The mother of all financial collapses, and a new beginning

stock-market-crash-of-1929-newspaper-H

A dysfunctional debt-based monetary system, massive imbalances in the markets, immunity from prosecution for those responsible for the 2007-2009 crash, and inadequate responses on the part of Western central banks and governments have created gigantic, global commodity derivatives bubbles that will most likely burst by year’s end, causing a global financial collapse (Our Dysfunctional Monetary System, Forbes, 6 Feb 2016; Analyst: Here Comes the Biggest Stock Market Crash in a Generation, Fortune, 13 Jan 2016).

In such a scenario, banks would be bailed-in and this would produce huge layoffs. The US would hit the debt ceiling earlier than foreseen and would be forced to issue debt-free money (The Trillion-Dollar Platinum Coin Is Back, Bloomberg, 13 Mar 2015) to fund job-creating government spending.

This would, in turn, cause a worldwide flight from US$, a dramatic loss of confidence in the Federal Reserve, hyperinflation in the States, and an egregious overvaluation of the € currency and precious metals.

In order to ride out the storm and break free of the unilateral “Bretton Woods” system, BRICS countries would announce a new gold-backed, electronic currency for international trade settlements, presumably issued by their New Development Bank (In uncertain times, Germany takes more gold home, Reuters, 27 Jan 2016). It would be a common counting unit calculated on the composite exchange rates of a basket of major currencies available only to the Central Banks of the participating countries (Zhou Xiaochuan, Governor of the People’s Bank of China, Reform the international monetary system, BIS, 23 Mar 2009; RMB rate to depend more on basket of currencies: PBOC economist, China Daily, 12 Jan 2016). Eurozone countries would promptly apply for membership, as they did when the AIIB was launched (AIIB will “significantly” bring together Europe, Asia: Luxembourg minister , Xinhua 5 Nov 2015).

The new currency would likely prove a stabilizing novelty in world finance and politics. By contrast, the US$ would lose its privileged reserve status and the United States would no longer be able to export debt and inflation. New rules for a new architecture for the world economy and finance (Merkel and Sarkozy call for global ‘economic security’ council, EUObserver, 9 Jan 2009), as well as new methods of risk evaluation and investment (e.g. global project bonds to recycle surpluses as investments for infrastructures and research projects), would be introduced.

China not worried about the future of its artificial islands in the South China Sea

global_energy_use_by_source_2015

[In China], an astounding 155 planned projects received a permit this year [2015] alone, with total capacity equal to nearly 40 percent of operational coal power plants in the United States.

http://www.nytimes.com/2015/11/12/world/asia/china-coal-power-energy-policy.html?_r=1

China has been consuming as much as 17 percent more coal each year than reported, according to the new government figures. By some initial estimates, that could translate to almost a billion more tons of carbon dioxide released into the atmosphere annually in recent years, more than all of Germany emits from fossil fuels.

http://www.nytimes.com/2015/11/04/world/asia/china-burns-much-more-coal-than-reported-complicating-climate-talks.html?partner=rssnyt&emc=rss&_r=0

More than 2,400 coal-fired power stations are under construction or being planned around the world, a study has revealed two weeks after Britain pledged to stop burning coal.

The new plants will emit 6.5 billion tonnes of carbon dioxide a year and undermine the efforts at the Paris climate conference to limit global warming to 2C. China is building 368 plants and planning a further 803, according to the study by four climate change research bodies, including Ecofys and the Potsdam Institute for Climate Impact Research. India is building 297 and planning 149.

http://www.thetimes.co.uk/tto/environment/article4629455.ece

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China’s thriving relations with Africa

Forum on China-Africa Cooperation (#FOCAC) in #Johannesburg

‪#‎China‬ to cancel all remaining government debts of least-developed ‪#‎African‬ nations, to offer $60bln funding package for Africa, including $5bln grant & zero-interest loans, to grant food aid worth 156 million USD to African countries suffering from ‪#‎ElNino‬ -induced food crisis, to train 200,000 technicians for #Africa and offer 40,000 training opportunities for Africans.
Africa–China relations are developing at a steady pace.

