Monday, July 30, 2012

Russia's Rustbucket Navy; China's Faltering Economy

The only way Mr. Putin can project power is with his navy and perhaps some permanent ports of call.

“Putin would like to do it because right now the navy is the only force that he has to demonstrate Russia is still a world power,” said Norman Polmar, a naval analyst and author of several books about the Russian navy.

“He can’t send the army anywhere. He can’t send his airplanes anywhere without over-flight rights, and people don’t like to let military planes fly over their countries.”

...the Russian navy “is in very poor shape because of finances.”

“It has very few ships that are operational. Very few submarines that are operational. Everything is behind schedule, all of their new construction. The country was for several years essentially bankrupt after the fall of the Soviet Union. The shipyards fell into disrepair. All of the services fell into disrepair,” Mr. Polmar added.

Mr. Russell said the problem is worsened by corruption. Money meant for the government is siphoned off by organized crime.

“The country’s balance sheet looks good right now because it has lots of oil and natural gas, but the profit from this bonanza is being looted by the organized crime-apparatchik kleptocracy that is ruling the country,” he said.

“Much of the money is just being stolen and not being invested in the people and the state. If it didn’t have nuclear weapons, why would anyone take Russia seriously today, except in a negative sense?” _WT

So much for Russia's ability to project conventional power around the globe.

As for China, much of its international clout is based upon its image as an economic juggernaut. But is such an image just a bit out-dated?
Industrial output growth is decelerating , and perhaps more quickly than the government data suggests. _WSJ
Pay particular attention to the graphs in the WSJ piece above.

China's global power play will come to nought if its economic infrastructure collapses like many of its buildings, bridges, tunnels, towers, and other constructs.

Both China and Russia are struggling with out of control corruption at all levels of government -- and no one can guarantee that either nation's government will win their respective battle.

To top it off, although both nations would like to project an image of close cooperation and allied goals, in the long run the two countries are on a collision course. And it is likely that China will be the last man standing, of the two.

Thursday, July 26, 2012

Russia's Death Agony

In the article excerpted below, Alina Smyslova takes an agonising look at the death struggles of her mother Russia.
...unless the Russian government begins to address the factors causing the population decline, Kremlin’s economic goals will not only become unachievable but will experience a setback, and the country’s role as a key player in the world will diminish.

One of the biggest causes of the decline in population is the shift in family dynamics away from marriage, and the corresponding decrease in child birth. Russia is experiencing a revolution in family values with a significant decrease in the number of couples choosing to get married, and a significant increase in divorce. Since the 1990s, more women have opted for cohabitation before marriage, and often forgone marriage altogether.[3]

In addition to the decline in marriage rates, there is a significant decline in women choosing to have children. The lack of financial security is forcing many Russian women to choose abortion instead of motherhood. Andrei Akopyan, the head doctor at a Moscow reproduction and family planning clinic, predicts that the number of abortions will increase by approximately 11%, which he attributes to current economic woes. In fact, based on results from the Russian Public Opinion Research Center, VCIOM, only 5% of women polled in November 2008 are planning to become pregnant in the next two years.[4] The numbers become even more desperate when considering the rising number of unhealthy babies being born. Only 30% of children born in Russia are healthy; 50% of newborns lack either iodine or calcium, the leading causes of brittle bones and mental retardation;[5] seven in every ten newborns suffer from some kind of disorder; and one in twelve babies is born underweight.[6]

Those women who do choose to give birth face many risks, from losing a job to dying in childbirth. According to the World Health Organization, a Russian woman is six times more likely to die in childbirth than a German woman.[7] Combined with the high chance of giving birth to an unhealthy child and the unstable finances of the majority of the population, it is no wonder the birth rate has decreased.

The crisis only worsens as the death rate (16.06 per one thousand) continues to outnumber the birth rate (11.03 per one thousand). One of the dominant and rising killers is the HIV/AIDS virus. According to 2007 estimates, approximately 940,000 Russian citizens, or 1.1% of the population, are living with HIV/AIDS and the number is increasing exponentially. [8] Most unfortunate, 80% of the population that will die from the disease will be between 25 and 39 years of age—the prime age for family formation and labor production.[9] In addition, Russia is facing a quickly increasing rise in tuberculosis cases, which nearly quadrupled in the 15-to-17-year-old age group between 1989 and 2002.[10] The death rate from cardiovascular disease is four times, and the death rate from accidents, injuries, homicides, suicides, and other “external causes,” is five times higher than that of the European Union. [11]

