China's Cultural "Group-Think" Is Worth Exploring

For decades China has been pushing its people towards a more "homogeneous way of thinking." This article is focused on exploring some of the cultural "group-think" countries tend to breed into their population. This is especially true in a country like China where the controlling party assumes the role of plotting society's course "for the greater good." I'm very concerned that governments across the world will up their game when it comes to shaping public opinion. Across the world, all the new technology available is rapidly tightening the noose around the neck of individual thought.

China's Cultural And "Group Think"

Reducing political dissent was a core principle of the cultural revolution led by Mao Tse-tung. The Red Guards formed by his youthful followers conducted a mass purge of the "undesirables." They then went on to send the young intellectuals living in the cities into the countryside to be "re-educated" through hard manual labor. This is an example of how propaganda can turn a population to a single focus and direction which causes its members can march in lockstep. With this in mind, it has only been in the last couple of  years that the narrative of China being a threat to America has been bantered about. Before that America was busy patting itself on its back for bringing a backward China into the modern world.

Recently a person commenting on another article wrote;
 

      I have worked in China several times over the years and the rate of change has been 
      incredible. In 1976, state store shelves were nearly empty, later, huge multistory department 
      stores were packed with Western-style goods and customers. But, the people were not totally  
     happy.  The Chinese have been described as bandits with a thin patina of civilization.  They 
     are as greedy as the West used to be for social progress.
     Younger Americans seem to seek after this Chinese 'miracle,' thinking that Communism is 
     responsible for the wealth increase.  In reality, it is Communism with a capitalist bent. When 
     this slows down we will be "equal."  Then America will follow China back to individualism 
     and populism as was common in an earlier China and the West.  

This person may or may not have a good grasp of where things are headed. With this in mind, trying to understand and learn about different cultures is important. The world is at a place in its development where individuals may soon lose their ability to influence the path forward. This means our future is becoming more concentrated in the hands of a few. These elite have assumed the role of leading and shaping society. The problem with this is these so-called leaders will most likely be quick to place their best interest solidly in front of those they govern.

We get a rather different view of China and its people from these videos posted online from two young well-grounded fellas that have lived there for a while. It is a bit different from what has been portrayed over the last few decades by mainstream media. Below are a slew of their videos currently on YouTube. In their videos, they give their take on the area from a boots on the ground perspective rather than an economist view from an ivory tower. This means they seem to look at the Chinese and its current culture from the bottom up rather than the top down. I highly recommend this "ADVChina" series. It is more or less an Adventure Travel show on motorbikes, while it may not be super polished, it is real.

* This video gives their take on China's lack of interest and sensitivity to other cultures.  

https://www.youtube.com/watch?v=nI8LCd2aT5g
* China has a phrase, and it's "mei ban fa". You will hear this everywhere you go. Can you fix this? This is very important in understanding the Chinese "no solution I don't care attitude."
https://www.youtube.com/watch?v=oxP2fAqamZQ
* In this video, the guys give their take on China's "Belt and Road" initiative which they see as problematic and declare it will be a failure.
 https://www.youtube.com/watch?v=6Y6MeAOGxt8
* Ghost City-Inside The China Housing Bubble (very important-7 minutes in) they explain this deck of cards. If you listen closely you can almost hear the empty buildings deteriorating in the distance.
 https://www.youtube.com/watch?v=BcyYyyaPz84
* Living in Japan versus China
 https://www.youtube.com/watch?v=kLp8kUxgKI0
* The secrets of Chinese HOTELS 
 https://www.youtube.com/watch?v=Chhi41YTA90
* Collectivism vs. Individualism is a major mental block for people in different countries. They discuss the advantages and disadvantages of both and why China will beat America
 https://www.youtube.com/watch?v=aW9YL81oICo
* The fellas talk about China's dystopian social credit system which we have heard so much about. https://www.youtube.com/watch?v=FqbT7pFWS_I    the surveillance system

Without a doubt, China is far less polarized and divided than America where people seem unable to agree on much of anything. The Chinese people, however, appear far more accepting and less willing to take responsibility for much of anything. Individuality runs strong in the human animal, there are pros and cons about the fact we can agree on so little. This is why so many people desire to create a homogeneous society. This is perhaps the most ancient, universal, and subconscious goal that leaders have sought to achieve. This idea stands as a utopian goal where humanity can flourish without strife and conflict.

Click Here To Enlarge!

Forced group-think is evident in how China treats the millions of its citizens that do not make an effort to march in step. It is also why many Americans recoil at the thought of it happening here. The ruling Communist Party in China has built "re-education camps" in an attempt to bring these people into the “modern, civilized” world promote what the government calls “ethnic unity” but in simpler terms, the apparent goal is to force detainees to embrace the Chinese communist party and an effort to fully control the hearts and minds of its population. Much of this is aimed at the ethnic minorities of Uighurs in the western region of Xinjiang.

