wall Street, I imagine a great amount of internet bandwidth is being eaten up by: (1) Arranging dates on Ashley Madison; (2) Celebratory porn; and (3) Making contributions to Donnie J. Trump. Numbers 2 and 3 might be the same thing, not sure.

@12, Trump might necessitate a change in the Federal Election Commission rules. Undoubtedly they will consider adding a mental health exam prior to putting someone on the ballot.

In the case of Trump, they might also consider a proctology exam, but they wouldn’t know where to put the scope since he’s all butt.

Prolix, it’s been so incredibly slow it even hangs up if I try to refresh/reload the page. I had to copy my text in 13 because the page would just hang and when it finally loaded, the comment wasn’t added so I’d just paste it in and try again.

Also, that meant forget trying to watch the streaming news from nola. Just ARRRRRGGHHHHH!!

I missed the Hillary presser this afternoon. Did anyone see it? I haven’t ran across it anywhere.

Brian Fallon, Hil’s press guy is so smart and funny. “Now, I’m not saying that…”

http://www.nytimes.com/politics/first-draft/2015/08/20/spokesman-for-hillary-clinton-offers-new-take-on-email-issue/?_r=0

GAgal@18: Sorry I didn’t reply. 😦 It’s this slow, crawling internet is driving me bananas!! 👿

Thanks for the link, if I can get it to load.

Well Ms. Davis, you are running out of options here.

@21, over the weekend there was a big hootenanny demonstration of support for Kim Davis and the other 2 clerks who have refused to issue a piece of paper because it interfered with their religious liberty to discriminate.

Something that has been interesting, really interesting, is that Liberty Counsel has focused all their efforts on Kim Davis at the exclusion of the other two clerks. One of the other two is so celebrity driven he might as well be on “America’s Got Talent” as a fringe right wing ventriloquist’s dummy. He has hurt several news people by jumping in front of them in order to get on camera.

Liberty Counsel has left him out of the official picture. Probably a good idea.

How many people get away with telling their bosses what they will and will not do for their paycheck? If I get hired to bag groceries, can I tell the store I refuse to bag certain items? Sheesh. If you don’t want to do your job, then quit and go find another one. If these nutters quit their jobs, some other right wing nut would probably set up one of those donation accounts for them and the self righteous, nothing-better-to-do nutters would probably all contribute to them. What a screwy world.

btw, my computer has also been slow as molasses. I have a mac and verizon fios, and live 40 miles from Los Angeles. Maybe China is hacking all of us. Or NK to get even with us for that Seth Rogan movie.

Prolix@22: That’s just pathetic about the one clerk who wants his 15 minutes of fame. SMH

annie, that’s interesting because if you have fios you shouldn’t really be having issues. There could have been an outage on a main artery of some type. This isn’t showing anything big happening, but the three of us having had issues says something was going on.

http://www.internettrafficreport.com/namerica.htm#graphs

The Rude Pundit does it again (!) and about not caring too much about Clinton’s email scandal.

He also links to an excellent discussion of the entire *server-gate* issue at Slate by John Voorhees.

Go read the both. It will be better for you than eating your cheerios or raisin bran. 😉

Good article over at Hillary Men by Daou and Watson. It’s a few days old.

So, Prolix, does this sound familiar to you?

Thats nice about Harkin. I also saw that Tom Vilsack is endorsing her. Also read this earlier today:

http://www.vox.com/2015/8/27/9214461/clinton-poll-lead

@28, hmmm, that seems to sound vaguely familiar. Seems like I read it somewhere.

Love the article @ Hillary Men, Fredster! 🙂

Here is my 5:00 forecast. I’m afraid that I’m going to have to start preparing whether I like it or not.

http://www.nhc.noaa.gov/refresh/graphics_at5+shtml/205006.shtml?5-daynl#contents

Prollix@30: Well, what can we say?

¯\_(ツ)_/¯

chat: At least you’re on the *dry* side of the storm.

annnie@29: Isn’t that something? Poll shows she beats them all and I love how the other organizations flip it as bad news for Hillary.. Disgusting!

@34: Nope. The “wet” side, and likely caught in the tail as well. It’s gonna be water world if it hits like this.,

@32, Chat, I’m sending you as powerful good thoughts as my pea brain can muster.

@33, Fredster, the arrangement seems to make plenty of strategic sense and from a practical standpoint, Uncle Joe B. is a team player to do this.

@36: And here’s why I said that:

In the northern hemisphere Atlantic ocean, where storms generally track from east to west, and their winds rotate counter-clockwise, the north side (or east side of a north-tracking storm) is the wetter side, while the south side (or west side of a north-tracking storm) is the dryer sides. Note that the wet side has higher-speed winds because the storm speed is additive, while the dry side has lower-speed winds because the forward tracking speed of the storm reduces the wind speeds.

http://www.answers.com/Q/Sides_of_a_hurricane_wet_and_dry_side

So if it stays parallel to Fl, I would think you’d be on the west side.

Prolix@38: Makes sense to me too. Now if Joe will just listen to us. 😉

Please take a moment to write to “Morning Trump” about their disgusting performance,

http://www.msnbc.com/morning-joe#

@39: AMazing. Colloquially, we reverse them, as the wet side usually has heavier rains and the dry side higher winds.

As of now, we have acquired the windy side of a storm, plus the rains of the tail.

http://www.nhc.noaa.gov/refresh/graphics_at5+shtml/035051.shtml?5-daynl?large#contents

@44: Yep, last night/early a.m. they shifted it west. And then on the early news I saw that this one has been a rainmaker.

At least they downgraded the category on it.

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