Tuesday, December 22, 2009

Symbolic Economies: U.S. and China

The symbiotic partners of "Chimerica" both present symbolic economies which mask the structural rot in their real economies.

I am indebted to Australian analyst John Craig of the Centre for Policy and Development Systems for the concept of a symbolic economy which is presented as "evidence" of "healthy growth." Behind the symbolic facade, the real economy is devolving toward structural implosion.

Such a substitution by the Power Elites/State partnership of symbolic prosperity for broad-based, real prosperity is what I term a simulacrum of prosperity in the Survival+ analysis.

For China, the symbolic economy is a highly suspect GDP growth rate of 8%, mostly fueled by stupendous Central Government stimulus and unprecedented borrowing. Correspondent B.C. submitted this article China May Have 8 Trillion Yuan in New Loans in 2010 (Bloomberg) and this commentary:

Lenders, under government pressure to finance part of the nation’s 4 trillion yuan stimulus plan, advanced a record 9.21 trillion yuan of new loans in the first 11 months, more than double the amount offered in the same period last year.

~30% of GDP for two successive years and 150% growth in two years?

This would be equivalent to the US expanding bank lending by $11T from '08 to '09-'10.

Assuming the bank loans/GDP ratio, US GDP would have been reported to have grown $21 trillion in two years.

The growth of China's lending is at a compounding doubling rate of 18 months. That's right, in 18 months.

This puts China's money velocity below 1.0 and the multiplier at ~0.9.

Virtually nowhere does one read in the financial press the full extent of the absolutely mind-blowingly extraordinary runaway credit expansion occurring in China. There is simply no precedent in modern economic history for a country to have expanded lending at such a rate and share of GDP in such a short period of time.

That all other more "modest" episodes throughout history resulted in the greatest bubbles and subsequent crashes in world history, we are potentially witnessing (without most of us knowing it, apparently) the prelude to a China crash that will become a financial and economic black hole into which the entire global economy is consumed.

There is absolutely NO WAY that bank lending doubling in 18 months can be prudently and efficiently intermediated.

This kind of growth of lending, production, and hoarding of commodities is akin to a full-out war mobilization effort; a kind of last surge of production and laying up of stores before the armor is put on; the women and children are safely put out of harm's way; the blades and arrow tips are carefully sharpened and honed; the breast is thoroughly beaten and war cries sufficient to summon the gods of war; the necessary sacrifices are made to the gods; and the gates of the fortress are flung open, and the well-fed dogs of war are unleashed upon the enemy.

Thank you, B.C. As noted elsewhere in the blogosphere, much of this gigantic flood of borrowed money has flowed into

1. questionable infrastructure projects

2. a massive expansion of capacity in industries which already have too much capacity

3. empty malls, towns, luxury condos and other buildings, reinflating China's real estate bubble.

In the U.S., unprecedented Federal borrowing and bailouts have created a symbolic economy of the stock market rally and bogus "recovery" statistics.

Even as measurements of the real economy show structural devolution (tax receipts continue to plummet, incomes and hours worked remain at Depression levels, jobs are still being lost, etc.), the stock market's 70% rise is in effect the symbolic evidence that the "economy is recovering." Behind this symbolic facade, the real economy lies in ruins.

How can GDP be growing at a robust 3.5% clip (oops, already adjusted down to 2.7% a few weeks ago and now it's been adjusted down again to 2.2%) while employment and tax receipts are both falling? The answer: statistics are ginned up to support the symbolic economy of recovery, rising corporate earnings and a "new Bull Market" in stocks.

As a reader noted here earlier in the year, the stock market is the sole accomplishment of this administration and Congress. Without the "feel good" "New Bull Market," then the emptiness of the real U.S. economy would be in full view.

The Powers That Be might be questioned at that point, so a facade of "recovery" and a rising stock market are presented as a symbolic U.S. economy.

Take the Chimerica facades for reality at your peril.

Permanent link: Symbolic Economies: U.S. and China

Excellent new essay in Readers Journal:

The Real Con: "More Complex Is Better" (Michael M.)

Things are getting more and more complex in today's world. That is a statement few would doubt.

However the question is why. Is it necessary? Is it always necessary? How many people can keep up with changes and understand them? How can democracy / any form of participation still work if the majority doesn't even understand the broad overview anymore?

The real con of today is "more complex is better."

The Real Con: "More Complex Is Better" is chockful of interesting and provocative ideas.

Recommended books and films has been updated--take a look.

Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Expanded free eBook now available (85,300 words, 136 pages):
in HTML: Survival+ in PDF: Survival+

NOTE: the Kindle reader for PCs is now available for free which means you can read the Kindle version of Survival+ on your PC.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, Kent M. ($40), for your exceedingly generous contribution to this site. I am greatly honored by your support and readership.

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