Daily Archives: January 20, 2014

Two different articles asking the same question: Will China go bust?

Great Leap Backward

Great Leap Backward

What can’t go on forever, won’t, and the Atlantic is first up on this theme as it relates to China.

 China’s biggest bank just announced that it won’t make investors whole after it sold them a trust product called “Credit Equals Gold #1″—yes, that’s really what it’s called—that looks likely to lose money. It’s China’s version of Wall Street selling people crappy CDOs it told them were risk-free.

The good news is the rest of the world isn’t exposed to China’s financial system the way they were to ours. But the bad news is the rest of the world is exposed to China’s economy. A “hard landing” there would also mean a hard landing in the countries that sell China the raw materials it needs for its construction boom. It wouldn’t be a 2008-style crash, but it would knee-cap global growth just when things look like they might be taking off.

This morning I read this article in Forbes, concerning the same default incident, “Mega-Default in China scheduled for January 31st”.

A WMP [wealth management product] default, whether relating to Liansheng or Zhenfu, could devastate the Chinese banking system and the larger economy as well.  In short, China’s growth since the end of 2008 has been dependent on ultra-loose credit first channeled through state banks, like ICBC and Construction Bank, and then through the WMPs, which permitted the state banks to avoid credit risk.  Any disruption in the flow of cash from investors to dodgy borrowers through WMPs would rock China with sky-high interest rates or a precipitous plunge in credit, probably both.  The result?  The best outcome would be decades of misery, what we saw in Japan after its bubble burst in the early 1990s.

Most analysts don’t worry about a WMP default.  Their argument is that the People’s Bank of China, the central bank, is encouraging a failure of the Zhenfu product to teach investors to appreciate risk and such lesson will improve the allocation of credit nationwide.  Furthermore, they reason the central authorities would never allow a default to threaten the system.

Observers make the logical argument that “to have a market meltdown, you have to have a market” and China does not have one.  Instead, Beijing technocrats dictate outcomes.

That’s correct, but that is also why China is now heading to catastrophic failure.  Because Chinese leaders have the power to prevent corrections, they do so.  Because they do so, the underlying imbalances become larger.  Because the underlying imbalances become larger, the inevitable corrections are severe.  Downturns, which Beijing hates, are essential, allowing adjustments to be made while they are still relatively minor.  The last year-on-year contraction in China’s gross domestic product, according to the official National Bureau of Statistics, occurred in 1976, the year Mao Zedong died.

Why will China’s next correction be historic in its severity?  Because Chinese leaders will prevent adjustments until they no longer have the ability to do so. When they no longer have that ability, their system will simply fail.  Then, there will be nothing they can do to prevent the freefall.

So lots of caveats as to the significance of these events, but if you take into consideration that China’s GDP continues to slow, you might wonder where the money to keep the economic engine growing will come from. Years ago I heard the Chinese official who at that time oversaw the economy interviewed on NPR and he said that (I’m paraphrasing) “every morning, I wake up fearful that I will not be able to keep growth above 9%, which is the minimum we need just to keep up with the population of young people entering the workforce.” It’s below 8% these days, and falling.

I’m no financial analyst, just a pessimist, but it does seem as though we are entering interesting times.

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Try this at Whole Foods and watch the mommies flee in horror

Banana ingredient list

ku-xlarge-2

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Greenwich Time has always recognized the value of real estate (advertising)

These prices won't last!

These prices won’t last! Looking up Greenwich Avenue, 1900

Even one hundred years ago: 

Jan. 23, 1914 — The New York papers publish daily an increasing number of real estate sales showing that money is seeking investment from capitalists in real estate bargains.

While the real estate market in Greenwich has been somewhat quiet for quite a while, it can be asserted with absolute certainty that this condition will not continue much longer. Prices are much lower now than they will be a few months later in Greenwich, and it is the time to buy now, either for a home or investment.

Every indication points to renewed activity in Greenwich real estate, especially farms and high-class estates, and The Graphic has recently noticed some properties offered that certainly are now low at the pries and which are bound to sell for larger figures at no far away time.

