August 31, 2015

Breaking China could cripple us all

Posted in Sunday Business Post · 53 comments ·

As we headed out on the Happy Hooker from Doolin, the second mate sidled up beside me and whispered, “Not to worry, but hold on, there’s going to be a bit of rock ’n’ roll. Rock ’n’ roll is what he called it. The waves were enormous.

To keep my eyes from the wall of water crashing down, we nattered away – me nervously, yer man, chilled. While the islanders were unfazed, my group of Jackeen lads blanched at every swell.

The stoic locals told me that this year they’ve seen a surge in Chinese tourists. When they say a “surge”, they said they saw a good few busloads of Chinese tourists heading from Doolin to Aran for the first time ever.

Sitting outside An Teach Osta on Inishmaan is hardly the most obvious place from which to discuss events in China, but the odd thing about globalisation is that what was once remote becomes local and, in turn, what was local can be projected to the most remote parts of the world.

China matters to everyone.

This came home for me a few weeks back while making an upcoming documentary for RTE. While filming at a high-end luxury goods shop in London, the manager confided to me that close to 40 per cent of all the goods were sold in China.

The whole world is selling to China.

Take that in for a second.

We are so used to the expression “Made in China”, but we never use the expression “Sold to China”. This article is all about “Sold to China”.

Quite apart from being buyers of Irish tourism on remote Inishmaan, China is the world’s largest consumer of copper, steel, iron ore, cars, aluminum, mobile phones, nickel, rice, cigarettes, meat, Swiss watches, television, rubber, potash, energy, robots, beer, red wine, machine tools, dried milk, wheat, rare earths and coal, as well as many of the luxury goods that we associate with Europe and the US.

Because of China’s seemingly endless demand for everything, many companies – and entire countries – have built their business and economic strategies around selling to China.

As a result, since 2008 the global economic story has been not so much “Made in China” but “Bought by China”.

China’s story since 2008 is a bit like Ireland from 2000-2008. It is a story of easy money, easy lending and easy growth. Although I am no China expert, I fear China is hurtling towards recession.

The reverberations of the first great Chinese recession will be felt all over the world.

In 2008 when the world economy went into spasm, no country was more potentially exposed than China.

The reason for this is political. For the Communist Party to survive, it had to ensure no social tensions – the type of social tensions that come with recessions. The Chinese Politburo had seen what happened in the Soviet Union when the party lost control and the country went into a tailspin in 1990.

Beijing was determined not to make Moscow’s mistake. Therefore control of the economy was paramount.

Unlike most countries, China had money in 2008. While countries like Ireland needed other people’s money to survive, China had the cash. Having spent 20 years exporting to the world and building up massive foreign reserves, the Chinese government had money to spend. And they spent it.

After the global financial crisis, China pumped four trillion yuan ($586 billion in 2008 US dollars) into its economy to protect it from the global fallout.

The story of what happened next will be familiar to everyone in Ireland. The double-digit growth attracted foreign investment and as all this cash came in it drove up prices. Everything looked brilliant.

China has experienced the triumvirate that Ireland knows too well – (1) easy money, (2) easy lending leading to (3) easy growth.

The result tends to be too much investment, too much optimism and then too much extra borrowing. Again think of the dynamic in boomtime Ireland.

With everything going up and everything looking rosy, all sorts of investments looked attractive and the sky was the limit. Easy money begot yet more easy money. Chinese companies borrowed from “everywhere”; and “everywhere” was prepared to lend to Chinese companies. The whole world was beguiled by the “Made in China” idea.

This is when the whole world began to experience the “Sold to China” phenomenon.

Over the past few years, China’s borrowing has exploded. Today there is a huge $28 trillion of debt in China. This is the problem now. China is deeply in debt. Even though the debt is largely internal, it still has to be paid.

When the economy is growing at 8 per cent per annum, debts don’t matter so much, but when the economy slows quickly, debts become not only material, but hugely and horribly significant.

Now the process of too much debt, leading to bankruptcy, leading to more panic will take hold – as it did in Ireland. Good companies with too many debts will become bad companies with too much debt overnight. The money that flowed into China will flow out and the growth rate will fall. The problem for China is that after years of 7 per cent growth, a 4 per cent growth rate will feel like a recession.

We know in Ireland what happens to human nature when things suddenly turn for the worse. The Chinese are no different. Years of ridiculous optimism are followed by a bout of irrational pessimism. We are seeing this now in the Chinese stock market with greed rapidly giving way to fear. This torpor will spread to the real economy too – as it did in Ireland.

China is entering a recession not unlike that which afflicted Ireland and the US in 2008. This slump could well cripple China. I suppose, no better place to talk about cripples than Inishmaan.

  1. Deco

    Is this not a contradiction to a previous article a while back ?

    Anyway, I disagree.

    The main vulnerability of the Irish economy currently is NOT China.

