The Chinese New World Order

At least several times a week I read on one of the financial or economic blogs I follow some article on the Chinese Silk Road projects, the AIIB (Asian Infrastructure Investment Bank), or the newly created BRIC (Brazil, Russia, India,and China) banks, of which there are now three in the world. The news is always about the glorious reawakening of the “third wold people’s power” to challenge the Western Bank System for not being more responsive to the “real needs” of the third world. Read into that the words, “borrow money” for the uplifting infrastructure programs needed in their countries. I guess the aid the American and European taxpayers dole out is simply not enough. I suppose an apt analogy might be the poor and homeless asking to be given credit cards with little or no limit simply because the rest of the population has them.

Bono and the other rich idiots agitate for improved conditions for the population of these third world countries. We must find a way to build affordable housing, as if borrowing the money to build these units will actually make them more affordable. We must provide wells for clean water, ignoring that many of these wells must be drilled to depths of a thousand feet or better and need energy to run the motors that pump the water. Then there is the matter that the water must be treated or those who use the water must at least boil and filter such liquid before human use. The water in Guadalajara is unfit to drink causing those who do to dance the Mexican two step quick step to the toilet. And believe me, it’s not just the tourists who learn that dance. Many of the local residents know it by heart. Then there are the roads that need to be built into the hinterland so the miserable locals can walk to the big towns and cities.

Well, the list goes on and those self appointed humanitarian experts by virtue of their fortunes assure us that the natives will anoint us with oil, spices and flowers for giving their lives new meaning. But a question, if you will, why didn’t all the aid the developed countries gave out with the help of the UN’s advice not do the trick? I mean, the money was free, no deposit no return. In my library on the economics bookshelf (actually several shelves) are several books on economic development. The upshot of these books is that one has to be careful how one gives or loans money to an underdeveloped country. (I love the term underdeveloped, means poor and usually some personal fiefdom of a tribal leader or dictator). One such book looked at the results or such economic aid programs and found that if money was given to improve a port facility, then that money was largely wasted through several means. The first is the the local and notional power structure took their cut, usually a substantial chunk of the funds. Second is the the graft and corruption of the contractors involved in the project took another large chunk. Then there were the cost overruns that ate up a significant chuck. In reality we have the trickle down theory at work where those at the top get the most and those at the bottom are left with a few drops of benefit. The lesson is that if you wanted new port facilities then bring in the SeaBees or the Army Corp of Engineers to do it. True, there would still be some graft and corruption and a little waste and cost overruns, but the facilities would get built right, become very usable, and those at the bottom would be better served. So why should the Chinese backed banks and partnerships be any better?

First it must be noted that the currency of the Chinese, Russian, Indian, and Brazilian governments are fiat, meaning there is nothing behind their perceived value other than a promise. Fiat currency is both credit and debt. It is a credit when it can actually buy goods and services at a fair value. It’s a debt when it takes more and more of it to buy goods and services at a fair value. You see, fiat currency is a promise of a specif value in the market place. But unlike precious metals, that value may fluctuate wildly. Now the AIIB is equally funded by five countries, China, Russia, India, Brazil, and South Africa. These five countries will have equal voting shares and all will contribute their currencies to the tune of 10 billion each. These is also a 100 billion Contingency Reserve Agency (CRA) that is 41% funded by China, 18% Brazil, India, and Russia, and 5% South Africa. Of course the point of all of this is to eliminate the US Dollar as the world’s reserve currency, something that many economists and financial experts in America see as a war to devalue the Dollar and send us into poverty. Actually, having the reserve currency has inflated our currency and resulted in over paying the rest of the world for goods and services. Currency domination is a crown of thorns, it looks neat but it hurts like hell. So Russia and China have created the Petro-Yuan since China will buy as much of her oil needs from Russia. Of course that means that Russia must find someone else to accept the Yuan when it needs to use them. Sort of like the Arabs when they raised the price of crude oil in the seventies. What did they start doing with all those billions of Petro-Dollars? But US assets, real estate, corporations, etc. That is the agreement. If you accept my currency, then you have to use it to buy something either directly from me or through a third party.

But China has all the grandiose ideas and projects. If one want to exert influence in another country what better way than to buy it through infrastructure projects. Dig a canal through Nicaragua and pollute their largest source of drinking water, ruin the fishery system and introduce unwanted species. The people in that country are very upset with China. What does China get for their Yuan? A new canal that can pass larger container ships and political influence and possible political control of a small country. I do believe the local communist groups are a bit peeved with the Chinese Communist Party. And what we have seen from the Chinese activity in Africa, the Chinese come in with great promises, bribe the government, establish their business and do not hire the locals. The Chinese businesses are like open pit mines, they extract the countries wealth and leave open sores. This is the great plan for world domination. The thinking in China for the past several thousand years is that they are the best people in the world and meant to rule it, that the rest of the world’s population are merely uncivilized barbarians and are meant to be the dutiful subjects of the Chinese ruling people. You read enough history on China and this is the philosophy that stands out. But don’t take my word for it, go research the subject yourself.