China’s Great Fire Wall which is considered the largest, most extensive and most advanced Internet censorship regime in the world censors content critical of the Chinese government or contrary to Communist Party policy is key to this suppression. Another is that people simply "disappear" in China and their families are left with little or no information as to where they have gone. The term "group-think" is sometimes associated with George Orwell. He wrote about how the power of groupthink tends to be infectious. Shades of this are exposed in the videos.  I contend that China's culture suffers from a kind of deteriorating mental efficiency. This includes a reduced ability to deal with reality and moral judgments due to in-group pressures to think as one.

It is becoming clear the desire for achieving harmony, conformity, and cohesiveness through group-think comes at a cost. The advantage of allowing diversity is that it increases the competition of ideas and brings out the best in people. If you don't want every place and every person to be exactly alike it means learning to accept that humanity is by nature fragmented and rejecting the idea we would be drastically better off is society was one homogeneous group. We do not need to be indoctrinated into thinking alike but must learn to be more tolerant.

The overriding advantage of a fragmented world is that it offers a competitive environment for economic, social, and judicial systems. All of these play huge roles in our culture and have been the driving force of human progress. Circling back to the issue of the above videos, if you take a gander at one or more, you might find they give you a bit more hope that things here in America are not nearly as bad as we are often led to believe.

Davos - Where The Elite Decide Our Fate!

Gathering Powerful-brokers And Public Servants?

Again it is that time of year when the rich, the powerful, and the so-called "movers and shakers," migrate to Davos for the annual meeting of the World Economic Forum (WEF). This year is particularly special in that it marks the 50th such meeting where the International Organization for Public-Private Cooperation engages the foremost business, political, academic and other leaders of society to shape global, regional and industry agendas. This means thousands of business, political and cultural leaders from all over the world will return to the snowy mountains of Switzerland from January 21st, until the 24th to discuss the latest global issues.

Switzerland is famously expensive, and this extends to the WEF and Davos. Participation, of course, is by invitation and the tickets which are around $20,000 are just the tip of the iceberg. Travel generally cost thousands, and sometimes tens of thousands as private and government jets descend on the area. Then there is the cost of lodging, a night in a medium-range hotel is around $800, but such accommodations will not do for many of those attending the event. When we add to it wining, dining, and essential accessories like snow boots, the total bill can quickly exceed $40,000. To our so-called "public servants" getting invited to an all-paid trip to Davos is the golden ring. Yes, this is all very "hoity-toity," and did I mention this is the 50th anniversary of the event?

Davos, Beautiful, Serene, And Very Expensive!

The tiny town of Davos, with a population of just over 11,000 sports a very cold below zero average temperature in January and has been the location of this annual event for decades. Aside from tradition, a major factor elevating this beautiful and serene setting to be chosen as the site hosting this event is security, it is far easier to secure a small town wedged between the mountains than a conference center in a big city. This is very important to the 40 heads of states that are attending. Organizers don't release specific information, but it is estimated that around 5,000 of the finest Swiss troops, police and security personnel will guard the town.

As noted earlier organizers of this premier gala pull out all stops to ensure a safe conference. AP reports the measures include extra vehicle checks and  webcam shutdowns. The Swiss national authorities have restricted the airspace above the event. This year, up to 5,000 troops, fighter jets, ground defense systems, and additional radar have also been authorized as part of the enhanced security. Authorities and organizers are working from a $9 million budget just for the extra security.

• Security includes surface-to-air missile systems.
• About 100 of the 2,500 participants get special security coverage.
• Attendees will be hemmed in by over 46 kilometers of fences.
• Zurich Airport will contend with about 1,000 additional plane and helicopter takeoffs and landings during the meeting.

Key topics are, how to address the climate and environmental challenges that are harming our ecology and economy. How to transform industries to achieve more sustainable and inclusive business models as new political, economic and social priorities change trade and consumption patterns. How to govern the new technological trends reshaping industry so they benefit business and society. How to adapt to the demographic, social and technological trends reshaping education, employment, and entrepreneurship. In prior years, some of the key issues high on the agenda have been involuntary immigration, extreme weather, and climate change, geopolitical conflict, terrorism, sustainable growth, as well as how robotics and other trends will shape the world in coming years.

As to who attends this exclusive event the gathering often includes nearly everyone who matters in the world of business and often politics. This year President Donald Trump started things off as he spoke from prepared notes. Trump repudiated the hysterical warnings of the "Green New Deal" advocates and decried his impeachment as a "hoax while recounting a list of his administration's economic accomplishments. Trump touted the fact that American unemployment has hit its lowest level in 50 years and that millions of manufacturing jobs have come back to the US due to his tax cuts and pro-business economic stance. During the speech's opening lines, Trump praised the two trade agreements that were finalized last week crediting them with sending US stocks to new all-time highs.