    The main vulnerability is actually very obvious. It is the Nasdaq boom, and it’s secondary affect on the Dublin real estate market. The entire recovery is simply tagging along a record rate of US tech sector investment in Ireland. And investment that is completely at odds with the profit figures coming from that tech sector investment.

    The problem is that if you tell that truth, you undermine the Dublin housing market, in the final 12 months before an election. The Irish media do not want certain politicians to be in the next government. The entirety of state finances are bet on the banking system, which is bet on the housing market.

    Ireland’s welfare state is a hedge fund on housing.

    There has been no reform of the Irish institutional state. The culture of unaccountability and waste is still untouchable. We see this in the Irish Water debacle. We see it in FAS/Solas. We see it in the state propaganda organ in Donnybrook itself. We even see it in NAMA and the various deals.

    When the Nasdaq pops, and Facebook is no longer worth more than serious businesses like General Electric, then things will be very different.

    • Deco

      The main event in the Irish economy since 2008 has been the growth of state debt. It has increased massively. Very little of this was investment. Therefore this is debt without any return. This was merely debt to sustain a lifestyle. A lifestyle in the part of Corporate Ireland that failed, that includes little change to indicate any sort of a learning process. A lifestyle that includes free social housing with no strings attached, and millionaires in Irish state bodies, lecturing the rest of the population on “fairness”.

      Those millionaires don’t have to worry about the going rate of being an Irish politician, or a director in a state quango, or an employee in an Irish Third level body, or a trade union fat cat.

      Ireland is just as badly run as Greece, with just as many absurd loopholes, dodgy business practices, waste, unaccountability, etc.

      Ireland’s pro-Brussels regime is ready to suck the lifeblood out of the people in order to prove that we are “good Europeans” and preserve the Potemkin village. The entirety of state policy is now being directed towards manipulating the property sector. The biggest bill in the lives of working people is not big enough, it has been decided.

      The EU is a system of serf-dom. There can never be enough manipulation of public opinion, or policy, of any crisis, or the markets to maintain this system of serfdom.

      With every problem, the solution is more serfdom to the power centre. More loss of individual freedom, and national sovereignty, for the benefit of the banks.

      Time for the Serfs to wake up. China is a problem for the Chinese. They can fix their own affairs.

      Our leadership, has shown a willingness to avoid fixing our problems and to instead fix those of Brussels.

    • Mike Marketing

      Ireland needs to export 85% of what it produces. We live or die on our exports.

      If the Chinese problems impact negatively on Britain, EU and the USA then their ability to purchase our exports will be damaged.

      That is not a healthy position for sustainable jobs here.

      Yes a tiny % of Irish exports go to China right now. We have being building that trade.

      However, it is the health of our main customers that is at stake here.

      Time to operate an ultra conservative policy on risk taking.

      Batten down the hatches and protect the Irish ship against the inevitable storms ahead.

      With the General Election close, it is time to radical changes to the Captain, Officers and Crew of the Good Ship Ireland.

      The mantra needs to be the “achievement of more with less resources.” to ensure we are not drowned by the economic tsunami, just over the horizon.

      Listen, look and learn from history.

      We are a proud republican Isle that has been robbed of our sovereignty and ill treated by EU bureaucrats who we are not citizens just serfs to do what we are told.

      • McCawber

        In the light of the evolving global financial crisis the government should tighten our belts in the forthcoming budget(yes all us, including you citizen socialist there with your placard).
        They won’t and that means a worse outcome for our own economy.
        You’re 100% wrong regarding changing the government.
        The government will still be running the country after the election and I can guarantee you one thing they’ll be worse than this lot, even if it’s this lot that is returned. Simply because there will be a bullet to be bitten and they won’t bite it. No Troika, no bullet biting, because there is none to blame.
        It won’t be the Troika’s fault, you see.
        So tell me citizen socialist what have you done for your country recently?

  2. polomora

    I read recently that over 110 million Chinese were expected to travel overseas in 2014. I was on vacation in Paris in June, my first time there in about 10 years. I was amazed at the masses of Chinese everywhere, queueing up to visit Versailles, the Louvre, pleasure boats on the Seine. In Dublin, both Arnotts and Brown Thomas employ Chinese-speaking staff to cater for them. Golden times for well-known European holiday destinations.

  3. moover

    Hi all, Just testing the water with my first post – to make sure that I can do so again in the future. Interesting article and responses, as usual.

  4. Deco

    Why the real problem is ZIRP and not China.

    The perennial policy repeat of endless ZIRP is not of any use to society, but it does feed asset bubbles that financially over-leverage the economy.

    End result, more debt, less wage income. We are living in a policy framework where there is a continual series of policy initiatives to drive down real wages, whilst driving up debt.

    That is the problem. It is a societal problem. It also is dodgy economics. But… sector of the economy gets massive profits, and bailouts for it’s losses.