Majority of these health problems and deaths are linked to the biggest problem facing Russia today: alcoholism. Alcoholism or alcohol dependency is a significant factor in two-thirds of deaths for men under the age of 55, given the life expectancy for Russian men is about 61.5 years. Russian women fare slightly better with a life expectancy of 73.9 years.[12] The Russian government is almost blissfully unaware of the health crisis afflicting its citizens; does not have accurate data on the number of people suffering from the major diseases; and is doing very little to curb this horrifying death trend. _My Dying Mother Russia

Full article PDF download (click for download manager)

H/T Mercatornet

We hear a lot of happy talk about how Russia has turned the corner on its demographic decline. But what has actually happened is that muslim immigrants are flowing into the country so rapidly that they are skewing the overall population statistics. If the numbers are stratified by ethnicity, the sad truth of the ongoing decline of Russia's core population would be clear.

Bonus: Putinism Under Siege: A collection of articles from Journal of Democracy

Tuesday, July 24, 2012

How Long Can You Live Without Electricity?

It is estimated that in the case of a long term loss of electrical power across a continent-wide area, as many as 90% of urban populations might be lost within one year, due to violence, loss of modern medical care and pharmaceuticals, lack of proper food and clean water, poor sanitation, and a general collapse of order and morale due to the loss of societal support structures.

How many ways can an electrical power grid be put out of commission? Here are a few, but the number is limited by the human imagination:

  1. A broad-based cyber attack on power infrastructure
  2. A high altitude electromagnetic pulse attack
  3. A barrage of high power solar flares
  4. A series of graphite bomb attacks
  5. Targeted terrorist attacks on grid infrastructure using explosives, missiles, and small arm

More information at the Vulnerability of Electric Power Grids Analysis Project

Here is a look at one possible form of low-tech terrorist attack against power grid infrastructure:
The most vulnerable structure, system or component for large scale coal plants is the main step up transformer – that component that handles electricity at 230 or 500 kV. They are one of a kind components, and no two are exactly alike. They are so huge and so heavy that they must be transported to the site via special designed rail cars intended only for them, and only about three of these exist in the U.S.

They are no longer fabricated in the U.S., much the same as other large scale steel fabrication. It’s manufacture has primarily gone overseas. These step up transformers must be ordered years in advance of their installation. Some utilities are part of a consortium to keep one of these transformers available for multiple coal units, hoping that more will not be needed at any one time. In industrial engineering terms, the warehouse min-max for these components is a fine line.

On any given day with the right timing, several well trained, dedicated, well armed fighters would be able to force their way on to utility property, fire missiles or lay explosives at the transformer, destroy it, and perhaps even go to the next given the security for coal plants. Next in line along the transmission system are other important transformers, not as important as the main step up transformers, but still important, that would also be vulnerable to attack. With the transmission system in chaos and completely isolated due to protective relaying, and with the coal units that supply the majority of the electricity to the nation incapable of providing that power for years due to the wait for step up transformers, whole cites, heavy industry, and homes and businesses would be left in the dark for a protracted period of time, all over the nation.

The economy would collapse, regardless of how much good will and positive hope there was among the ruling elite. The hard facts of life – America in the dark – would soon become apparent to everyone, and the economy wouldn’t be able to absorb it. _Captain's Journal

Surviving under such conditions would be very difficult, particularly if other forces antagonistic to the US continued to attack vital infrastructure and supply lines after much of the power grid had collapsed for the duration.

Useful information on "grid-down survival"

People do not typically do well on their own -- they need families, friends, and social support structures. Modern, technology-dependent humans do very poorly indeed when on their own, without their support technologies and societal infrastructures.

It would cost over $1 trillion to harden the power grid structures of North America against these various forms of attacks. That money is unlikely to be spent for such purposes, since it is being spent for politically expedient reasons instead.

That leaves the ball squarely in your court.

Sunday, July 22, 2012

Flogging Round the World

The economies of the globe are receiving a flogging, one by one. Under Obama, the largest economy, the USA's, cannot even rescue itself, much less help the large numbers of other nations beginning to drown under debt, demographic decline, and green faux environmentally motivated energy suicide.
The United States, by far the world's biggest economy, has long pulled the global economy out of slumps. Now it needs help. Three years after the Great Recession officially ended, the American economy can't maintain momentum. For the third straight year, growth has stalled at mid-year after getting off to a promising start. _Bloomberg

Europe's populations are beginning to show the signs of low birthrates among core populations. The problem of insufficient young people to support the growing numbers of old people is adding to the continent's problems.
Europe's obstacles are even more severe. It's faced with crushing government debts, struggling banks and scant economic growth. Unemployment in the 17 countries that use the euro is 11 percent, the highest since the euro was adopted in 1999.