https://www.facebook.com/mediaskopia


screen shot 2015-02-03 at 2.59.04 pm

Forum sulla cooperazione tra ‪#‎Cina‬ e ‪#‎Africa‬ (‪#‎FOCAC‬) a ‪#‎Johannesburg

Xi Jinping annuncia cancellazione dei ‪#‎debiti‬ delle nazioni africane meno sviluppate, ‪#‎prestiti‬ per lo sviluppo africano a interesse zero, assistenza alimentare alle nazioni africane colpite dal ‪#‎Nino‬, ‪#‎formazione‬ di 200mila tecnici per l’Africa e offerta di opportunità formative a 40mila africani.
Chi era in crisi? Chi sta perdendo i mercati africani?

https://www.facebook.com/mediaskopia

Why the twenty-first will be the Chinese Century / Perché quello in corso sarà il secolo cinese

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– Booming ‪#‎renminbi‬ demand: largest appreciation in a decade for the Chinese currency ‪#‎yuan‬;
– Chinese stocks surging following the news of the establishment of a trading link between ‪#‎Shenzhen‬ and ‪#‎Hong‬ Kong by the end of the year;
– Historic meeting of Chinese and ‪#‎Taiwanese‬ presidents;
– UK reorienting itself towards East Asia;
– Angela Merkel’s eighth official visit to China in ten years of chancellorship;
– China parliament ratifies $100 bn Asian Infrastructure Investment Bank;
– Forte richiesta della valuta cinese negli scambi internazionali e come moneta di riserva;
– Borse cinesi in ascesa grazie alla nascita della piattaforma borsistica comune tra Shenzhen e Hong Kong;
– Storico incontro tra presidente cinese e taiwanese;
– Regno Unito fa una corte serrata alla Cina;
– Angela Merkel non è da meno: 8 visite ufficiali in 10 anni di cancellierato;
– Parlamento cinese approva la creazione dell’AIIB, la banca che servirà a finanziare gli immensi progetti infrastrutturali eurasiatici (Via della Seta);

Hide your shine and dim your lights – China’s multipolar strategy

Mackinder- Pivot Area (Knox, p.391)

Hide your shine and dim your lights

Deng Xiaoping

Some want a so-called multipolar world where you have different centers of power, and I believe will quickly develop into rival centers of power. And others believe, and this is my notion, that we need one polar power which encompasses a strategic partnership between Europe and America.

Tony Blair, British prime minister, 2003

http://www.themoscowtimes.com/sitemap/free/2003/4/article/blair-multipolar-world-imperils-global-stability/238777.html

When you look at the evolution of the world, you see that quite naturally a multipolar world is being created, whether one likes it or not. It’s inevitable… relations between the European Union and the United States will have to be relations of complementarity and partnership between equals.

Jacques Chirac, French president, 2003

http://app1.chinadaily.com.cn/star/2003/0501/cn9-2.html

It bears repeating that these moves had little to do with China’s domestic economic conditions, for the following reasons:

  • To have an economic effect a substantial devaluation would be required. That is not what is happening. Furthermore devaluation as an economic solution is essentially a Keynesian proposal and it is far from clear China’s leadership embraces Keynesian economics.
  • Together with Russia through the Shanghai Cooperation Organisation, China is planning an infrastructure revolution encompassing the whole of Asia, which will replicate China’s economic development post-1980, but on a grander scale. This is why “those in the know” jumped at the chance of participating in the financing opportunities through the Asian Infrastructure Investment Bank, which will be the principal financing channel.
  • China’s strategy in the decades to come is to be the provider of high-end products and services to the whole of the Eurasian continent, evolving from her current status as a low-cost manufacturer for the rest of the world.