Treasury Secretary Steven Mnuchin also plans to attend Davos but a U.K. official said Boris Johnson and his ministers won’t attend. The prime minister is branding his administration as “the people’s government,” an image that might be undermined by the sight of him or his team brushing shoulders with the global elite at a Swiss ski resort. Of course, George Soros will be there, as will dozens of other CEOs. This will give them face time with the new ECB President Christine Lagarde, and her successor at the IMF. As usual, those in attendance will be closely followed by a massive group of journalists hoping for interviews and a moment in the spotlight.

Davos Is A Party To Cajole And Influence

Each year as this highfalutin extravaganza unfolds I seem to get a pain in my stomach that some might consider envy, but having attended my share of events I consider it more of a sickening feeling related to the over the top self-importance of many attending. Much of my angst is directed at the politicians and such that have their travel expenses picked up by governments. How ironic that we pay the same clowns that create so many of our problems to gather in luxury to discuss their deeds. I find it so interesting that someone flying across the globe on a private aircraft can sit down and discuss their environmental concerns and how each of us must do more to save the planet.

I should add this giant high dollar bash also includes the parties needed to cajole, influence, and build future connections to insure a good spot at the table in coming events. The topics holding the spotlight often are focused on issues related to wealth, whether it has to do with stock price swings, bonds, or commodities. As usual, many of the people attending have a great deal of interest in keeping the good times rolling whether by pseudo-economics, hocus-pocus, or any other policy that extends the good times. This means bringing in a few social or cultural disrupters or critics. This year high on this list is teenage climate activist Greta Thunberg.

If I sound cynical it could be because I suspect this gathering in Davos is not for our benefit but more for plutocrats like Facebook's Mark Zuckerberg and Amazon's Jeff Bezos that desire to "break the world" with their ruthless corporate agendas that continue to monopolize political power in the hands of the globalist elite. To counter this already reassuring words are being cast out over the airwaves to us, the minions of the world, to encourage faith in their wisdom. Oh, what a tangled web those in charge of our fate have woven for us as they rush to sell and bargain away our freedom for power and wealth.

The surge in populism sweeping the Western world indicates something is wrong. I suspect this baffles the global elites who see Davos as an opportunity. These people fail to see that many of us have come to view Davos, as a notorious rendezvous for the world's elite that grant us the honor of paying for their schemes in some way or form. Trump’s two-day jaunt was set to cost US taxpayers at least $3.4 million, according to federal filings but updates have taken bill past $4 million. Last year’s trip, which Trump canceled at the last minute because of a partial government shutdown, was set to hit $3.6 million but still cost around $3.2 million in unused hotel rooms and rental cars. Oh, by the way, did I mention this year marks the 50th anniversary of this event in the Swiss Alps?

Buy The Dip, An American Tradition Since 1987

Buy the dip has been an American tradition since 1987. The first truly modern global financial crisis unfolded in the autumn of  that year. October 19, 1987, has become the day known infamously as “Black Monday. It set forth a chain reaction of market distress that sent global stock exchanges plummeting in a matter of hours. In the United States, the Dow Jones Industrial Average (DJIA) dropped 22.6 percent in a single trading session. This loss remains the largest one-day stock market decline in history and marks the sharpest market downturn in the United States since the Great Depression.

Note Where "Buy The Dip" Started (click to enlarge)

The important significance of this event lies in the fact Black Monday underscored the concept of “globalization,” which was still quite new at the time. The event demonstrated the extent to which financial markets worldwide had become intertwined and technologically interconnected. This led to several noteworthy reforms, including exchanges developing provisions to pause trading temporarily in the event of rapid market sell-offs. More importantly, it forever altered the Federal Reserve’s response on how to use “liquidity” as a tool to stem financial crises.

Leading up to this event the stock markets raced upward during the first half of 1987 gaining a whopping 44 percent in just seven months. This, of course, created concerns of an asset bubble, however, few market traders expected the market could unravel so viciously. Prior to US markets opening for trading on Monday morning, stock markets in and around Asia began plunging. In response investors rapidly began to liquidate positions, and the number of sell orders vastly outnumbered willing buyers near previous prices, creating a cascade in stock markets.

          Thomas Thrall, a senior professional at the Federal Reserve Bank of 
          Chicago, who was then a trader at the Chicago Mercantile Exchange 
          later said, “It felt really scary, people started to understand the 
                     interconnectedness of markets around the globe.” 

Without a doubt, several new developments in the market enlarged and exacerbated the losses on Black Monday. Things like international investors becoming more active in US markets and new products from US investment firms, known as “portfolio insurance” had become very popular. These included the use of options and derivatives. A number of structural flaws also fueled the losses. At the time of the crisis, stock, options, and futures markets used different timelines for the clearing and settlements of trades, creating the potential for negative trading account balances and forced liquidations.

That is when, Alan Greenspan, then Federal Reserve chairman, came forward on October 20, 1987, with a statement that would shape traders' actions for decades. Fed Chairman Alan Greenspan said, “The Federal Reserve, consistent with its responsibilities as the Nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system” Prior to this markets were seen as a much riskier venture. The great legacy from the events taking place in 1987 is rooted in the actions and swift response of the Fed, that the central bank would backstop markets. This premise has grown over time.