Greece, Portugal, Italy and Spain are in recessions. Germany and France are faring better, but both are likely to grow more slowly this year than America. _Bloomberg

As for China, we have seen over the past weeks and months that China is not immune from the economic problems of Europe and the US.
Chinese growth has decelerated for eight straight quarters. That's the longest slowdown in records dating to 1992, according to Yu Bin, a government researcher.

China is also feeling Europe's economic squeeze. Chinese exports to Italy dropped 24 percent in June from a year earlier. Exports to France fell 5 percent, those to Germany nearly 4 percent. Europe buys about 17 percent of China's exports. The impact of weak European demand for Chinese-made furniture, shoes, toys and other goods has fallen hardest on export-oriented manufacturers along China's southeastern coast. Some companies have closed. Others are cutting staff. _Bloomberg

From China, the problems flow downhill to Brazil, and to India. Brazil's government and people have been betting that the good times would never end, and the time to pay the piper is approaching.
"The current pace of credit growth in Brazil remains unsustainable — and the longer it continues, the bigger the risk of a messy ending further down the line," Capital Economics warned.

Similarly, the outlook has dimmed for India, the world's fourth-biggest economy. Its growth slowed to a 5.3 percent annual rate in the first three months of 2012, the slowest rate in nine years. _Bloomberg

Russia has its share of problems from rampant corruption and capital flight to widespread drug and alcohol abuse, and suicide. Still, some Russians see the country's source of economic support -- its energy wealth -- as the equivalent of Russia having won the lottery:
Lottery winners find it psychologically hard to accept that their winning is a completely random event. They tend to see it as their "achievement," the result of them being special or chosen by providence. Remarkably, this is also the case with Russia, where the government ascribes the country's relative economic prosperity not to the inflow of petrodollars — and the luck from an extended period of high global oil prices — but to its supposedly wise, prudent economic policies. Ordinary Russians similarly see the wealth that is flowing into their country as somehow the result of their hard work, not circumstances beyond their control.

Winners' greatest victims, however, are their own children. Very rarely are the lottery winnings used to ensure good education for winners' kids. Many end up spoiled, morally corrupt and traumatized by their parents' good fortune. This could be seen as a metaphor for Russia's lack of investment in its future. Russia has done little to wean its economy from oil or revive the education and research infrastructure that existed in the Soviet Union. Most alarmingly, lottery money usually ends up as an easy-come-easy-go fortune. Even enormous jackpots have been squandered completely. It is a cautionary tale for Russia, which could end up back in the indigent 1990s if oil prices fall. _MoscowTimes
The Earth's national economies are being generally flogged round the world, and even the winners too often end up losers.

Thursday, July 19, 2012

Tables Turned on Florida Internet Cafe Armed Robbers

The Internet cafe patron who shot and injured two men as they tried to rob the business will likely not face any criminal charges.

“Based on what I have seen and what I know at this time, I don’t anticipate filing any charges,” said Bill Gladson of the State Attorney’s Office for 5th Judicial Circuit.

Gladson said he has reviewed the security surveillance video from the cafe. While he still awaits final reports from the Marion County Sheriff’s Office, he said the shooting appeared justified.

Samuel Williams, 71, who fired the shots, has a concealed weapons permit, according to the Sheriff’s Office. Under Florida law, a person is allowed to use deadly force if he or she fears death or serious injury to themselves or others. As long as the person isn’t committing a crime and is in a place where he or she has a right to be, they are considered to be acting within the law. _Source

One never knows when President Obama or Reverend Sharpton will take a personal interest whenever Florida thugs are shot. I suppose it depends upon how closely the perpetrators resemble the US president's nonexistent son.

Below you see a short video of the armed robber thugs being chased down by an indignant 71 year old cafe patron, who turned the tables on a pair of punks.

The perpetrators had not expected anyone in the cafe to be armed.

Rampant spillover crime in places such as Florida tend to induce a counter-reaction within ordinary citizens. Concealed carry permits and armed neighborhood watch captains make criminal activity outside the 'hood more dangerous. Previously soft targets may be hardening.

Wednesday, July 18, 2012

Americans Support Big Defense Cuts?

Over the past 3 years, US federal budget deficits have averaged over $1 trillion per year, and there is no sign of reduction in federal spending -- nor any sign of significant increased revenues -- for the next decade. Where should a more frugal government start to cut spending? Defense? Social Programs? Environmental Agencies? Interest on debt?