There is really no better investment for money than Greenwich real estate. The proximity of the town to New York, its desirability for high-class homes, the class of people who make up the residents and the beauty and healthfulness of the section and its growth and prosperity all are conditions that make for the value and increase of the real estate of the town.

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I blame Bush

Mauder Minimum

Maunder Minimum along the Thames, 1658

EU backing off CO2 reductions and opening continent to fracking. Reality will do that, sometimes.

Russia’s getting into fracking too. 

None of this is good news for the US, however, because our greens will just redouble their efforts to shut down our own fuel projects to make up for the increase in the rest of the world. Funny how they’ll sacrifice their fellow citizens so the Chinese can live fat.

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To be honest, I thought it was an aged Bjorn Borg

Not Bjorn Borg

Not Bjorn Borg

Arnold Schwarzenegger appeared in beer ads during yesterday’s football games and the NY Post thought it was hilarious. Me, I saw a guy with a headband, long hair and holding a ping pong paddle and figured the dour Swede was making some kind of comeback. Live and learn.

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Despite all evidence, progressives, here and around the world, insist they can transform human nature

 

The short lived Age of Aquarius, circa 1969

The short lived Age of Aquarius, circa 1969

Soaring crime rate prompts Venezuelan leader to tone down soap operas.

Maduro, who narrowly won a presidential election last April to succeed his late mentor Hugo Chavez, has accused TV stations – especially popular soap operas, or “telenovelas” – of glamorizing guns, drugs and gangsters.

“We are going to build a culture of peace,” he said last week, summoning representatives of local terrestrial and cable channels to the Miraflores presidential palace on Monday.

“They transmit negative values of death, drugs, arms, violence and treachery and everything bad that a human can be,” he said.

Hugo Chavez banned the manufacture, importation and distribution of violent video games and toys, yet the crime rate has at least doubled (official figure). That won’t dissuade Maduro from this soap opera chapter because like all “progressives”, he believes in the perfectibility of man. And it’s easier to swing at imaginary foes than deal with the reality of his own government:  “critics say the latest version of the government’s anti-crime plans do not tackle root causes, such as widespread impunity for criminals, largely due to a creaking and corrupt judicial system, and complicity by some poorly paid police.”

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Obama hands Iran $4 billion – “I’m sure they’ll find a use for it, maybe in Syria”

I'm gonna have to call up Ol' Ayatolla and ask him what's up with all this - I mean, he promised, man, or kinda did

I’m gonna have to call up Ol’ Ayatollah and ask him what’s up with all this – I mean, he promised, man, or kinda did

End of sanctions kicks off today.

In related news, the UN is rescinding Iran’s invitation to Geneva peace talks on Syria because of its refusal to accept the eventual removal of its ally, Assad.  

That was quick.

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Well no wonder he needed a trysting spot

Boaring

Boaring

Hamptons cop busted for frolicking with a cop-fraulein in weekender’s cottage lives with his mother.

The East Hampton cop who was caught allegedly bedding a meter maid inside a village cottage is a decorated officer whose mom says he’s a “good boy” who still lives at home with her.

Galeano, who immigrated from Colombia at age 12, is East Hampton’s only Hispanic cop and was named its 2012 “Officer of the Year” for busting a man who was having sex with an underage girl after he noticed a van rocking while parked at a rest stop.

Ordinarily, common courtesy suggests that “if the van’s rocking, don’t come knocking” but in this case, Officer Galeano probably should have kept the van as evidence, and for other purposes.

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Oh come on, it’s obvious

 

Coming our way

Coming our way

Mystery rock  on Mars “that appeared out of nowhere” has NASA baffled.

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A party missed

A friend asked who got the poisoned canapé intended for me – I don’t know, but check today’s police blotter.
Screen Shot 2014-01-20 at 6.05.51 AM

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January 20, 2014 · 6:06 am

We gather together …

 

What Would Barry Do?

What Would Barry Do?

Dartmouth professor: MLK Day is a far-right/fascist conspiracy to placate blacks.

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Disociation at the White House

 

July, 2009: voters discover that Obama is a Kenyan

July, 2009: voters discover that Obama is a Kenyan

Obama to the New Yorker: People don’t like me because I’m black,

This from a man who was elected to the presidency twice. He seems to be disappearing into the twilight of delusional madness.

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