After Black Monday, regulators overhauled trade-clearing protocols and developed new rules. One of the most important is known as circuit breakers which allow exchanges to halt trading temporarily in instances of exceptionally large price declines.  Under these rules, the New York Stock Exchange will temporarily halt trading when the S&P 500 stock index declines 7 percent, 13 percent, and 20 percent. This is done in order to provide investors time to make better informed decisions during periods of high market volatility and reduce the chance of panic. Risk managers also re-calibrated the way they valued options.

Unlike previous financial crises, the Black Monday decline was not associated with a deposit run or any other problem in the banking sector. Still, it was very important because the Fed’s response set a precedent that has over time when coupled with other events massively increased the moral hazard associated with intervention in free markets. Following the rout stock markets quickly recovered a majority of their Black Monday losses. In just two trading sessions, the DJIA gained back 57 percent, of the Black Monday downturn. Because of the Fed action in less than two years, the US stock markets surpassed their pre-crash highs and was not followed by an economic recession.

And now for the grand point of this post, we should not underestimate how the Fed’s response to Black Monday ushered in a new era of investor confidence in the central bank’s ability to control market downturns. The actions by Fed Chairman Greenspan galvanized the mantras "buy the dip" and "don't fight the Fed" and powered them to the top of trading lexicons. It has also been a key factor in allowing the stock market to morph into a much larger symbol of the economy than it merits. This is reflected in how over the decades growth in the financial sector has soared dwarfing that in the real economy.

Decades Of Nikkei Action (click to enlarge)

To all those market aficionados that forget markets can fall and for decades fail to regain their luster I point to the Japanese markets and their fierce meltdown in 1990. The chart to the right would look far more depressing had the market trends over the last decade coupled with buying from the central Bank Of Japan not bolstered its performance. We should also remember many market high-flyers simply vanish into a deep hole and that during the 1930s the Fed was unable to bring the economy out of its funk,

Another often overlooked issue is how changes in tax laws over the years have moved more wealth into stocks. These include the often forgotten and seldom mentioned changes many made by the Bush administration following the dotcom bust and 9-11. These factors and money constantly funneled into markets by pension funds and such coupled with soaring central bank liquidity has levitated markets to record high, after record high, despite stagnant fundamentals. It seems the "fear of missing out" and exuberance has caused many investors to become blind to the idea that years of profits can vanish in a blink of the eye.

This should force us to question the utter madness displayed in the widening disconnect between current valuations and underlying fundamentals. It could be argued that because of these actions QE has amplified speculation as investors seeking yield now feel almost invulnerable to future losses. We can cast away all the terms and warnings about "moral hazards" and "slippery slopes," however that does not guarantee they will not return to haunt us. Historically our hubris and arrogance has shined  as a beacon illuminating the fact that every time those in high finance declare it is different this time they have been proven wrong.     

Apple And Amazon Both Exceed In Exploiting America

Two of America's largest companies, Apple and Amazon share an ugly truth. It is rooted in exploitation and how they excel in exploiting America. Due to their strong ties to America's government, both these companies have been allowed to create a persona or facade that far outshines reality. Not only do they exploit workers but each in its own way, mask the huge amount of income they pluck from our government on all levels while avoiding paying taxes. The situation has become so obvious to many people that while moderating the Golden Globes awards, comedian Ricky Gervais in a joking manner slammed actors for calling themselves “woke” while taking money from Apple, Amazon, and Disney, who use slave labor.

While I concede both these companies have many admirers it is important to look from where much of their success flows. Years ago I penned an article titled, "The Poison Apple" where I questioned how Apple remains the darling of so many Americans while stories continue to surface on how it abuses its workers? This coupled with the widespread criticism of its environmental practices and tax avoidance schemes would have caused major damage to the corporate image of most companies. It might even result in large protests outside their offices and massive boycotts of their products. Yet, Apple is a company that Fortune magazine has called the most admired company in the United States and in the world. This is a company that the Economist called a "phenomena" and questioned if "it was a bubble" years before its stock price soared.

A More Truthful Logo

Some time ago the Paradise Papers highlighted the murky dealings by Apple that allowed it to pay a mere 3.7% in corporate taxes in 2017. This is a fraction of the worldwide average and well below what most people would imagine It detailed how Apple's tax-avoidance strategies, which are infamous, allowed it to find different avenues at securing its worldwide profits, which accounted for roughly 55% of its total income in 2017. In August of 2016, Apple was ordered by the European Commission to pay €13 billion in taxes, which Tim Cook called 'total political crap' at the time. None of this has altered how Apple has moved forward.  

It is as if people are totally blind to the less tasty side of Apple that appeared in a 2006 report focusing on the deplorable working conditions at factories in China where the contract manufacturers Foxconn and Inventec produced the iPod. The article stated that one complex of factories that assembles the iPod and other items had over 200,000 workers, that lived and worked in the factory. Employees regularly worked more than 60 hours per week making around $100 per month and were required to pay for rent and food from the company.  This generally amounted to a little over half of the workers' earnings. While things may have improved a bit over the years it is difficult to think the lives of these workers has become anything to brag about. 