Here are projected annual increases in spending categories for the US federal budget from 2012 thru 2022:
Annual rates of increase in major spending categories budgeted for the 2012-2022 period were: Defense: 1.8% Non-defense discretionary: 1.6% Social Security: 5.8% Medicare: 6.6% Medicaid: 8.5% Net interest: 14.2% Total spending: 5.0%[6] _Wiki

You can see that the big losers in future budgets are defense and non-defense discretionary. Mandatory spending is skyrocketing.
Given the above, it may seem odd that American voters are not more angry about government over-spending across the board. Instead, the ire of American voters is directed mainly toward defense budgets.

Americans of all stripes have had enough of massive Pentagon budgets and want significant cuts in defense spending, according to new survey data released on Monday.

In Republican and Democratic districts across the country, 74 percent and 80 percent of respective voters said they want less defense spending, the study found.

On average, voters indicated that they wanted a budget for fiscal 2013 that would be nearly 20 percent less than current defense spending.

With $645 billion enacted for total defense spending this year, the average voter’s preferred budget for next year, an 18 percent cut, would translate into a $116 billion savings—money lawmakers trying to balance the budget could sorely use.

“The idea that Americans’ would want to keep total defense spending up so as to preserve local jobs is not supported by the data,” said Steven Kull, director of the Program for Public Consultation, which conducted the survey with the Stimson Center and the Center for Public Integrity, a nonprofit investigative journalism group. Read more at _NatJournal

H/T Mish

What voters do not understand is that defense spending has been decreasing as a proportion of total spending, for quite some time. The image below demonstrates how mandatory spending is growing, at the expense of discretionary spending:


Mandatory spending is growing exponentially, and is destined to crowd out all discretionary spending including both defense and non-defense discretionary. So why isn't the skankstream media -- both news and entertainment -- informing the public about the truth of budget trends? Because media executives see no benefit to themselves in keeping the public informed. Yes, they are happy to indoctrinate the public to their own benefit, but objective information that is crucial to average citizens lives? Not so much.
US Federal Budget Doomed to Swamp US Economy

Spend-happy US politicians have put the US economy into a huge bind, and the clock is ticking down.

The US defense budget should certainly be given a good trimming, but the same thing is true for the US government budget as a whole. If things go on as under the current administration, the US will not be able to afford its defense infrastructure quite soon, anyway. It will be slashed, regardless, by necessity.

The US public is quite naive about the nature, extent, and rate of growth of US government spending. And so far, no one seems willing to paint a clear, broad, objective picture -- not even Mish.

Tuesday, July 17, 2012

Spain: A Cautionary Tale from Michael Pettis

Beijing-based economist Michael Pettis has family roots in Spain. Michael's personal experiences with friends and family involved in the Spanish real estate bubble provide object lessons on a much wider scale:
I remember in 2003 my mother had a New Year’s Eve party at our family home in Málaga, in southern Spain, at which over 80 people sat for dinner, including most of my old friends still around from high school days. That night I had one of those epiphanies (as you often do on New Year’s Eve, I guess) about the real estate market when I suddenly realized that nearly every one at the party was involved in one way or the other in real estate. Most of the people there (including my Persian sister-in-law) were real estate developers, real estate agents, real estate lawyers, architects, or owners of building and construction companies. All of them lived off (and had prospered mightily from) the real estate boom in southern Spain.

But this cannot be, I thought in my naiveté. If the only industry around is real estate, then we must be living through a real estate bubble of enormous proportions.

Later that night I spoke to one of my old high-school friends, Andy, who was at the time a prosperous real estate agent with houses in Marbella (purchased on borrowed money, naturally), a Mercedes, and all the trappings that accrue to an immensely charming and self-confident real estate agent during a real estate boom. In our conversations, and ones that took place subsequently over the next few years, I warned him that the property market in the south of Spain looked out of control, and it would be a good idea from him to diversify his savings out of real estate.

Same old same old

Of course Andy didn’t. He explained to me that what we were seeing in southern Spain was not a bubble because there were very strong reasons to believe that real estate prices were undervalued and were going to rise a lot more. Europe, he told me, is aging rapidly, and old people, as everyone knows, like nothing better than to retire in some warm and sunny place, preferably on the beach. With an infinite supply of European old people and limited European beachfront property, mostly in Spain, Italy, and Greece, where in addition you had great food, warm-hearted people, and plenty of immigrants to keep the prices of services (and servants) down, it was certain, Andy explained, that real estate prices would not decline. The demand was insatiable at almost any price.

This seemed like a perfectly reasonable argument on the face of it, and it was widely proposed to justify ever-soaring Spanish real estate prices for many years, not just on the Spanish coast but also, perhaps a little bizarrely, in every nook and cranny of the country, including some pretty gray and inaccessible building projects outside cold, northern industrial cities.