Alasdair Macleod

https://www.goldmoney.com/research/analysis/china-chooses-her-weapons

None of America’s choices are good ones. At this point, no matter what the USA does, China wins.

https://socialforecasting.wordpress.com/2015/07/30/chinese-gold-and-u-s-dollar/

Washington needs a reset to preserve its primacy, but Beijing and Moscow won’t settle for less than a radical, multipolar changeover.

In an interconnected world, China has no reason to wish for a collapse of the U.S. market, but it must make sure that Western banking oligarchs no longer represent a threat (Russia and China have had enough of western banking, CNN, 4 May 2015).

This means that the Great Uncoupling will take some time to play out and that it will be cloaked. One way to accomplish that is by pretending to be weaker than one really is, even though China has absorbed the impact of the latest financial crisis with apparent ease (Why The “Great Recession” Only Had A Small Impact On China, ValueWalk, 28 March 2014).

If TTIP, TPP, TiSA do not get signed, global investors will gradually shift their “loyalties” from the US-led maritime trading bloc (The Strategic Costs of TPP Failure, The Diplomat, 22 August 2015) to the Eurasian land-based bloc.

Stem the flow, spread the panic, pop the bubble, milk the profits

black-monday-red_01
The richest one percent of this country owns half our country’s wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It’s bullshit. You got ninety percent of the American public out there with little or no net worth
.

Gordon Gekko, Wall Street, 1987

Two ways to interpret the financial panic.

  1. It’s all the fault of China (slumping manufacturing, bloated stock market), Russian sinking ruble and the fading euro;
  2. banks are deliberately crashing the markets in order to get QE4 and mop up assets and the U.S. economy is seriously in distress;

If 1, then this is the proof that China is a paper tiger and cannot challenge the U.S. primacy.

If 2, then the collapse of the Chinese stock market means that Chinese investors will buy more gold and silver and that, within a few weeks, a flood of US bond sales will begin, followed by a real estate crash in Australia, New Zealand, Canada, California and London.

A paper tiger?

Gordon Chang, The Coming Collapse of China, 2001

https://en.wikipedia.org/wiki/The_Coming_Collapse_of_China

Gordon Chang, The Coming Collapse of China, 2012

http://foreignpolicy.com/2011/12/29/the-coming-collapse-of-china-2012-edition/

Gordon Chang: China Headed for Crash in 6 Months, July 1, 2013
http://video.foxbusiness.com/v/2520338914001/chang-china-headed-for-crash-in-6-months/?#sp=show-clips

Gordon Chang: China’s economy on the brink of collapse, January 7, 2014
http://video.foxbusiness.com/v/3025495668001/chinas-economy-on-the-brink-of-collapse/?#sp=show-clips

When Chinese stocks crashed in mid-June, Asian markets were not particularly troubled and there is no reason to believe that they are much more concerned now.

A shark?

It is clear that overblown headlines about the renminbi’s “plunge” were woefully misleading. Had China really wanted to grab a bigger share of world exports, it is hard to imagine that its policymakers would have settled for such a modest adjustment. China’s real motivation seems to be more far-sighted. The devaluation advanced China’s strategic goal of turning the renminbi into an international reserve currencyand, in the long term, into a credible global challenger to the US dollar… While much of the world was distracted by the putative threat of currency wars, China may have found a way to sneak its way into the SDR basket. At least for now, it seems that the country’s long-term strategy for the renminbi is on track.

http://www.project-syndicate.org/commentary/renminbi-devaluation-reserve-currency-by-benjamin-j–cohen-2015-08#D6XCZvdpb9K4DldU.99

http://www.telegraph.co.uk/finance/economics/11813076/Global-currency-wars-why-Chinas-devaluation-is-a-peace-offering-misunderstood-by-the-world.html

China is not the problem.