Four months ago China Labor Watch issued a lengthy report accusing Apple and its manufacturing partner Foxconn Technology Co Ltd of breaching numerous Chinese labor laws. Yet, as big an issue as the history of worker exploitation of workers in China is the fact that since Apple manufactures in China it creates few jobs in American. Is the typical Apple user so self-centered that they just don't care, or do they lust for the product so much that they bury and ignore their social conscience?  These consumers are even willing to pay higher prices to lock themselves into a closed system tightly controlled by Apple.

Bezos Quietly Shapes Public Opinion

For a moment let us put aside Apple and explore some of Amazon's corporate tactics as well as some of the recent stories and the ever-growing political power of the very influential Washington Post which is owned by Amazon's CEO Jeff Bezos, which at times has claimed the title of the worlds richest man. Among the goals of this online retail mogul is replacing workers with robots which his company will both build and market.

 Bezos is also the head of Blue Origin, a company with big plans to pioneer the frontier of space. Last but far from least as Amazon's CEO Bezos ties this all together with Amazon Web Service or AWS. This is a cloud service that also collects data and has strong ties to the government. This means they know when you are sleeping, they know when you're awake, they know when you are bad or good. This all constitutes a great deal of power in the hands of one man.

Because of Amazon's strong ties with the government and what is often referred to as the "deep state," we should be concerned about whether The Washington Post is making a concerted effort to shape public opinion in a way that is at odds with our current President. Lurking in the back of my mind is that it was the Washington Post and not a newspaper located in Alabama that broke the Roy Moore story which has turned many women against the Republican party. This brings up the question of just how much the Roy Moore story also has fed into the "me too" movement that had huge ramifications across society. Are stories like this a coincidence or is a strong hidden agenda at play?

All this could be one of the reasons President Trump has voiced concern about Amazon as a force in America.

Donald J. Trump ✔ @realDonaldTrump

I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!

117K

6:57 AM - Mar 29, 2018

Twitter Ads info and privacy

The bottom-line is that Apple and Amazon, both receive and feed at the teat of our government and receive a lot of American tax dollars. We should never forget that in America the government and schools use taxpayer money to buy countless numbers of Apple products produced in China adding to Apple's credibility and helping to carry tax-evading Apple to the next level. While this is happening the money-losing United States Postal Service bends over backward to deliver Amazon products while the American government pays out billions to AWS for its services in collecting and storing data on American citizens.

Time and time again it has been pointed out that Amazon is one of the world’s most valuable companies, valued at nearly $800 billion. Even after the e-commerce giant pulled in $232.9 billion in global revenue in 2018, it paid $0 in federal taxes. In fact, Amazon was said to be getting a federal tax refund of $129 million this year, this is in spite of Amazon nearly doubling its taxable income in 2018 to $11.2 billion, from $5.6 billion a year earlier. The matter of Amazon's check to the IRS reading exactly $0.00 was also confirmed in a report published by Fortune which stated, the e-tail/retail/tech/entertainment/everything giant would not be paying a cent in federal taxes for the second year in a row.

It should be noted that President Trump is not the only politician that has taken aim at Amazon. current Presidential candidate, Sen. Bernie Sanders, I-Vt., has also criticized Amazon for not paying higher federal taxes and is not a fan of the company. Particularly troubling is money from our government flowing into Amazon adds to its war chest and feeds its ability to continue exploiting the brick and mortar stores that line the streets of our communities. These are the real businesses that provide jobs to millions of Americans. All in all, it is a bit ironic that so many people are infatuated with these two companies that seem hell-bent on taking far more from us than they are willing to return. To us not so enamored with these two companies the fact is, we just don't get it.

China Is Not Waiting For The Trade Issue To Be Resolved

China Hellbent On Becoming Leading Power!

China is not merely waiting for the trade issue with America to be resolved. China has a plan and is busy cutting a path forward with far more focus than is being displayed by America. Despite economic problems popping up in countries across the world, China is hellbent on pursuing its goal of galvanizing itself as the leading global power. The Chinese are actively pursuing a scheme to expand President Xi Jinping's continent-spanning One Belt One Road into new areas by promising loans and investments to countries across the world that are struggling economically. 

China has also been moving strongly into other areas of investment. For example, the Nikkei Asian Review recently reported that China is nearing completion of its new global positioning system (GPS) network. This is a sign of China's desire to dominate the world's next generation of telecommunications services and further decouple from the US' GPS network. China's Beidou network of satellites is expected to be completed in a few months when the last two of 35-satellites will be launched. Over 70% of Chinese smartphones are ready to tap into Beidou's positioning services. The system also plays a role in fifth-generation wireless communications, this is an area where China's Huawei Technologies is said to be leading in technological development.