The weakness in the argument, of course, was that although there might have been near-infinite demand, this could not justify near-infinite increases in prices, especially since the demand itself was likely to be highly pro-cyclical because the Spanish economy had itself become dependent on real estate development. As long as the economies of the cold northern European countries were booming, in other words, the demand from retirees for beach houses would stay high, but any slowdown in the economy would reduce demand in Spain at the worst possible time.

And as Spanish real estate slowed, the impact would be exacerbated by a much sharper slowdown in the Spanish economy caused by the slowdown in real estate, which had become a major driver of the economy. If a substantial portion of the Spanish workforce depends on a booming real estate market – and not just those directly dependent, but also those indirectly dependent, like bankers, restaurateurs, retailers, travel agents, and so on – then any slowdown in the real estate sector is itself seriously self-reinforcing.

We have now seen how this works in Spain, but in China we are still using a similar argument to explain why real estate prices cannot drop significantly. Our Chinese version of the old-people-love-to-live-on-the-beach argument is the urbanization argument. As long as Chinese workers continue to move from the country to the cities – and urbanization has been one of the most dramatic consequences of Chinese growth in the past three decades – then there is likely to be a near infinite demand for city property, and so prices can only go up. And because prices can only go up, speculative demand for real estate is not speculative, it is precautionary.

This claim seems at least as plausible as the Spanish argument justifying infinite price increases, and was probably true a decade ago, but it runs into the same problem that the Spanish story ran into (and indeed that nearly every previous case in history of a real estate bubble, which has always started with a plausible story). First, no matter how much demand we can project into the future, rising prices can nonetheless outpace rising demand because rising prices can themselves stimulate further demand, in which case rising prices are unsustainable. This should be obvious, but the point is often lost in the giddiness that accompanies rapidly rising prices.

Second, and this is key, the rising demand is itself pro-cyclical. This is the most dangerous part of the process and perhaps the least well understood. Rising demand driven by the urbanization process is itself subject to underlying growth in the economy, since it is growth in turn that drives the urbanization process.

What’s more, when we reach the point as we did in Spain several years ago, and have reached in China too, in which a substantial part of the growth that drives the urbanization process is itself created by real estate development, then any slowdown in underlying growth is likely to be seriously exacerbated by a corresponding slowdown in real estate development. This is because the economy is caught in the reverse side of the feedback loop that helped drive prices on the way up – slowing growth leads to slower demand for urban real estate, which leads to slower real estate development, which itself leads to slower growth. _Michael Pettis

Patrick Chovanec explains why his cautionary language about the Chinese economy is not just empty words

Walter Russell Mead remarks on the falling Chinese growth numbers, and wonders what they portend for the future of the global economy.

Most of the developed world is caught up in the twin destructors of exponentially rising debt, and demographic decline. Up until recently, it was thought that China, India, Brasil, and Russia were exceptions to this widespread decline. But that rosy viewpoint may be wrong.

In fact, it seems that the Anglosphere may be in the best position to weather this lengthening global recession, if the US can rid itself of the parasitic regime that is currently sucking the life's blood out of the US private sector.

Good luck, Yanks, this November.

Monday, July 16, 2012

Who Needs California?

California is drowning in debt and suffocating in green regulations and mandates. Walter Russell Mead says that this is a bad thing, because both America and the world need a strong, vibrant, prosperous California. Here are his thoughts:
The destruction of California isn’t a victimless crime. Millions of low income California residents are trapped in decaying cities where, thanks in large part to narcissistic green unicorn chasers, the manufacturing base has withered away. And anything that blights California, blights us all. America and the world need California back on line; the Golden State has too much to offer for anyone to remain indifferent to its fate.

In the long run, California is too richly endowed and its people too dynamic for the self-defeating policies of the green elites to prevail. Either the governing class of California tires of unicorn hunts, or at some point the people of California will get tired of their governing class. And in any case, the current suicidal policy mix means that sooner rather than later, California will run out of the money needed to maintain the illusions of its governing elites and the whole elaborate system of sham and deception will blow away. _Walter Russell Mead

Mead is reacting to this piece by Joel Kotkin, in which Kotkin describes how the green agenda is destroying the economic base of every jurisdiction in which it is enacted.

Green anti-energy and anti-private sector policies are indeed slowly destroying Germany's economic base, and are a painful thorn in the side of Australia's efforts to remain prosperous. President Obama has tried to bring the same impoverishment and destruction of opportunity to the entire US, but his success in creating failure is most pronounced in the state of California.