So we have any number of happy fools extolling how China will surpass the US in economic growth and development, how these are projects the US would never attempt, let alone contemplate, and how we will become very beholden to China for our daily bread. Before the Chinese stock market panic set in the known Chinese government debt was 25 trillion US Dollars. Of course there is still plenty of local and regional debt that has not been made known and the Peoples Bank Of China stepped in and was trying to buy enough grossly over priced Chinese stocks to save the market. In the end they had to halt trading for several days and finally allowed the market to open today. They have prohibited short selling, large institutional trading (read selling), and a host of other restrictions. That does not sound like financial mastery to me. The PBOC has also been indulging in massive Quantitative Easing (read creating credit risk and forcing the movement of funds, largely leverages – borrowed- into higher risk high yield investments), the issuance of more government bonds, and now creating more credit to pay for the AIIB, the Silk Road projects, and adding credit into the three BRICS banks. Meanwhile the economy of China has been in a serious downturn. Manufacturing is very low, electrical power usage is greatly reduced (remember, factories run on electrical power), construction is almost non existent, real estate values have burst and are still plunging, the stock markets have suffered retraces back it 2008 levels and there is no indication that they have hit bottom. They are selling off their stores of commodities for cash, well, the list continues. Meanwhile many of the party “faithful” have made their multiple millions and billions and spirited the funds out of China and bought assets around the world. These people are still keeping the Miami condo market booming. More and more Chinese women are coming to the US to give birth and thus obtain US citizenship for their children and the possibility of citizenship for themselves. When the rats start leaving the ship you know it is doomed to sink in the very near future.

The world’s collective GDP is around 50 trillion Dollars worth. I said that the last figure on the Chinese government debt was half that at 25 billion. But let’s look at the “private debt”, all those corporations that incurred great quantities of leverage and were suppose to keep the Chinese miracle of 10 and 15 percent growth in GDP. There is rarely a week goes by that I don’t read that some Chinese bank or corporation and trading company has defaulted on their loans. But, but, but, I thought great Chinese economic growth was going to drive the world’s economy. In your dreams, little man. The fact is that pollution is running uncontrolled and has been for the past few decades. Pollution is that cost the most everyone fails to add into the business costs of life. Cleaning up pollution always costs more than preventing. Of course environmentalists rarely understand these costs. Coal powered electric plants pollute and besides the carbon dioxide that is release, not exactly a pollutant, some coal has more sulfur than others, and then there is the fly ash that is released. Well carbon dioxide can be recaptured and reduced, the sulfur captured and used elsewhere, and the fly ash can be captured. All of this adds to the cost of power generation. On the other hand, fly ash can be sold the the makers of Portland cement as it adds to the strength of the mix. The sulfur can be sold as well. Carbon dioxide not so much. However I am sure that there may be a future market for it. Renewable energy costs far more than the environmentalists know. Those photo-electric cells include the cost of production and the cost of the pollution used in their manufacture. And if a government is stupid, it subsidizes those costs with tax payer money. Tesla has been built of government subsidiaries. Elon Musk is a genius for extracting from the federal, the state, and the local governments the subsidiaries for the making of his cars and not his batteries. When one starts adding up the costs, renewable energies don’t pay their way. Solar power only works when the sun shines bright, so early morning and late afternoon sun produce far too little energy. All that coal and gas fired pants must supply the balance. Wind power is nice but you don’t get much power in light breezes and hen the wind reaches velocities too fast for the unit to handle it must be shut down. But according to the governments and environmentalists these technologies are no very efficient in cost, but only because they are subsidized by the tax payer who must then again pay for the power that is suppose to be almost as cheap as coal and gas. Well, I do go on a bit.

But back to the point. Pollution is a bitch because of the cleanup costs. Then e have the problem with many of the large hydroelectric projects that have been built. Seems the collective weight has caused more earthquakes. Also the lakes behind the dams are silting up. Fish and wildlife have been adversely affected. The list of mistakes just keeps growing. And for all their supposed democracy,the Chinese people still live in a dictatorship. Well, that is their history. Whether it is emperors or warlords, the Chinese have epochs of living under dictators. Even their very brief fling in democracy quickly became just another exchange of dictators. And from this we are to expect the Chinese with their great financial strengths to overtake the Western world. People, you can create all the credit you may wish, but credit is not wealth. Credit is future debt just waiting to be used and debt is a claim of future earnings, if any. The world debt is somewhere in the neighborhood of 500 trillion US dollars. The derivatives outstanding is about 750 trillion. And the world’s collective GDP (which includes government spending, as GDP is normally calculated) is 50 trillion. That is a ration of 25 to 1. Do you see a problem? Do you think the figures are inaccurate? Go look them up for your self. The best you can do is to reduce that figure to 20 to 1. Oh, well, that is so much better. So China is going to provide a chicken is every pot filled with clean water and a cheap electric car in the garage of every affordable house. Good luck with that fantasy.

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