The Beidou network of satellites is supposed to create a number of global services that benefit ASEAN, South Asia, Eastern Europe, West Asia, and Africa in precision farming, digital construction, and smart port application. By the end of next year, positioning accuracy is expected to improve from within 5 meters to within centimeters. This accuracy is crucial for self-driving vehicle development and seen as an advancement that will aid in search-and-rescue missions. Moving farther up the food chain is a core part of Beijing's "Made in China 2025" plan for boosting self-reliance in vital technologies. This is also apparent in an article I penned about the C-919. Their new Chinese airplane is intended to compete directly against Boeing and Airbus.

This does not mean China has left its problems behind. It is important to remember that politicians, even those in China, tend to go to extreme efforts to avoid taking responsibility for the problems they create. History shows that one way a country can kick their gross domestic product higher is to build a false economy based on infrastructure or war. One of the best examples of building an economy on a foundation of military might or a massive move to militarization was demonstrated by how Germany was turned into a war machine during the 1930s. China's version of this has been apparent over the years in its bizarre housing market and "ghost cities" where 75% of its peoples' wealth is stored. The OBOR initiative and China's growing space program may be an extension of this idea.

One of the biggest challenges china has going forward is that, in some ways, the Chinese residential real estate market could be called the most overvalued asset class in the world. An article written in late 2018 details how much of China's so-called wealth is tied up in poorly constructed overpriced homes. The fact these have only gone up in value has created a Ponzi scheme of massive proportions. The excesses in China's real estate market have not yet been resolved and when they are it is very likely the process will be deflationary. The resolution of bad debts reduces the money supply and tends to put downward pressure on prices until the excess supply gets worked off. With estimates that as much as 75% of Chinese net worth is tied up in this market the contagion resulting from dropping prices will undoubtedly spill into other markets.

Debt Has Exploded In China (click to enlarge)

The point of this article is to focus on two things, where China wants to go and how it got to where it is. This includes the matter of its addition and dependence on new credit creation to drive its economy. Prior to 2008 money flowed into China as companies invested there but since then the inflow slowed to a trickle then reversed. Since then new credit and surging debt have become the new driver of growth. When a country gorges at the trough of deficit spending that generates a big temporary boost in its GDP it also quickly creates a wall of debt and this has been China's fate.

Despite Beijing's efforts to decouple from America and its progressive agenda, China's economy continues to slow. This has forced the Peoples Bank of China to undertake several major liquidity injections. Each time the PBOC does this global markets have moved higher because the money seeps out across China's border. Simply put, China's currency is much weaker than many people think when they point to China's large holdings of U.S. Treasuries as proof of its solvency. The fact is even though China owns these U.S. Treasuries, China is running a massive U.S. dollar shortage both on a corporate and a national level. A great deal of debt has grown within the Chinese system. Chinese companies owe roughly $2 trillion U.S. dollar-denominated debt owed to international investors.

Ironically, the Fed has become the great enabler in this game of allowing China's currency to hold together. China's rapid expansion of debt and credit during the last decade could not have occurred without the Fed being complicit. It has been the Fed that decided to allow the dollar to be used as a global prop. A key role of a reserve currency is to force other currencies to toe the line or pay a stiff price. Ignoring this economic reality translates into pain for those holding the currency of any country that abuses this economic law. The rubber will meet the road as more countries that export to China question the value of the Chinese currency and demand payment in dollars and refuse the yuan.

The power of fresh credit as a tool to propel growth forward in China has collapsed. Over the years each new wave of money has begun to lose its impact as the efficiency of stimulus waned and more and more of the credit was absorbed in supporting existing debt. The fact is few good investment opportunities currently exist in China which has caused more and more money to leak across the border inflating asset bubbles in other countries. In other words, injecting more credit into the economy is not the miracle solution it used to be. China needs a much larger expansion of credit than 10 years ago to have the exact same amount of GDP. This has caused an article in the  Global Times to speculate China is contemplating moving interest rates to zero in a desperate move to stimulate its economy. 

China's debt has become the biggest wildcard for the stability of the global financial system. Continuing along this "one-way path," in January, Beijing injected a staggering $685 billion in new credit into its financial system, greater than the GDP of the 21st largest country, Taiwan. China watchers, economists, and investors have been forming battle-lines for years as they debate the true strength and sustainability of China's economy and its role as a global player. Those of us that paint a picture of China's future collapse are often accused of spreading "doom-porn" when we claim the Chinese have masked over their dire situation by continually expanding credit. Those of us in this camp see China as continuing to prop up the unpropable, and yes, while no such word exists, when it comes to China's economy it should, for "unpropable" describes the financial collapse that can only be postponed but not stopped.