Mead's defense of California overlaps with Robert Kagan's defense of the US. California is unique among American states, and the US is unique among world states. The lefty-Luddite green destruction of opportunity in both the US and California would be a serious loss to the world at large.

This brainless green agenda is driven mainly by leftists in several sectors, including academia, the news and popular skankstream media, the faux environmental industrial complex, the sprawling leftist political activism networks, and a large cluster of well-to-do "we know what is best for you" financiers and promoters>

This agenda -- in truth -- would like to see a reduction in global population from its current 7 billion people, down to between 100 million and 700 million people. In other words, this agenda does not care about you, your dreams, or your loved ones. It is a blind agenda that dreams of mass death and a great downfall of human industrial civilisation.

Who needs California? Who needs America? Who needs free and prosperous people, with the liberty to follow their dreams? Not the lefty-Luddite green dieoff.orgiast faux environmentalist movement. If it were up to them, you -- and all of the above -- would drop dead.

Sunday, July 15, 2012

China Needs a New Model: Unlikely to Find One

China's growth model is badly in need of revision. But the sort of reforms which China desperately needs to make, are unlikely to prove attractive to China's leadership -- neither the outgoing bunch or the incoming one.
China needs to find a new economic model. Relying on abundant cheap labour, cheap capital and welcoming export markets is no longer a viable road map to the future in a nation where the leadership from Deng's days on has embraced growth as a political weapon to buttress the party's claim to power; and where, as a result, materialism rules rather than communism or Confucianism.

Wages are rising by more than 10% a year as blue-collar workers' pay is used to drive up consumption, which plays much too small a role in driving the economy. Cheap credit produces dangerous liquidity bubbles. Foreign demand has fallen sharply as rich countries run into problems of their own.

Above all, Chinese leaders know that they need to steer the country away from the volatility of the past five years – big boom in 2007, slump in late 2008, revival in 2010-11, and now a slowing down again. What they need is a more stable medium-term outlook to coincide with the assumption of power by a new generation of Communist party leaders at the end of this year and the appointment of a new government next March.

...This requires undertaking the structural reforms – for example in land ownership, labour mobility, capital market and pricing of energy and water – that Hu Jintao, the party secretary, and Wen Jiabao, the premier, have fought shy of. Xi Jinping, the politburo member who will replace Hu when the party holds its five-yearly congress late this year, is not known as a risk-taker – he got to the top as a consensus figure who keeps his mah-jong tiles close to his chest. But a real debate about the need for economic – not political – reform is going on. _Guardian

Brian Wang is positive about China's economic growth

The problem with the generally positive viewpoint of the Guardian article above, and Brian Wang's rosy viewpoint, is that few people are acknowledging the avalanche of bad loans passing through China's banking system, pushing cash into corrupt state owned enterprises, and politically connected persons with close ties to central and regional governments.

No one is detailing how all of this bad debt and misallocation of resources is going to be processed through the system, while keeping growth and GDP numbers high.

The current Chinese economic model allows wealth and power to rest firmly in the hands of governmental leaders, their families, and those closely connected to them. But it does not allow for crucial market signals to be passed down the line and acted upon at the necessary levels, in sufficiently prompt time for long term market vitality.

Artificial stimulus and momentum can prop up a putrifying system for quite a long time, if the stimulus is large enough.

China has already been forced to adapt to shrinking export markets by creating an artificial infrastructure boom-bubble. The expiration date -- the burst date -- on that bubble is ticking closer.

Friday, July 13, 2012

Barack Obama Meets with HM The Queen . . . .