    • Mike Marketing

      Deco, history always records who won and who lost.

      The problem is that many are too caught up in life’s distractions to look at lessons of history and learn from it.

      The recent stock market crash in China sprang from a loss in confidence by investors. China has a population of 1.35 billion people. That is 1,350,000,000 human beings. In other words more than 217 times the size of Ireland. That is staggering.

      Many of these are recent converts to investment in stocks and shares. Can they be wrong in selling-off and getting out?
      They are now feeling very pissed off and let down. They are likely to blame their government. That means political instability. When it comes to the assessment for international mobile investment, top of the list of criteria is Political Stability.

      It is not healthy to have such a local financial ‘time-bomb’ in such a dynamic new society. It is not good for them and it is certainly not good for the interdependent capitalist western world. Especially the USA.

      It is a time to be prudent. In the face of potential economic chaos we must tread very carefully.

      Direct in the firing line is Australia with average houses in Sydney now costing €1/2 million and an overvalued Aus$. That lifestyle with its high levels of employment is propped up by the export of basic mining commodities. And guess who their biggest export market is?

      Yes, China.

      “Fools rush in where angels fear to tread.”

      • Deco

        Maybe we should send them Michael Noonan. He wanted the compensate Eircom Shareholder for their losses. And sure enough, that was in a cringe moment when he was preparing for election as Taoiseach.

        When he gave a fireside chat, at the end of a FG Ard-Fheis, and I watched in complete disbelief as I realised that FG had lost the plot, and wanted political power to apply their madness on the populace.

        Michael Noonan had something to share with us all – his inner idiot. What followed was a political meltdown.

        10 years on, plus one failed Bertie boom, the same idiot was given the Finance Ministry. The public debt is rocketting. NAMA is bottlenecking the real estate market. There are two pillar banks and they are as dumb as ever. And FG’s biggest chum is getting sweet deals. And the “Labour” party are backing all of this madness 110%, and delighted.

        And the Anglo Bondholders got the treatment that he promised to the Eircom Shareholders.

        Will China do the full Noonan ? I hope not, for the sake of decency.

        • Mike Marketing

          Have patience Deco.

          I believe that the coalition’s “Romanian president Ceausescu” moment is just over the hill lurking in the long grass.

          The latest Millward Brown poll gives Labour 4 seats if an election called now.
          The follow up independent research last weekend gives them 2. An unmitigated Political Party disaster.

          Meanwhile, Fine Gael’s Big Phil Hogan is in Brussels laughing at them all, quietly becoming a millionaire.


      Interesting (punny remark) article on China and their banks. There is lots of flexibility left to the central bank (Peoples Bank of China)as the interest rates are not zero but over 4%. Also the funding is government directed to economic sectors that they want stimulated rather than being allowed to flow to the banks themselves and the financial asset classes. There seems to be a difference compared to the West. They are not as liable to collapse.

    • coldblow

      Two interesting recent articles about this.

      The Hennigan one notes that interest rates are at their lowest since recorded history, ie back to the clay tablets of Mesopotamia.

  5. Deco

    Does Beijing have any idea what it is doing ?

    In any case, this is not the main influence on the Irish economic predicament. The main influences are debt, cost competitiveness, a reliance on a Nasdaq bubble, persistent internal bottlenecks, policies that focus on driving up real estate prices, and state excess/inefficiency.

    Ireland is where those that work are regulated to work harder, and for less, so that the very wealthy can stay rich regardless of how useless they are.

    It economics to fit a perverse system of accountability.

    It goes back to the insiders versus outsiders theory of DMcW.

    The unaccountable are rewarded. The accountable are sucked dry.

    • McCawber

      And alongwith those very wealthy, the socialists can continue to gouge those that work too, you left that bit out.
      At least give us a balanced view or the full picture if you prefer.

  6. CorkRob

    I heard one of the top Investment guys in The City comment last week on Bloomberg that The EU’s exposure to China was only 2% of GDP and hardly enough too precipitate a collapse in EU economies if things go “Tits-up” in the PRC.

    I suppose sentiment and the cascade effect it can bring about might make things worse, but would it really put us all in penury ? How did world trade survive without the PRC miracle?

    At least we’re not Australia.

    • Deco

      The EU is more exposed to muppets running the EU, than to anything in the Middle Kingdom.

      Hogan is over there, helping out. Meanwhile IW (his most prominent recent legacy) is an a continual quagmire. We only send over our best, right ?

      I find it amazing that once a politician gets sent to Brussels, the media everywhere goes soft on his record. No matter how useless. No matter how much controversy. All in the name of preserving the imperial mystique.

  7. Bamboo

    We have to separate China and “the Chinese”. All over the world there are “Chinese” people but not necessarily from China.

