By John Galt
May 16, 2007
So China’s stock market has skyrocketed to new highs.
So China’s hairdressers, garbage collectors, and average middle class Joe Six-Pack-of-Ramen has borrowed every freaking dime he can obtain against everything he owns to buy stocks. I think I’ve seen this movie before and it doesn’t have a happy ending.
So Wall Street doesn’t worry because “it can’t happen here” and “it can’t happen again”.
Time to do what I enjoy doing, let’s look at a little not so recent history. Every time a nation gets addicted to playing the great roulette wheels known as “stock markets” the little guy gets burned. Toasted. Incinerated. Yet the banksters somehow manage to walk away unscathed. What happens though, when almost everyone, and I mean almost everyone, ends up getting burned by the idiocy known as our Federal Reserve banking system? It’s happened before, and it will happen again. This time though, it truly is different. We have set ourselves up for the greatest fall in civilized history since the Visigoths stole the postcards out of the Roman tourist store as they sacked the city. For some reason, I think the Visigoths might be easier to deal with than an infuriated communist nation with nuclear missiles.
Not so amazingly, our capital markets are so weak, that the “big money” has been looking elsewhere, pretty much since 2002, to invest and create the next big stock bubble. With Japan and the Asian Tigers pretty much tapped out and trapped in a deflationary spiral because their citizens refused to go stupid and create credit disasters like the American consumer, the choices were quite few. South America was one such stop, but the risks were too high and as our oil buddy, Chavez, has indicated, your dollar is only one nationalization away from being theirs. The lessons learned from investing in post-communist (ahem, well, post USSR) Russia is that Russians are Russians. If they don’t like their side of the deal, they will just change the rules, seize your investments, and tell you to go home or be shot.
That pretty much left India and China, as the investment possibilities in Zimbabwe were not the wisest move in the world at that time. The first step was to convince the central banksters in those nations that there was no economic or political risk if the “West” elected to divert billions of dollars into their equity and bond markets. Since that concept was pretty much foreign to the Chinese, the question in return was “what’s our cut?” The Indians, having watched the British get burned over, and over, and over, and over, and over again by the Federal Reserve types simply stated “bring it on” and put down some basic ground rules. Like export all of your customer service and software related jobs here and we’ll let you buy into our companies and invest into our economy. Needless to say the Western banksters were delighted and could care less if American citizens had their Social Security numbers scrawled on bathroom walls in New Delhi like cheap sexual graffiti in a rest area restroom. The Indians were going to get bazillions of dollars and jobs so they could grow their economy some ten to twenty years faster than planned. Thus the ground work was laid. The Chinese Communists were able to divert more farmers off the fields and into factories making cars, tanks, planes, bombs, guns, and melamine laced supplements and the Indians were able to build a national infrastructure without being married to Western contractors.
I thought the trade ideal was to provide a resource for American goods and services to “globalize” the economy and redistribute wealth? You mean it was just to provide a dumping ground for our useless debt instruments and to keep the dollar from utter and total collapse?
And now the laws of unintended consequences have kicked into gear. All good concepts, no matter how really bad they are, end up with an opposite and more dire reaction when put into a plan that has no historical basis and the theory that nations with billions of people are like some banana republic that Chiquita used to own with the Marine’s help would be pushover. The problem is that the banksters made deals to guarantee huge profits for themselves on the assumption that the Federal Reserve would insure the dollar would be sound and that the American people would be stupid enough to consume a countertop ingredient as a food additive to keep that trade deficit low.
Thousands of dead pets and trillions in new debt later, the American people are just now waking up and realizing “hey, they sold us out” and are getting angry. Oh, it’s not a majority. The union types just now woke up and said per their script “we were duped, dang it you evil Republicans” even though it was Clinton that pushed NAFTA and the now job exporting midget billionaire warned us. The computer industrialists are still thanking W for opening up China completely so they can get their software pirated and duplicated to a wider audience, even though they do not get reimbursed, but heck recognition is more important than profit, right? With our help, the Chinese learned the art of MIRV and no longer have to spy here so now we just send them our secrets with our monthly interest payments on all the debt they hold over our heads like a giant shiny axe. To correct this situation, the IICOUS (Idiots in Charge of the US) also known as the Congress and Executive Branches are going into conflict with each other to stop this nonsense. The logical conclusion the IICOUS has reached is that by increasing the prices to consumers by levying tariffs on cheap Chinese products, manufactured by American owned companies in China, will result in punishing the Chinese government because they refuse to play “fair” even though it was our own banksters that made up the rules. This kind of logic is what made shows like “Becker” a huge hit and why Americans are freaking out about paying 30-50% more at their local Wal-Mart’s in the very near future. The Executive Branch might go along with it this time because the Chinese communists realized about two years ago that this racket was not going to last, so they started buying base metals, precious metals, crude oil, and “gasp” OPM (Other People’s Money) instead of sinking every dime into our wonderful unpayable, unserviceable debt. And since those silly, peaceful Chinese communists are doing so much to support our war on terror; they’ve cut back their arm shipments to Iran to a C.O.D. basis or just a few million barrels of oil. That is a great deal for Iran because the 12th Imam is coming back and he doesn’t use oil, but apparently has an affinity for nuclear weapons, so shipping ten years worth of oil reserves to China for a few more overmatched fighter bombers seems like a fair deal according to the talking camel in charge. Meanwhile in India, they have figured out that American dollars are still good for buying gold or better yet, just buy more Russian fighters because they can actually meet delivery times while we send everything but spare parts into Iraq and Bahrain to fight a war we aren’t really fighting. Is this starting to sink in?
The bottom line is that you might want to start watching the Chinese Yuan and where it is being spent. The Chinese stock market is at a minimum 51% controlled by the Communist Party of China not Goldman Sachs (like ours) and unrest is reportedly spreading in the rural areas because shockingly (not) the concept of trickle-down economics does not work in a communist system or in France. This unrest in addition to the virgin territory the Chinese find their markets in will result in the inevitable busting of the usual suspects, including all the idiots that told you to take out three home equity loans to buy overpriced homes and stock in Pets.com. That’s right, parabolic curves do have a down side (Sorry Kudlow and BOOHYAH boy, there’s that darned law of gravity at work again) and these same financial wizards who helped the Chinese build up their markets, well, crashed ours in 1987 and 2001. Once their markets start to unwind, the need to raise cash will accelerate. This means they will have to liquidate our bond holdings because we would not let them own our equities or companies to any large degree. As a consequence, our banksters will start looking for new ways to screw, er, maximize profits from the American “investor of last resort” which will result in rate cuts in the face of inflationary pressures and forced asset liquidations unseen since 1931.
In the mean time, order some Sweet and Sour for this summer. That’s what everyone is about to taste this coming fall. And it’s going to be a lot more sour than sweet.