Barack Obama meets with HM The Queen.
He asked her, "Your Majesty, how do you run such an efficient government? Is there any advice you can give to me?''
''Well," said the Queen, "the most important thing is to surround yourself with intelligent people." Obama frowned, and then asked, "But how do I know the people around me are really intelligent?"
The Queen took a sip of tea. "Oh, that's easy; you just ask them to answer an intelligent riddle." The Queen pushed a button on her intercom. "Please find Tony Blair and send him here, would you?"
After a little while Tony Blair walked into the room and said, "Yes, Your Majesty?" The Queen smiled and said, "Answer me this please Tony, your mother and father have a child. It's not your brother and it's not your sister. Who is it?" Without pausing for a moment, Tony Blair answered, "That would be me." "Yes! Very good," said the Queen.
When Obama went back home he asked Joe Biden, his vice president, the same question. "Joe, answer this for me.
Your mother and your father have a child. It's not your brother and it's not your sister. Who is it?" "I'm not sure," said Biden "Let me get back to you on that one...."
He went to his advisors and asked every one, but none could give him an answer.
Finally, he ran into Sarah Palin in a restaurant one night. Biden asked, "Sarah, can you answer this for me? Your mother and father have a child and it's not your brother or your sister. Who is it?" Sarah Palin answered back immediately, "That's easy, it's me!" Biden smiled, and said, "Gee thanks, Sarah!"
Then, he went back to speak with Obama. "Say, I did some research and I have the answer to that riddle. It's Sarah Palin!"
Obama got up, stamped over to Biden, and angrily yelled into his face, "No! You fool, don't you know anything? It's Tony Blair!'
___Taken from comments on Barack Obama is Proving an Embarrassing Amateur More on Barack Obama:
Where is American leadership when it comes to standing up to the Russian bear? Unfortunately it's stuck in the ridiculous “reset” policy announced by Hillary Clinton back in 2009. This administration has badly underestimated the degree to which the Russians are a major threat to US interests and the free world. Concession after concession has been made to Moscow by the Obama team, from signing the New START Treaty to pulling out of Third Site missile defences in Eastern and Central Europe. The grovelling, deferential approach towards Russia was perfectly encapsulated by the president’s cringe-worthy conversation with Dmitry Medvedev in Seoul in March, where, caught off guard, the US leader told his then Russian counterpart that he would have “more flexibility” to deliver when the presidential election was over.

And what has Obama received in return for his kowtowing to Moscow? Increasing Russian aggression abroad and mounting repression at home. As The Telegraph’s Tom Parfitt has just reported, a Russian ship carrying helicopter gunships bound for Syria has set sail again in the wake of a massacre by Syrian government forces of around 200 civilians in the village of Tremseh. This move follows the deployment of Russian naval vessels, led by a destroyer, to the Mediterranean a few days ago.

The Russian “reset” has been interpreted by the Russians as a weakening of American power, and a willingness by Washington to accommodate Russian demands. It has emboldened a major strategic adversary that has become increasingly dangerous and aggressive. Coming soon after Moscow’s invasion of Georgia in 2008, the “reset” has been a staggeringly naïve exercise in appeasement by the world’s superpower. The Russians respect only boldness and strength, both of which have been in markedly short supply at the Obama White House. President Obama is looking increasingly like an amateur on the Russian front, and we should be in no doubt that President Putin will be taking full advantage of Washington’s weakness. _Telegraph

Obama is an embarrassment to virtually any category to which he can claim membership. Perhaps the American people can cancel his membership to one particularly exclusive club, come November.

Wednesday, July 11, 2012

California's Big Problems in Higher Ed.

This is a nice summary of California's higher education bubble, in the days prior to its imminent collapse.

If you take a broader look at California, you will learn that things are hard all over.

The entitled classes ensconced within California's universities are matched by entitled classes at every level of California's state and local governments. It is unlikely that the people will stand for this nonsense for much longer -- particularly when dysfunctional government policies of spending, regulation, and taxation, are driving more and more profitable businesses and employers out of the state.

Video H/T Boots and Oil blog

Wednesday, July 04, 2012

Investing in China? Better Understand China's Growth Model First

China has been the golden boy of investment opportunities for investors, manufacturers, and outsourcing agencies and companies for over a decade now. The excitement and outright hype over China's growth rates have lured large numbers of investors who -- 15 years ago -- might not have touched China with a 100 foot pole.

Michael Pettis provides a bit of insight into the theoretical underpinnings behind the China growth model:
In a 2003 book review Columbia University economist Albert Fishlow very usefully elucidated Gershenkron’s position (“Review of Economic Backwardness in Historical Perspective”, February 13, 2003,
  1. Relative backwardness creates a tension between the promise of economic development, as achieved elsewhere, and the continuity of stagnation. Such a tension takes political form and motivates institutional innovation, whose product becomes appropriate substitution for the absent preconditions for growth.
  2. The greater the degree of backwardness, the more intervention is required in the market economy to channel capital and entrepreneurial leadership to nascent industries. Also, the more coercive and comprehensive were the measures required to reduce domestic consumption and allow national saving.
  3. The more backward the economy, the more likely were a series of additional characteristics: an emphasis upon domestic production of producers’ goods rather than consumers’ goods; the use of capital intensive rather than labor intensive methods of production; emergence of larger scale production units at the level both of the firm as well as the individual plant; and dependence upon borrowed, advanced technology rather than use of indigenous techniques.
  4. The more backward the country, the less likely was the agricultural sector to provide a growing market to industry, and the more dependent was industry upon growing productivity and inter-industrial sales, for its expansion. Such unbalanced growth was frequently made feasible through state participation.
This of course sounds a lot like the Chinese growth model, and that of a number of other countries that experienced growth “miracles” in the 20th Century. In fact countries undergoing the process described by Gershenkron were able to generate fairly substantial increases in wealth for long periods of time – as clearly happened in China, at least during the first fifteen or twenty years since the reforms of 1978.