    The Taiwanese people look Chinese and belong to the Chinese community but they actually hate the China Chinese for historic reasons and for the fact that the China Chinese people tend to be arrogant according to the Taiwanese locals.
    The Malaysian Chinese people would absolutely hate to be associated with China but they call themselves Chinese but certainly not Malaysians.
    Most people living outside China are most likely not from China, not even their parents. In fact you need to go back in history a couple of generations to find someone who was actually from China and has settled outside China.
    Same with Singaporean Chinese, Vietnam Chinese, Indonesian Chinese etc, etc.
    Globally, what the people from the Chinese community have in common is their drive to do well in business and in particular their drive to gain financial supremacy in society is their main objective in life. Everything they do is geared towards financial gain. From Feng shui to the car number plates and other “useful” superstition.
    Their drive to do extremely well in all activities that are associated with establishing a good status in society is obsessively high. Playing tennis, golf, play piano, violin or any other classical instrument; speak as posh and as British as you possibly can. Drink English tea and learn all the English and Irish songs, etc, etc.
    Flaunting the accumulated wealth is part of the normal acceptable culture. The people of the Chinese community likes lots of material goods as long as it obviously expensive and can be displayed easily. A popular topic of an introduction small talk is to talk about how well they’ve done in life, how well their children are doing, how many times they have been in London and Paris, how many apartments they have bought in what good area of a capital city.
    I haven’t met any young student who doesn’t want to become a doctor and study in England. I haven’t met a Chinese student who doesn’t play piano well or tennis, or has no idea about British, Irish and American politics, etc.
    The best school are often Chinese private schools and are receiving plenty of private donation as the Chinese do believe that education is the core of future wealth.

    Don’t get me wrong! Many or most of my friends are from the Chinese community and that is how I know. The Chinese people are extremely well off .
    They like to impress but not to make others jealous. They flaunt their belongings and their stories so they can be an impressive part of society and so gain even more wealth.

  8. goldbug


    -> whatever THEY TELL YOU






    • Chinese confidence is in their buying 2-3000 tonnes of gold each year plus large amounts of silver to assure their financial independence.

      They have no confidence in the survival of fiat paper money , in the longer term.

  9. DB4545

    As Mike Marketing said we live or die by our exports. Our pharma and medical devices sector has moved us up the manufacturing value chain. The world has a billion more mouths to feed in the last 30 years.Our agricultural exports need to target the middle class mouths in that demographic. Our marine resources need to be reclaimed and processed through this Country and not Spain to add value for Ireland Inc. Ireland’s bulk milk exports for baby food is functionally equivalent to Australia exporting its commodities without adding any real value.

    Gold may leave the superpit in Kalgoorlie Western Australia at 1000 Euros an ounce but Switzerland turns that 1000 Euros into 25000 Euros by processing the gold into a Rolex or Patek Philippe. Scotland performs that little agricultural miracle with its whisky exports. We’re moving in the right direction on that front. Look at the little miracle with the craft beer industry already. China is already making us live in interesting times. We just have to use asymmetrical business methods to make those times profitable for our people.

  10. mcsean2163

    China crisis is over for this year, oil rising, Christmas coming.

    Crash next year, maybe….

    • That’s why it dropped 3.48% today!! increased volatility means it is headed down together with all markets and currencies leaving only gold and silver last people standing??

      Observation: 18 out of the highest up days in a market are on the down side of a graph.


    Off Topic. Canadian mint perfects anti counterfeiting device . Each coin is identified with a unique laser inscription. Great guarantee of validity for Maple leaf gold and silver coins.

  12. [...] Breaking China could cripple us all – Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek [...]

  13. sravrannies

    “Something” Just Happened.

    I wish I understood it all and some of it appears to come straight out of Jim Corr’s little book of Conspiracy Theories but,it does sound scary. If true, it does put in perspective how China’s actions could damage the economy of the US – and thus that of Ireland. How much weight should we give to these “theories”?


  14. [...] Breaking China could cripple us all – Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek [...]

  15. [...] Breaking China could cripple us all – Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek [...]

  16. [...] Breaking China could cripple us all – Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek [...]

  17. coldblow

    More little coincidences. With immigration in the news (I nearly wrote ‘refugee crisis’ there) I have been thinking about the Father Ted episode where the Chinese take over Craggy Island, and the opening scene always shows Inis Oírr and the rusting hulk of that ship that was thrown up on the land in a storm. Only yesterday my son mentioned haikus and I was trying this for size:

    The Chinese people,
    A great bunch of lads.

    I can’t remember the name of the vessel but in one of my visits to the island in the early 90s the company operating out of Doolin (the Crowes were the owners I think) had bought a new boat and the return journey was rough and wet. I still remember someone joking with the driver/captain after we got in and his laughing reply: he had been nervous.