The "China discussion" is comprised of many threads. These range from concern over what is seen as its goal of world dominance to huge questions over China's true strength. Some people even think, we should or can simply "take them out." In a world jaded by propaganda and fake news, it is difficult to get your head around what is real. I stand with those that see China has little intention of altering its course. This means China will continue to concede little as trade talks drag on and their goal is to "wear-down the impatient Americans." Beijing and Washington have agreed to a tariff cease-fire as part of a "phase one" trade deal. Yesterday Bloomberg reported the U.S. would lift China's "currency manipulator" tag hours ahead of the Phase One trade deal signing. This coupled with talk the second part of this deal may not be implemented until 2025 shows America has no stomach for playing hardball. Expect more conflict ahead.

Inflation Surge Will Be Driven By Fees, Tolls, And Taxes

When we look at where inflation has occurred during the last decade or so we find it centered in areas where the government has expanded its influence. This is why it is not always prevalent in manufactured consumer goods. Two that rapidly come to mind are in the area of healthcare and education. The skyrocketing cost of even basic health tests and medicine, as well as tuition at universities, screams inflation. Other sectors where the government is moving prices higher is in utility bills, new construction, and the cost of providing local services such as police and fire protection. A less often noticed area that carries massive implications over time is the broken legal system but that is its own story.

The next surge in inflation or higher cost to consumers regardless of the pace of economic growth might well come from huge increases in fees and taxes. People tend to forget just how much of government spending is done on the local and state level where simply printing more money is not an option for eliminating revenue shortfalls. The difference between stagflation and inflation is marked by the rate of economic growth. In this case, I'm talking about real growth and not the Gross Domestic Product numbers or GDP which many people view as a yardstick of growth. The GDP numbers are heavily skewed by numbers more associated with money churning rather than quality sustainable growth that positively benefits society.

State And Local Governments Need Revenue

This theory of where much inflation will be based is tied to governments' need for revenue. Local and state governments have hidden and masked the size of its growth and financial promises from the public. Since state and local governments lack the federal government's ability to print money and buy back its own debt they must pay higher interest based on their credit rating. As a state or local government's debt rises so does the amount of interest they must offer to sell their bonds. The damage this can cause is becoming evident in Illinois which is the poster child for dysfunctional state and local governance.

The combination of high debt and taxes has caused both businesses and people to flee Illinois. It was recently reported by Wirepoints that Illinois has lost more population than any other state in the country and is one of just four states to shrink since 2010. The population of 93 of the state’s 103 counties has shrunk since 2010. Only New York lost more people than Illinois in 2019. The population loss across so many counties is a reflection of the state’s outlier status on many of the nation’s economic, demographic and financial metrics. Illinois has the nation’s most costly pension crisis, one of the highest tax burdens. This coupled with corruption, falling home prices and a general lack of economic opportunity is contributing to the exodus.

A factor many people fail to grasp is just how much government has expanded over the years. Much of this is because we have masked its growth by "outsourcing" a great deal of the work its workers had been doing. Another place this sneaks under the radar is in the huge growth of "quasi-government " entities such as airport authorities and downtown improvement districts which are able to levy special taxes. An example can be seen in how today many of the services and maintenance that had been performed in the past by local street departments are now bid out to private companies. Utility companies also can fall into this category in that they are often monopolies carrying out government mandates under government supervision. 

Airline Fees (click to enlarge)

The average Joe or Jo may not see many of these increases in fees and taxes aimed at increasing revenue  because they are not assessed against them personally. Still, they do directly affect businesses and landlords which are forced to eventually pass on the added cost to consumers. Often this is through higher prices. Another way to do this is by transferring responsibilities, limiting warranties, or reducing goods and services that had been previously provided. A city forced to cut costs or increase revenues often choose to plow snow only when three or more inches fall, reduce the number of times it picks up leaves, or increase fines for such things as parking violations. Some areas have even gone to ticketing drivers for violations caught on camera.

An example of drastically surging tolls was highlighted in a recent op-ed in The Philadelphia Inquirer. The Pennsylvania Turnpike Commission has again raised tolls to use the turnpike. In 2008, it cost just $15.25 to travel across the state from New Jersey to Ohio, over the years this has jumped to $61.20. This is being attributed to a 2007 law that helped turn the turnpike system into a piggy bank that allowed legislators to avoid raising taxes for state roads and mass transit. The Pennsylvania Turnpike Commission, currently $11.8 billion in debt, is required by law to send hundreds of millions of dollars each year to PennDOT to help fund public transportation projects in Pennsylvania cities.

The irony of this is that in 2007 it was in the black, with more assets than liabilities on its books so Democratic Gov. Ed Rendell and the legislature enacted a law mandating payments from the commission to help pay for transportation projects.

All these fees, tolls, taxes, increased cost for permits, and fines flow back into society and our economy in a complex way with intricate ramifications to America's ability to compete going forward. Inefficient and wasteful government does have a cost and it must be paid. It will as I have outlined above come in many forms. Do not be surprised if 2020 is the year when these extra costs really begin to hammer brick and mortar retailers as well as commercial real estate across America. In the end, we will all be forced to pay the price of this "cost-shifting" by suffering a lower standard of living.