But the case of China, and every other case of an investment-driven growth miracle, suggests that the model cannot be sustained indefinitely because there are at least two constraints. The first has to do with the constraint on debt-financed investment and the second with the constraint on the external account, and one or both constraints have always eventually derailed the growth model. _Michael Pettis
Pettis goes on to explain the constraints which limit that sort of economic model.

Have you been seduced into trusting China's trajectory of growth?

The beginning of the end-stage of this cycle of bubble-bust-boom

The widespread misperception that China is -- and will continue to be -- the global economic leader, is being sustained by an international financial media which cannot even change its own diapers, much less advise others how to invest their resources.

You would do best not to trust China's ruling class, and not to trust the numbers coming out of China. Be careful where you invest your money in this era of corrupt and Idiocratic government.

Tuesday, July 03, 2012

Chinese Ghost Cities Rising In Darkest Africa

When you discover a Chinese-built ghost city in the middle of Angola, you may suspect that something very odd is going on.
Perched in an isolated spot some 30km (18 miles) outside Angola's capital, Luanda, Nova Cidade de Kilamba is a brand-new mixed residential development of 750 eight-storey apartment buildings, a dozen schools and more than 100 retail units.

Designed to house up to half a million people when complete, Kilamba has been built by the state-owned China International Trust and Investment Corporation (CITIC) in under three years at a reported cost of $3.5bn (£2.2bn).

Spanning 5,000 hectares (12,355 acres), the development is the largest of several new "satellite cities" being constructed by Chinese firms around Angola, and it is believed to be one of the largest new-build projects on the continent.

The jewel in Angola's post-war reconstruction crown, Kilamba is the star of glossy government promotional videos which show smiling families enjoying a new style of living away from the dust and confusion of central Luanda where millions live in sprawling slums.

But the people in these films are only actors, and despite all the hype, nearly a year since the first batch of 2,800 apartments went on sale, only 220 have been sold.

The place is eerily quiet, voices bouncing off all the fresh concrete and wide-open tarred roads.

There are hardly any cars and even fewer people, just dozens of repetitive rows of multi-coloured apartment buildings, their shutters sealed and their balconies empty.

Only a handful of the commercial units are occupied, mostly by utility companies, but there are no actual shops on site, and so - with the exception of a new hypermarket located at one entrance - there is nowhere to buy food.

After driving around for nearly 15 minutes and seeing no-one apart from Chinese labourers, many of whom appear to live in containers next to the site, I came across a tiny pocket of life at a school.

The people looking after the lawns cannot afford to stay here. It opened six months ago, bussing in its pupils in from outlying areas because there are no children living on site to attend. _BBC
'Ghost town' in Angola
Sure enough, the Chinese ghost city built in Africa is the result of a crafty trade. A Chinese company built the deserted city in exchange for Angolan oil, owned by the Angolan government. But since people living on $2 a day cannot afford $200,000 apartments, the Angolan government gets stuck with a city of high rise apartments which may begin to crumble within the next 10 or 15 years -- if the state of Chinese construction in China is any guide.

Watch and see how many other oil and mineral rich African governments fall for this scam...

Monday, July 02, 2012

China Takes Top Spot in Global Risk Ranking

The table and charts below indicate an ongoing weakening in China's economic condition. China's economy has been on extreme life support since 2009, with the main question being how long the artificial infrastructure overbuild stimulus could substitute for a shrinking export market.
Click on table for full image (source)

The following charts show an interesting story of unsustainable growth and over-exuberance by China cheerleaders nearly everywhere.

China PMI

$SSEC Shanghai Stock Index

Decoupling Review

Notice the bubble in 2007. That's when all sorts of ridiculous decoupling theories, US hyperinflation scenarios, US treasury crash scenarios, crude is going to $200, Natural Gas is going to $40, and other nonsensical ideas came out of the woodwork, many in book form, some still persisting to this day.

Instead, the reverse happened! It was the US that decoupled from the global economy. Moreover,  China has been exposed for the malinvestment bubble that it is.

Now, in 2012, nearly everyone but the die-hard hyperinflationists thinks the US will decouple from the global economy.

China's export markets -- the EU and North America -- have experienced reduced demand for Chinese goods which shows no sign of return to the pre-2008 bubble days.

China's economic model of stealing from the poor and giving to the well-connected rich, will continue only so long as the people allow it. Watch and learn.