    My first visit had been in the mid eighties, while on holiday from England with friends. We knocked a fiver off the price for the three of us (there were few on the boat) and had a very short day trip. The hotel bar was full and it was all men (there were women with prams waiting for them by the door) and I must have already started to learn Gaelic (I almost wrote ‘Irish’ there) because a local, an old man, told me some story about Daniel O’Connell which I didn’t really understand very well. There was a good session with musicians from the mainland, and I believe the air was thick with smoke. We could only fit in a very quick look around before the return trip, but it was striking. An old man saw the three of us passing by and invited us, in broken English, to enter his abode, where he spread out his collection of ‘souvenirs’ on the table. I remember odd screws and bolts and electrician’s copper wire curled into crude ‘Celtic’ spirals. The oldest one of us bought one for, what was it?, ’50 pee’, because it would bring him luck in marriage. It put a big hole in his tie but he got married within two or three years (nobody had seen him even talking to a girl), although he didn’t actually say it would bring him happiness. ‘And this,’ the man said, as he twiddled on the table with what looked liked a tapered plastic light fitting, playing for time while he thought up something, ‘this is for spinning around.’

    What I most remember is the three of us sitting at the bar in O’Connor’s beforehand and the landlady asking me where we were from. I was expecting the usual questions about whether we were enjoying our holiday, but she was talking to me and really did want to know who I was. She was my father’s first cousin, from Charlestown in Mayo, and although I had never heard of her (and my father met her for the first time only a few years later, at a funeral in BallaghaDERReen) she had recognized that I was related. I heard later that she had a gift in these things. That round was on the house.

    But to return to the Chinese theme. I only went to Inis Meáin the once, in 1995, and didn’t bring enough money as I thought I’d be able to draw some out on the island. A kind visitor from Wexford lent me £20, while her husband mocked her credulity, and it was rather uncomfortable to meet her in the pub there drinking away her loan, but this was all you could do there, and I felt limited to just the two pints for the sake of decorum. I think Miley from Glenroe was on the boat over that time. The owner of the shop told us we’d get no sets there? What? He recognized us from O’Shea’s Merchant in Dublin, but he had invited over a good box player from Mayo.

    Talking of coincidences, it was on another trip to Doolin, one New Year, that we were sitting in O’Connor’s while what appeared to be an informal chamber orchestra of about eight fiddlers played free to a crowd who seemed to represent every nation on earth. ‘All we want now is a Sikh’, I said, and within minutes one walked in the door.

    But to return to the Fr Ted theme, we stayed somewhere not too far from Rosmuc after leaving Inishmaan and went to a pub (Clarke’s?) where there was some really good music, Sonny Choilm Learaí on the box and Beairtle Ó Domhnaill singing. There was a gang of young lads there, possibly some visitng from England or a mixture, and every time we got out to waltz the big one, the leader of the pack, stumbled into us. I thought nothing of it, but when we sat down by the dance floor I noticed that he could dance quite well, without losing his balance. So when he came dancing past where I was sitting I gave him a nice kick in the back of his ankle. This was the same as kicking Bishop Brennan up the arse and he pretended nothing had happened and didn’t turn round. So next time they passed by I did it again. Sonny Choilm Learaí had seen it and he was grinning away as usual as he looked across and down at me, but I got the distinct impression that he was letting me know that this wasn’t a clever move. And sure enough your man was punching his left hand surrounded by his acolytes, working himself up into a lather, and I told the missus that, unfortunately, it was probably time to leave. Fr Ted meets Deliverance.

    Risteárd de Paor wrote a fine book about the Aran Islands in the early 60s, Úlla i mBarr an Ghéagáin. He sailed on a hooker with a local crew, delivering turf and he was amusing about a class of idler who lived up on the ‘Carcair’ I think, near Kilronan (I think). These would comment on the skills of boat crews as they brought their boats into harbour and were most critical, though they wouldn’t go near it themselves. De Paor witnessed one scene where a pair of ‘islanders’ (as the Inishmore people called those from the other two islands) came ashore and found a bicycle left against the ditch. These locals watched them, with the disdain a Roman patrician might reserve for a savage from Ethiopia, as they took turns to ride the bicycle up and down the hill, not knowing what it was or where the brakes were, before casting it aside (what was left of it) and carrying on their way.

    All this in turn brings me on to Cockney Daly, who was apparently more famous in Kilburn in the 70s than Muhammed Ali. He could hold his drink better than any of the navvies until the day the Conamara boys (who else) stitched him up out of jealousy and spite. The story I most like is of him getting into a train carriage packed with businessmen and throwing his old case up onto the luggage rack. He had a frying pan tied on the outside of the case and with the heat the fat began to melt and drip down onto them.

    See, it all comes together.

  18. McCawber

    Ok Another basic question.
    So far people have been focusing on the need for a gold standard and the evils of the CBs.
    My Question is this. How exactly will re-introducing the gold standard and dumping CBs make things better?
    Put another way – What exactly is suddenly going to make the politicians start managing our economies properly/prudently and live by Mr McCawber’s rule.

