Timothy Birdnow

More bad news for the Chicoms.

A word to the wise - deflation is as destructive as inflation, if not more so. Your money is worth more but there are fewer jobs and fewer goods and services and credit is nigh unto impossible to get

The United States had a problem with deflation during the latter days of the nineteenth and early twentieth centuries and it led to the rise of the Populist Party and the "Free Silver" issue upon which William Jennings Bryan made his fame with his legendary "cross of gold" speech "you shall not crucify Mankind of a cross of gold!" he exclaimed in his speech. That was because the Populists were demanding a bimetallic standard for money, which would lead to inflation. Bryan was a Democrat and he stole their thunder with this. It worked and we've been on an inflationary track ever since. (Gee, thanks!) But the problems with deflation were real, and especially the farmers hated it because it tightened credit ad farmers live or die by credit.

The reason why deflation is so terrible for borrowers is that, while the value of money increases, the amount of money the borrower has to pay to the bank remains constant, so essentially the debtor is giving more and more of his wealth to the bank with every payment. If, to simply the matter, you borrow a hundred thousand dollars from the bank and the deflation rate is 5% you would essentially lose that five percent as you pay it back, and that would compound along with interest rates. The price of goods and services decreases with deflation, but so too does the cost of your debt in real terms.

This is different from disinflation, which is a decline in the rate of inflation. But once it falls below zero it becomes deflation. Goods are cheaper but it hurts manufacturing for that same reason and so a producing economy becomes an importing economy. Beware deflation in the U.S.; the internationalists may move to trigger it to force the U.S. back into dependency on foreign manufacturers.

Deflation also leads to less demand because prices are falling and if you wait they will fall further. We've seen this with new products like computers; once only rich people bought them because they were too expensive. Then prices dropped. Now you can get them for cheap and now everyone buys them. That is how it will go with deflation, only by the time people decide to buy they have no money because you also get wage cuts at the same time in a deflationary cycle. The rich get richer with deflation because their money grows in value, but the poor ultimately get poorer.

That is what is happening in China now. And the peasantry already was struggling; it's going to get a hell of a lot worse for the average Chinaman.

The problem of China is it is a command economy, a Fascist-style economy with corporate/government partnership (with government being far and away the senior partner) and the corporations are generally owned by party members. Crony capitalism we sometimes call it. This hollows out an economy because it is ultimately aimed at the good of the corporate owners (of whom G.K. Chesterton once quipped "the difference between a capitalist and a communist is a bigger paycheck" but he meant under a crony capitalist system like the Nazis had) and for the benefit of the government. The people in such a system get the leavings, and only then to guarantee they stay in the labor force.

The author of the linked article argues China is doing now what Japan did back in the nineties and he believes the same result is now happening to China. Probably true but Japan had a more free system than does China, even though they had a lot of government partnership with corporations (and you may remember Bill Clinton and Al Gore bragged and bragged on the Japanese system and how we needed that in America.) Japan was riding high until they started this fascist economic thing, and I have always known China was a Potemkin Village, a beautiful mask without a person behind it. The huge population and the ability to undercut the export market is what made the mask for them, but in the end their own people couldn't buy what they were making.

This is the inevitable end for any economy planned and controlled by government. Only truly free economies have any staying power when the cold wind blows.

It's getting chilly now in China and they are in peril, so there is every reason to expect them to do what all tinhorn dictatorships do - go on a foreign adventure of some sort.

The Chicoms are not going to go quietly into that good night. They have long bragged this is "their" century and have darkly warned war with the United States is inevitable. They may not be willing to go directly at us but watch for them making a move somewhere else in the world.

The most logical and softest target would be Siberia. The Russians wouldn't be able to stop them now, not unless they used nuclear weapons. But it would permanently break the relationship between the two countries and China needs Russia as an ally. They are part of the Axis.

Taiwan? Perhaps; lord knows they have coveted Taiwan since the Nationalists retreated to the island. But the U.S. would probably stop them under Donald Trump; easier to wait for a weaker President.

I'm not really sure where else they could act but I suspect they are going to have to do something soon. And of course now we have a potential plague pandemic...

We are sitting on a powder keg, not just with China and Russia and Iran. It looks remarkably similar to early 2014.

Anyway I think China's days as an economic superpower are numbered. Trump is squeezing the life out of their economy and they are being starved for things they need like oil. Asian oil isn't very helpful to them because it would be a mother to build pipelines over the Himalayas. They need oil from Iran and from Russia and they just aren't getting enough right now.

It is inevitable there will be shortages of all sorts of goods, and in fact as I point out in this article they are hoarding all kinds of stuff; gold, fertilizer, antibiotics, etc. They may well be planning for war.

War is never easy when you have an economic malaise though, and so they really need an existential threat without actual battlefield losses. Xi Jinping is in a bind.

(While I do not believe we are where we would need to be to witness Armageddon we are pretty close in terms of political and economic and cultural alignments. It will be something that stops the flow of oil from the Middle East that will trigger the Chinese invasion, and Russia will be brought into a war in Syria/Lebanon/Israel, something less clear than the Chinese involvement. And of course the Arab world will be in the thick of it, being in their backyard. Europe and the "West" of course will be the Big Dog in this, the Kingdom of the Antichrist.)

At any rate we live in interesting times, as the ancient Chinese curse would say. I suspect China will do something. Not sure what yet but something.

They, like everyone else in the world, can't wait for Donald Trump to leave office. IF the GOP loses the elections then Trump becomes a lame duck and China could take action against, say, Taiwan because Trump would be stopped from doing much by the Democrat-controlled Congress. The REPUBLICAN House has already voted to end the Iran War by exercising the War Powers Act (but it died in the Senate); change the balance of power and both chambers could well pass it. The War Powers Act does not require a 2/3 majority and the Democrats will probably change the Senate rules to rid themselves of that pesky filibuster when they take power - something John Tune refused to do.

If China invaded Taiwan the Democrats would probably invoke the War Powers Act and stop any military involvement by the United States, handing Xi and his thugs the victory they crave.

As it is the U.S. would be hard-pressed to engage in military combat with China; we've used up so much of our hardware against Iran. And China would have plenty of drones to fight with. Nobody has yet come up with a good defense against drone warfare, since a drone squadron doesn't care about losses; they are cheap to make and do not risk any lives.

We live in interesting times.

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