Footnote; Something is very wrong when we create expensive transportation systems that carry few riders. Local public bus systems often brag and carry on about how local dollars are leveraged to match federal and state resources and are a win for their residents the picture painted by the numbers in their annual reports are often not pretty or impressive. The following article highlights how such quasi-government entities need little accountability to be accepted into a community as a positive force.

https://Public Transportation-My City's Empty Bus Boondoggle.html

Believing In Illusions - Our Five Favorite Financial Myths

The Reality Of "Facts" Blows Myths Apart!

It is far easier to believe the five favorite financial myths of our time when you are rolling in dough and flush with cash. Due to a slug of freshly printed liquidity being pumped into the global financial system stock markets are making new highs and asset bubbles continue to expand. An increase in liquidity results in people feeling comfortable to take on more risk and this tends to swell leverage. During such a time true price discovery has a way of being diminished.

Whether it is a question of people generally just being too lazy to question what they see or lacking the imagination to pull back the curtain to reveal the truth they often choose to accept what is presented to them as reality rather than go to the effort to seek the truth. A myth is often defined as any invented story, idea, or concept, an imaginary or fictitious thing, or an unproved or false collective belief that is used to justify a social institution. The entertainment industry has flourished as society seeks any diversion to pull our attention away from the sharp edges of reality and into the soft comfort of escape. This may be the result of past experiences where we have learned reality can be hard to face and we can't handle the truth! In some ways, it could be said that our culture has become obsessed with avoiding what is real.  

Central Banks Failed To Stop (click to enlarge)

To say the system has been stoked by the actions of central banks is an understatement. In just the last few months nearly a trillion dollars of new stimulus has been poured into the markets. It comes in the form of  repo injections, new infrastructure programs, and things like slashing bank reserve requirements. A desperate attempt by central banks to keep the wheels from coming off the bus has been interpreted by many as confirmation the current trend of never-ending growth will continue. Rather than considering it is time for a reality check it is both easier and more comforting to adopt an "all is well" attitude and ignore the signs of danger lurking around the corner. 

The crux of this article is about some of our society's favorite myths that feed directly into the economy and how we feel about our financial security. While it could be argued the myths below have more to do with how we feel about life than about money, it cannot be denied that most people make many of their financial decisions based on the assumption the below statements are true. As a society, we rapidly choose to embrace and often choose not to question them because of the discomfort it would undoubtedly create. Sure many other myths exist or you can slice and dice them in other ways but the five below are very common and should be enough to remind you and even shed a bit of light upon the fact we are vulnerable at any time to having reality raise its' ugly head.

Believing Myths Is A Head In Sand Approach

Government is for the people and by the people - Seriously? After the last few years and dog and pony show, we experienced during the last presidential primary all illusions of that should have been erased. After often being forced to choose between the least of two evils it is difficult to praise our political system. After all the talk about "we the people" the fact is the average "person" is far removed from the power to decide important issues.

Financial planning means you only have to start saving a little money each year to guarantee an easy retirement.  - The fact is life is a casino where our future is tenuous at best. Much of our circumstances and lives revolve around money and the number of options it gives us when we possess it. I intentionally used the term "casino" to conjure up the image of financial fortune. Which you can lose in a blink of an eye if things go against you. This myth includes things such as the promises made by the government and others such as pension plans and financial institutions will indeed be honored.

You have rights and that we are not slaves - I defer to a few lines from a blog by Gerry Spence who has spent his lifetime representing and protecting victims of the legal system from what he calls The New Slave Master: big corporations and big government. In his blog, Spence wrote; The Moneyed Master has closed its doors against the people and sits on its money like an old hen on rotten eggs. The people will not prevail. With its endless propaganda the Moneyed Master has caused its slaves to believe they are free.

Your life will progress and move along pretty much as you have planned - When you think back over the years of your life if you are like most people things have not unfolded as you had planned. You may not be in the occupation you trained for or with your true love. Throughout our life watershed events occur that we have little control over, this holds true when it comes to your finances as well. Things such as having an investment or pension plan go south can be very unsettling. The thought that things could be worse does not mean they will become so, this is a reason to count your blessings. 

Those in charge or above you care about you and will protect you -  Well of this we can hope but more than one person has been sliced and diced by the people he or she trusted most. History shows when push comes to shove it is not uncommon for a person to look out for the person they treasure the most and that is often him or her self. Politicians and those in power tend to throw people under the bus rather than rise up and take responsibility for the problems they create.

My apologies if this post has been a downer or seems overly negative, however, it is what it is and it was written for a reason. Best stated by a comment I read on another site, these myths add up to where "This is not a can of worms but a warehouse stacked with pallets of cans of worms."  Because of how believing the above myths can impact our lives it is important we recognize their existence. This is not to say that we cannot by making good and reasonable choices eliminate much of the risk we encounter when we get out of bed each morning. Developing the habit of pressing on and forward to complete solid and reasonable goals is the best medicine to combat a deck that is often stacked against us. Be careful out there!