    • My Question is this. How exactly will re-introducing the gold standard and dumping CBs make things better?

      Any money system other than what we have is likely to be better. Let us look at what we have.

      Just about all countries have given up the national currency to the operation and control of a central bank. The central bank has autonomy and is not governed by government but operates and independent policy.

      The central bank can expand or contract money at will and ditto with interest rates. Put into operation and authorized by the government the government gave up the control it previously exercised over the national currency.

      The CB then changed the modus operandi of how the money was issued.
      All money from CB is issued as a loan to whoever receives it. Interest is charged on this loan. It means that all money except coin or cash money is an IOU. The more money supply is expanded the bigger the debt and more interest collected.

      This one fact is enough to shut down the central banking system and at least revert to government issued currency which at least would be debt and interest free. All the other issues around allowing the politicians to have control over the money supply remain. Expansion of a money supply is inflationary no matter who operates the system.

      The current system because it is a credit system or debt based system charges interest. If the loan is repaid it means the issuance of the money is reversed and thus repealed if you think of it that way, and the money goes out of existence. What about the rest of the economy if everyone paid off the debts there would only be the coin left in existence. BUT the interest charged on that money also has to be paid off and yet the money to pay the interest with was never issued into existence in the first place. The only way is to use the cash money but there is not enough as there is estimated only 3% or less of the money is in coin. AA last dodge is to find more people to loan to, and then the interest accrued on the first loans can be paid off with the money issed for the later loans. This needs ever increasing news loans to be issued in order to pay off the original debts plus interest.

      Ever increasing means just that. Greater and greater numbers of people with bigger and bigger loans. This is a pure Ponzi scheme and totally illegal in any other form of life. Eventually it collapses under its own weight after entering a phase of exponential increases. Welcome to QE to infinity until nobody can absorb any more debt. Basically it is a system that eats its own and you with it.

      We have not even added the system of fractional reserve banking that allows a bank to lend out multiples of its deposits also at interest. This is the main way money is produced out of thin air as a loan at interest. Banks simply create the money they lend with an entry to a ledger. You the borrower cause the creation of the new money and its vanishing trick when you pay off the loan. However as mentioned you were not issued the money to pay the interest so you have to siphon off that money form someone else leaving them short of money to pay their loan.

      This single fact. That money is issued as a debt at interest is enough to bind society in debt bondage. This alone not only makes the central bank a candidate for liquidation but the operators chargeable for operation the biggest scam known to operate on a scale so large that for most people it is totally incredible. On a national scale all central banks should be charged with treason.

      If you understand the scam we operate and live under which was foisted upon us by greedy politicians and unscrupulous bankers then you will be ready to discuss what might replace their money system, but not before.

    • “Put another way – What exactly is suddenly going to make the politicians start managing our economies properly/prudently and live by Mr McCawber’s rule.”

      This assumes that there is a requirement to manage an economy in the first place. That is a fundamental error. Anybody managing an economy is a mistake, and putting such management into the hands of government is a disaster. Ask the survivors of the communist regimes. What 5 year plan ever succeeded or achieved its objectives?

      The people interacting with each other are the economy. Managing an economy requires dictating wants and needs and preferences to people. This is not freedom or liberty but servility.


      A call to audit the FED as they are rightfully suspected of manipulating the interest rates , bond and stock markets.

      Nothing is yet said about manipulation of the precious metals markets or the fact that the money supply is issued as a debt at interest..

      The truth is that there is so much manipulation by the central banks and affiliates that, as Chris Powell of GATA says, there is no longer any such thing as a free market.

      The CB system is the root cause of all our economic problems. If you think otherwise show me where this statement is untrue.

    • “What exactly is suddenly going to make the politicians start managing our economies properly/prudently and live by Mr McCawber’s rule.”

      We the people must live by McCawber’s rule but it is not possible under the current regime.

      This is where the world will move to alternate systems to survive and the CB Ponzi scheme will collapse. Whether we adopt Bitcoin, Gold coin or another well managed national currency based on sound money principals remains to be seen.

      It is certain that one does not want to be holding much in the way of any fiat currency but be in to solid assets. No bonds or stocks either with some limited exceptions. Interest rates are at 600 year lows or as was posted the lowest ever recorded. Is that a bubble?


      “We are left with a gold market where the price is manipulated, as with crude oil, by large banks and Western central banks who decide the ultimate price.”

      “As of official statistics, Russia’s official gold reserves stood at 1250.9 tons in June. In the first five months of 2015 Russia has increased its domestic gold mine production by a factor of more than six-fold. Gold is becoming of huge interest to President Putin and the Russian leadership. Some believe a gold-backed rouble is not far off and clearly China, in its push to make the renmenbi acceptable as a world reserve currency, will back its currency with gold, a lot of gold, to make it a credible alternative to the floundering dollar and Euro.”

