'..A bursting China Bubble will be fraught with destabilizing economic and social upheaval. And it would be understandable – even constructive – to begin preparing society for unfolding challenges. Perhaps Chinese leadership even subscribes to the global Bubble thesis - and they’re enacting Draconian measures to ensure China is better prepared for crisis dynamics than its adversaries (employing a similar zero-tolerance mindset adopted with their war against covid).
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..A move on Taiwan would stoke nationalism, while diverting attention away from Beijing’s gross mismanagement of its financial and economic systems (they’re not alone in this regard). “Xi Jinping Thought” and cultivating a “patriotic atmosphere,” while repressing “effeminate” TV personalities and video games. Crazy, alarming stuff – that might be expected from a regime contemplating international conflict.''China’s historic Bubble has been integral to CBB analysis for two decades. I’ve on a weekly basis chronicled how interconnected Chinese and the U.S. Bubbles worked in harmony to inflate one epic global Bubble. Loose U.S. monetary policy and financial conditions were initially instrumental in stoking expansion of Chinese finance and economic output. As for China, it “recycled” massive trade surpluses with the U.S. back into American securities markets, helping sustain U.S. Bubble excess.
It was a symbiotic relationship of far-reaching historical significance. China was desperate for growth and development. The U.S. preferred to deindustrialize – while still enjoying access to cheap manufactured goods (lower CPI, greater monetary accommodation and higher asset prices). Rather than a fledgling competitor, China development was considered a potentially enormous economy determined to adopt free-market capitalism and integrate with the West. They aspired to be like us.
The booming Chinese economy essentially enjoyed unlimited cheap finance. And as dollars flooded in, their ballooning horde of international reserves bolstered China’s pegged currency regime. This stoked “hot money” inflows, while unleashing domestic Credit creation. There were essentially no restraints on Chinese bank lending, as China circumvented the type of currency vulnerability that would typically place constraints on EM Credit Bubble excess.
Bubbles are mechanisms of wealth redistribution and destruction. “Symbiotic relationships” – typified by cooperation and integration - are by their nature transitory phenomena, creatures of the early-Bubble notion of an expanding economic “pie.” Inevitably, late-cycle insecurities and fears of a shrinking pie spur disintegration and conflict.
The prolonged global Bubble period literally inflated China to superpower status, creating rival Bubbles without precedent. The newfound intensity of this rivalry was revealed during the Trump presidency, most conspicuously in fraught trade negotiations. Heated trade talks forced Beijing again to retreat from measures meant to rein in Bubble excess. Understandably, the perception solidified that Beijing wouldn’t dare risk piercing China’s colossal Bubble. The pandemic then incited the most outlandish stimulus measures and system Credit expansion imaginable.
Risks grow exponentially during the “Terminal Phase” of Bubble excess. I assumed Beijing would move decisively to rein in excess, particularly in lending and apartment speculation. But what is now unfolding goes way beyond measures to contain excess. China has begun a transitioning phase, with momentous yet uncertain consequences and ramifications. What began seemingly as a campaign to rein in apartment speculation and crack down on the big tech monopolies has speedily developed into something much more systemic and Draconian.
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Beijing has been bustling with activity. Communist leadership has clearly turned against Capitalism, though it’s difficult to fault their effort to curb the “disorderly expansion of capital.” Untethered finance has so corrupted today's Capitalism. Under the guise of “market reform,” Beijing is in the process of wresting ever-tighter control over the markets, the economy and society at large. I’ve long assumed Beijing would respond to a bursting Bubble with various forms of financial, economic and social repression, while casting blame on foreign governments (i.e. U.S. and Japan). It appears Chinese leadership has decided to begin executing some sort of plan.
Measures to rein in lending and speculative excess, while clamping down on increasingly powerful business and market interests, are of little surprise. A spate of other pronouncements is not so easily explained.
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They’re battening down the hatches. The broad scope of reform measures, the tone, the heavy-handedness and the apparent urgency. Beijing is preparing for something - but what? Is their focus unfolding domestic hardship, geopolitical or a combination? A bursting China Bubble will be fraught with destabilizing economic and social upheaval. And it would be understandable – even constructive – to begin preparing society for unfolding challenges. Perhaps Chinese leadership even subscribes to the global Bubble thesis - and they’re enacting Draconian measures to ensure China is better prepared for crisis dynamics than its adversaries (employing a similar zero-tolerance mindset adopted with their war against covid).
September 1 – Bloomberg: “The world is undergoing profound changes that are unseen in a century and are evolving more quickly, the official Xinhua News Agency cites Chinese President Xi Jinping as saying in a speech at the central party school in Beijing… China ‘must not yield an inch of ground’ on matters of principles and uphold China’s sovereignty, security and development interests with unprecedented resolve: Xi. It’s not realistic to hope for peaceful days and refuse to struggle: Xi”I think it’s about Bubbles, but I can’t shake the unsettling feeling Taiwan is playing a role. For years, I’ve worried how Beijing might respond to a bursting Bubble. A move on Taiwan would stoke nationalism, while diverting attention away from Beijing’s gross mismanagement of its financial and economic systems (they’re not alone in this regard). “Xi Jinping Thought” and cultivating a “patriotic atmosphere,” while repressing “effeminate” TV personalities and video games. Crazy, alarming stuff – that might be expected from a regime contemplating international conflict.
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We certainly observe the dynamic at play in U.S. equities: virtually any risk is today viewed constructively, as it ensures a more protracted period of zero rates and massive QE. So risk is disregarded. Momentous changes are afoot in China, which are difficult not to regard as alarming developments. Yet apparently all that matters is that Beijing will maintain loose fiscal and monetary policies. We’ll see how long the Easy Money Anesthesia continues to work its magic.'
- Doug Noland,
Easy Money Anesthesia, September 3, 2021
Context(August, 2021) - '..we’ve reached the most extreme valuations in the history of the U.S. financial markets..'('..its Credit expansion .. China Bubble thesis') - Weary of Their Experiment in Capitalism - By Doug NolandTaiwan says will be ‘force for good’ after unprecedented G7 supportCanada's parliament says China committed genocide against Muslim minoritiesDutch parliament becomes second in a week to accuse China of genocide in Xinjiang'..the Chinese government .. will end up in conflict not just with the U.S., but with the entire western world..'(Like the Third Reich) - '..we are in a moment right now .. right before the Berlin Olympics in 1936. The Beijing Olympics are approaching..''..human rights abuses in northwest China’s Xinjiang Uyghur Autonomous Region (XUAR).''..an [global] aggressive campaign by China to silence those who speak up.''..a boycott on the Beijing 2022 Winter Games..''..how to form an alternative to Beijing's massive infrastructure project, the Belt and Road Initiative.'(U.S.-China trade war) '..in the long-run...the U.S. will be better off.' - A. Gary Shilling'The cost of the US wars on terror has reached into the trillions..''A critical examination of U.S. policy misfires in dealing with Russia and its intentions and capabilities over the past several decades is long overdue..'(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'