Well, not really… We’ve been saying it for a very long time, but we didn’t come out and warn anyone about it explicitly, and now events have overtaken us.
What is it?
The China financial crisis.
The media everywhere are downplaying it furiously, but it is a crisis. A real, no-foolin’ crisis. One that has the possibility of quickly overwhelming all other crises currently playing out in the world. ISIS who? Putin who? We’re looking at the possibility of serious economic hardships here in the United States that could cripple our ability to affect anything anywhere else in the world.
And there is the very real possibility of war. This time with nuclear powers as the main players: China, Russia and the U.S.
Remember: China was the miracle! The great economy! The fastest-rising, fastest-growing economy! Soon enough, everyone said, it would overtake the U.S. economy! And it’s a socialist country!
What had they done to make for this meteoric rise? Why they had allowed just a little market freedom in, and that mix — some small freedoms with the continuing heavy hand of the government reigning over all other economic activity — made western leftists salivate.
Here, they thought, was the economic holy grail. Playing itself out right there in China.
Thomas Friedman, legendary leftist commentator at the NY Times regularly says that the west should emulate China and its ability to get things done quickly in its economy (read: its ability to control its citizens’ economic activity). This, he says, would get rid of the wild swings that make things so difficult for so many.
Except that the government control is what causes the wild swings… and the hardship when things plummet — as they are doing in China now.
Want to become a world economic power on the order of China? Easy: just stimulate, stimulate, stimulate the economy.
- Pump money in, pump, pump, pump, and pump some more.
- Allow a few freedoms (not many) and do it so that it attracts people to the cities.
- Use the (very limited) market freedoms to lure foreign investment into your now “soaring economy.”
- Manipulate your currency to keep inflation in check.
- Repeat as necessary to generate a massive bubble based on faked value.
The temptation to make one’s country seem like the jewel of all the world economies is way too much to resist for people in charge of any government, much less a communist government.
The temptation to make a bubble.
Then… as all bubbles do, it pops, as it is doing now. Watch as the Chinese stock market plummets and drags other markets down with it. The big problem is item #3, in the bullet list above: Lure foreign (read: American) investment into what is still really a command economy that will ever function as command economies do: lousily, because of the corrupt government idiots pulling all the levers.
Then, when the bubble pops, a bunch of foreign companies — companies who invested heavily in “the Chinese Miracle” — go bust, helping to drag down a bunch of other economies.
Read this well: There’s not an economy in the world — especially ours! — that could absorb this hit and survive without major dislocation.
And you hear commentators throughout the media saying things like, “Well, we knew all along that the Chinese economy was weak.”
Most of them — free market analysts excepted — knew squat, and were part of the braying herd telling everyone just how great things were in China.
A simple rule: A command economy — like China’s economy — is never strong. If it appears strong, you can search for the actual underlying weaknesses and you will find them: Look for where the government is pumping other people’s money.
But: Allow real market freedoms in — meaning eliminate government control over the markets — and you eliminate bubbles that cause such hardships to befall people of all economic levels who buy into the apparently thriving economy.
A free market implacably punishes stupid investment. In a free market, you can try to put your money into stupid investments, but you won’t get it back, much less any profit, and you won’t do it again. The government is under no such commonsensical constraints and can flood the country and the markets with stupid money following stupid ideas and stupid investments.
With a flood of money like that, a lot of people get very rich very fast, and everyone thinks that there’s nowhere to go but ever higher. A bubble.
However, pretty soon, as Lady Thatcher (I think) observed, the government runs out of other people’s money, tightens its belt, and the stupid investments are revealed for what they are. Hoaxes, frauds, scams, payoffs for corrupt government cronies, and the like. And the bubble pops.
In a command economy, the government can pump and pump and pump only for so long before everyone realizes that the money, and the government, are both stupid, and they themselves start to pull back. It’s true here in America too.
But all the government’s pumping does show a sharply rising graph, with very few, and small, downturns. Until, that is, the big downturn… the one that shows the popping bubble; the one that impoverishes millions, or tens of millions… all of whom thought they were in on easy money.
(xPraetorius’) Rule #1 of economics: There is no such thing as “easy money.”
Watch out for China. This is bad. Very bad.