      “Slowly and very systematically the outlines of a new gold-backed alternative to the inflated dollar system or the debt-strapped defective euro is emerging.”

      ” While most eyes are fixed on COMEX or the London Bullion Market Association listed daily gold price fix, the real worth of gold as a currency reserve and a standard of monetary soundness is growing in worth by the day. That no doubt gives people at the US Treasury and Federal Reserve and Wall Street some serious gas pains.”



  19. [...] Breaking China could cripple us all – Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek [...]

  20. [...] Breaking China could cripple us all – [...]

  21. China is not the big worry.

    We should be aware that the control of ther money system is control over the world.
    The absolute control of money is absolute control.

    Absolute control is tyranny.

    A cashless society is absolute control of the money system, absolute control over the people and absolute tyranny.

  22. StephenKenny

    There’s another very interesting meme starting to appear – that of an ‘anti-cash’ movement in the higher levels of the financial services sector. William Buiter- Chief economist at somewhere like Citibank, came out with a blistering attack against cash, and an FT editorial called cash a ‘barbarous relic’, and called for it’s complete removal.

    In the world of negative interest rates (e.g. Sweden), people simply take bundles of cash out of the bank, and out it under their beds. Remove the cash option, and people either spend their savings, ‘invest’ it in the financial markets, or lose it.

    Banning cash seems to me to be an indicator of even more desperation than the PR & market intervention attacks of other stores of value e.g. precious metals.

    When you start to intervene in complex systems, you end up having to intervene in all of it, and malinvestment sprouts in every corner. Japan’s property market in 1990 comes to mind.

  23. 05:04 Macro Summary: China, posted lemetropolecafe and copied for you :)


    Greater Chinese shares end mixed: Greater Chinese shares ended mixed Monday. The Hang Seng and Shanghai Comp saw a late bounce to close up 0.3% and down 0.8% respectively, while Shenzhen closed near session lows down 3.1%. There were more reports that the government would scale back its share purchases, while reports that the government had asked brokerages to participate in a national rescue fund were cited as providing a boost to markets and those of continued regulatory crackdown on illicit trading as a headwind for brokerages. For the month, The Hang Seng lost 12.0%, Shanghai 12.5%, and Shenzhen 15.2%.
    Options market’s increasing bearishness towards equities: Bloomberg highlighted the options market’s growing bearishness towards Chines shares. The article cited implied volatility data on one-month contracts that reveal the skew between puts that pay out on a 10% drop in the China 50 ETF, compared to calls betting on a 10% gain, rose to 7 points on Friday – a six month high. Skew on the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF reached a record 38 points on 27-Aug.


    PBoC injects CNY140B in liquidity: After the close of markets, the PBoC announced it had injected CNY140B in liquidity via 6-day short-term operations at a rate of 2.35%. The move follows similar liquidity injections last week.

    Policy support:

    More reports authorities ending efforts to support the market via large-scale share purchases: FT cited sources who said Beijing has scrapped efforts to support the stockmarket via large share purchases. It said allowing too much information to become public led officials to believe their intervention was mishandled. It added that reports of state buying late Thursday was a one-off event designed to create a positive environment ahead of this week’s 70th anniversary military parade.
    Cost of trying to rescue its stock market isn’t yet clear: WSJ said regardless of whether or not the government has stopped trying to support the market, it’s going to need to do something eventually with a great deal of shares that it bought when they were expensive rather than cheap. It said that China’s budget deficit could be hit, and there is the danger of the country’s using monetary policy as a crutch to avoid implementing necessary economic overhauls.
    Authorities ask brokerages to participate in national rescue fund: Bloomberg cited sources who said the CSRC asked brokerages to contribute CNY100B to the national rescue fund and to buy back shares worth up to 10% of their total market value. The article said the directive came after a meeting between CSRC Chairman Xiao Gang and 50 brokerages on Saturday.


    Ministry of Public Security shuts down 165 online trading accounts: The Ministry of Public Security announced that it has shut down 165 online trading accounts and arrested 197 people for fabricating market rumors.
    Chinese officials investigating CITIC Securities, CSRC officials on insider trading: Xinhua reported that a CSRC probe of insider trading has nabbed CITIC Securities MD Xu Gang as well as five other executives. The report said that the probe also found a CSRC official and Caijing magazine reporter on insider trading and spreading false information.