The US

https://socialforecasting.wordpress.com/2015/08/11/us-economic-indicators-show-day-of-reckoning-is-near/

http://www.cbsnews.com/news/carnage-on-wall-street-signals-fears-about-u-s-economy/

UK

http://www.politico.eu/article/the-immoral-housing-bubble-london-house-prices-housing-shortage/

and Japan

http://www.theguardian.com/world/2015/aug/17/japans-economy-shrinks-by-04-in-a-blow-for-abenomics-growth-plan

are the problem.

The European, Russian, Chinese money trees have been shaken to shore up the status of the US dollar as a reserve currency

http://www.theguardian.com/business/economics-blog/2013/nov/22/us-dollar-status-fallen

and now the international media are being used to induce capital flights towards London, Wall Street and the US dollar by a well-orchestrated campaign spreading the economic catastrophe meme through hysteric reporting about the health of the Chinese economy.

Will it succeed?

China, the European Union and Russia have been pronounced dead several times already, but they are still alive.

By contrast, the dollar remains weak and the US economy stagnant

http://www.wsj.com/articles/dollar-plunges-on-concerns-for-global-growth-u-s-interest-rates-1440178286

What the yuan devaluation means

The Chinese RMB is…a managed floating exchange rate based on market supply/demand with reference to a basket of foreign currencies. The daily trading price of the RMB against the U.S. Dollar in the inter-bank foreign exchange market is allowed to float within a narrow band of 0.5% around the central parity published by the People’s Bank of China. The basket is dominated by the U.S. Dollar, Euro, Japanese Yen and South Korean Won, with a smaller proportion made up of the British Pound, Thai Baht, Russian Ruble, Australian Dollar, Canadian Dollar and Singapore Dollar.

http://www.quora.com/How-do-currency-pegs-work-How-does-the-Chinese-government-peg-the-Renminbi-to-the-dollar

Washington, the G7, the IMF, the World Bank have reiterated their request that China unpeg the renminbi.

Beijing has finally obliged:

On Wednesday, China’s central bank fixed the “official midpoint” for the yuan down 1.6% to 6.3306 against the dollar. The midpoint is a guiding rate, from which trade can rise or fall 2% during the day. Until Tuesday, that rate had been determined solely by the People’s Bank of China (PBOC) itself. But the rate will now be based on overnight global market developments and how the currency finished the previous trading day.

http://www.bbc.com/news/business-33875061

The yuan’s two percent tumble was a long overdue market reaction rather than a signal of more depreciation by the regulator. Tuesday’s performance should come as no surprise as the yuan has enjoyed reasonable stability over the last few months while the euro, yen and all emerging economy currencies succumbed to the greenback…. China does not need a currency freefall. A weaker yuan may counter a slump in exports, but prolonged depreciation would trigger capital flight, disturb the financial system and slash investors’ confidence in the yuan.

http://news.xinhuanet.com/english/2015-08/11/c_134505356.htm

and some devaluation was fairly predictable, as the Chinese authorities allowed the Yuan to float more freely.

But this has been the overblown mainstream media reaction in Western countries.

On Monday these were the headlines:

Global stock markets boosted amid speculation China may devalue

Now it’s all about Chinese betrayal, cunning and aggressiveness:

http://www.telegraph.co.uk/finance/11795507/China-devalues-yuan-in-surprise-move-to-tackle-slowdown-at-home.html

Surprise China devaluation marks escalation of currency war

Will Recent China Devaluation Kill Yuan’s Chance To Become IMF Currency?

Even though the IMF has welcomed this move and asked for even more flexibility: IMF calls for floating RMB within 2-3 years.

Chinese are damned if they do and damned if they don’t.

The inclusion in the IMF currency basket is inevitable

Japan finance minister: would be desirable for yuan to become SDR currency

and will lead to a gold settlement system and to the end of U.S. dollar’s hegemony:

https://socialforecasting.wordpress.com/2015/07/30/chinese-gold-and-u-s-dollar/