    Electricity consumption and rail loadings improve: People’s Daily cited the NDRC which said August electricity consumption grew 6.54% y/y, higher than the 4.97% recorded in July. The article also noted a stabilization in national railway loading, with July’s average daily loading of containers growing 5.8%. The piece linked the positive trends in electricity consumption and rail loading to improved economic activity.
    Li reiterates government can still handle economic risks: Reuters cited comments by Premier Li Keqiang reiterating the government has the tools to handle any economic risks. Li saw external market volatility providing a fresh economic headwind but noted recent policy support measures, such as RRR and rate cuts, were already paying off and authorities would “enact more targeted and responsive macro-regulation to offset downward economic pressures.
    Goldman cuts growth forecasts: CNBC cited a Goldman note that cut its growth forecasts for 2016-2018 to 6.4%, 6.1%, and 5.8% from 6.7%, 6.5%, and 6.2% respectively. However Goldman’s forecast for 2015 was unchanged at 6.8%.


    Cap on bank loan-to-deposit ratio removed: Xinhua reported the NPC Standing Committee has lifted the 75% cap on banks’ loan-to-deposit ratios, effective 1-Oct. The removal of the cap is seen as an attempt to boost lending to small and micro enterprises, which the article notes have faced difficulty meeting their financing needs.
    Local government debt to be capped at CNY16T: Xinhua reported the Standing Committee of the National People’s Congress adopted a resolution capping local government debt at CNY16T. That would imply CNY600B to be borrowed in 2015 to fund construction projects given local government debt was CNY15.4T at the end of 2014. Xinhua added the local government debt ratio was expected to be 86% at the end of 2015 and was not allowed to exceed 100%.


    Sentiment downbeat around big four banks: There was a lot of focus on Chinese banks after CCB (939.HK) became the last of the major lenders to report its H1 results over the weekend. All of the major banks saw NPLs grow at double-digit ppts from the start of the year in H1, while NPL ratios ticked sharply higher amid sluggish domestic demand for loans. Profit growth was also sharply slower and net interest margins were also under pressure.

    Investment flows:

    August QFII $78.7B: Reuters cited the currency regulator which said that as of 28-August, QFII was up to $76.7B from $76.6B at the end of July.


    Beijing to form world’s largest aluminum group: FT cited sources who said that Beijing is prepping plans to create the world’s largest aluminium group and create a third nuclear group. The plan would see State Power Investment Corp sell off struggling aluminium smelters to Chinalco, and shift resources into nuclear. The piece noted that the value of the deal has not been disclosed.
    * * * * *

  24. McCawber

    In order to fix the currency system of the world we must first fix the political systems.
    The political system gave the CBs the power they have and it must take that power back.
    That’s it in a nutshell.
    Our conversation or my education regarding Inflation was mind blowing.
    I have put the same question to minds greater than mine and their blind acceptance of the 2% target was just as shocking as my own Eureka moment.
    The politicians most of whom don’t possess the same level of intellect have been duped too. (I’m giving them the benefit of the doubt)
    And yet strangely enough I think Germany sees this duping for what it is and is resiting – Or am I fooling myself.
    The reason I ask is we need a standard bearer or a rallying point.
    And I think Germany might be that man, so you to speak.

    • Bringing back the creation of money from the central bankers to Treasury is a part of the solution.

      Remaining is the problem of access to unlimited production of the currency which itself is inflationary but without the debilitating accruing debt and interest.

      There has to be in place a natural impediment to the production of money.
      It has been satisfactorily shown that a static amount of money is better for an economy than a moving target whether it be declining or increasing. Velocity of the transfer of money as a unit of account acting as a medium of exchange accommodates the increases or decreases in the volumes of trade.

      To prevent the money supply being arbitrarily increased the money supply must be based on and backed by a limited substance or commodity. Gold and silver , historically , have performed that role and, by looking at the actions of many countries today, appears to be readying to take that role again.


    “On Asian currency devaluation… and a Chinese economic collapse…

    Yes. These countries just followed the example of what Mr. Draghi and Kuroda tried to achieve with lowering the value of their currencies, which is actually to create a depression in real incomes and a contraction of world GDP in dollar terms, and a contraction of world trade in dollar terms, which is of course negative for economic growth around the world.

    Well, I mean, we have to put the achievements of China and also of President Xi in the context of what China was 20, 30 years ago, and what it is today. And it’s a remarkable change. Now will China have a very serious setback? And don’t forget, the U.S. after 1800 had numerous financial crises, and depressions, and the Civil War, and went through World War I, and through the depression years, and World War II and so forth. And the country continued to grow.

    I think China is, from a cyclical point of view now, in a very serious downturn, serious. And from a secular point of view, I think there is still tremendous growth opportunity in China in the long run. But, as I said, cyclically I think they’re going to have a tough time.”


    Prepare for the worst and hope for the best.

    Corporate executive share buy backs pump the markets enough to stop the fall—Temporarily.

    ” We expect the six year-long fake recovery to end much like it did in 1929, where one demoralizing selloff followed the other, and where the crashing of stock prices fueled the publics distrust of the central bank, the government and all of the nations main institutions. Here’s a brief summary from Galbraith’s masterpiece:”

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