A rare spoof about China.

A final link for the night, and it’s a good one. Artists in China have to go to great lengths to get their works approved, often to no avail. An interesting and unusual look at what the Propaganda Department does, how the censors operate, how artists seek to second-guess them, and the effects of their efforts on Chinese talent.

A tiny snip, and then the computer goes off.

About the intellectuals, Mao Zedong often remarked, “If they don’t listen to us, we won’t give them food.” This kind of dependence on the state for one’s physical existence has handicapped Chinese writers and artists and intensified their self-censorship. Worse, China’s literary apparatus automatically excludes and isolates writers who are determined to exist outside it. Every now and then, some young writers raise a war cry against the Writers’ Union, but the truth is that most writers, old and young, are eager to join it.

Is it that hard to figure out why?

Wait. That is not my theory, but that of the author of an article written more than four years ago that a reader pointed me to and that I recommend you read. Not because it’s necessarily right, but because it’s fascinating to see where we actually stand four years after the writer’s prediction.

Today, the currency and export policy of China is anchored around its peg to the dollar. The main reason for this is that by artificially undervaluing its own currency, and therefore overvaluing the dollar, China artificially stimulates its manufacturing exports. The second reason is that by buying the excess U.S. dollars and reinvesting them in U.S. government bonds, it acts as a foreign lender to the United States. The third reason is that this foreign lending stimulates American demand for Chinese manufacturing exports and allows the Chinese government to relieve its current unemployment problems… No doubt, most of these loans will turn out to be very expensive because they will be repaid with greatly depreciated dollars, which in turn will exacerbate down the road the growing financial distress of the banking sector in China.

Therefore, it is clear that China travels today the road to Depression. How severe this depression will be, will critically depend on two developments. First, how much longer the Chinese government will pursue the inflationary policy, and second how doggedly it will fight the bust. The longer it expands and the more its fights the bust, the more likely it is that the Chinese Depression will turn into a Great Depression. Also, it is important to realize that just like America’s Great Depression in the 1930s triggered a worldwide Depression, similarly a Chinese Depression will trigger a bust in the U.S., and therefore a recession in the rest of the world.

Unless there is an unforeseen banking, currency, or a derivative crisis spreading throughout the world, it is my belief that the Chinese bust will occur sometime in 2008-2009, since the Chinese government will surely pursue expansionary policies until the 2008 Summer Olympic Games in China. By then, inflation will be most likely out of control, probably already in runaway mode, and the government will have no choice but to slam the brakes and induce contraction. In 1929 the expansion stopped in July, the stock market broke in October, and the economy collapsed in early 1930. Thus, providing for a latency period of approximately half a year between credit contraction and economic collapse, based on my Olympic Games timing, I would pinpoint the bust for 2009. Admittedly, this is a pure speculation on my part; naturally, the bust could occur sooner or later.

Of course, macro-economic predictions like this usually prove to be far off the mark (except those made by me), the most (in)famous perhaps being Gordon Chang’s prediction of “The Coming Collapse of China.” In the case of the article above, the story seems to have occurred almost in reverse – a US (and increasingly European) crisis is what is plunging the world into a recesion, not government-generated inflation in China. America’s economic crisis, not China’s, was the catalyst for the tailspin, and if China is be plunged into a depression, it will be for reasons very different from what the author envisaged. (He was shrewd enough to say that his theory might be offset by “an unforeseen banking, currency, or a derivative crisis spreading throughout the world.” And what we are seeing today was certainly unseen by most in 2004.)

However…however… I honestly believe China is going to be one of the few players that emerges from the current crisis relatively unscathed (and “relatively” is a key word.). Simply because of the size of its own domestic markets and the trade it carries out in Africa and Asia. It will suffer, lots of factories will continue to close and lots of dreams will be erased and jobs lost. But it won’t be depression. What it will be, more than anything else, is a test for the CCP. Running a country the size of China with the staggering problems is hard (to say the least), but it sure helps when the economy is roaring year after year.

One of the most frequently repeated motifs is that as long as the economy is kicking, most Chinese don’t give a damn about human rights and censorship and corruption. Once things slow down and people have more time (and more fear), as they see their opportunities dimming, as they realize the joy ride they were counting on was finite while the ruling classes are doing just fine – will they lose some of that Zhongguo jia you spirit and begin to demand their government do better? Will they look at they way America ousted the Republicans, and demand that same freedom? Short answer: probably not; at least not yet. China is better positioned to weather the current storm without enough rampant misery in the cards to get people thinking about revolution. The government can still spend its way out of this mess they way it usually does. One day China will face an economic moment of truth, the way America is facing one now. I’m pretty sure this isn’t it. Yet.

I swore I wouldn’t post anything today, that I’d focus only on my homework. The Internet is such a monumental distraction. And that will be the subject of an upcoming new post.

How did Palin do in the debate, in which the bar was set lower than ever before?

Who won the debate, based on the polls?

How bad is the economy looking compared to two weeks ago?

If you’ve never heard of him, please check on his track record before branding him an alarmist. He is no radical. In his bi-weekly column for Forbes he wrote yesterday:

When investors don’t trust even venerable institutions like Morgan Stanley and Goldman Sachs, you know that the financial crisis is as severe as ever. When a nuclear option of a monster $700 billion rescue plan is not even able to rally stock markets, you know this is a global crisis of confidence in the financial system.

The next step of this panic could be the mother of all bank runs, i.e. a run on the trillion dollar-plus of the cross-border short-term interbank liabilities of the U.S. banking and financial system, as foreign banks start to worry about the safety of their liquid exposures to U.S. financial institutions. A silent cross-border bank run has already started, as foreign banks are worried about the solvency of U.S. banks and are starting to reduce their exposure. And if this run accelerates–as it may now–a total meltdown of the U.S. financial system could occur.

Make of it what you will. He has been almost preternaturally right in predicting each phase of the calamity, but maybe he’s wrong this time. The IMF yesterday admitted we are seeing a “full-blown crisis” and Europe is now scrambling to brace for the shockwaves. Is Weimar around the corner?

Off to a class. If things melt down over the next few hours feel free to send me a text message.

Sorry, it will continue to be slower than usual over here until my classes end on Saturday afternoon. Feel free to talk amongst yourselves.

From the latest Couric interview with Palin. Heh.

KATIE COURIC: “What happens if the goal of democracy doesn’t produce the desired outcome? In Gaza, the U.S. pushed hard for elections and Hamas won.”

SARAH PALIN: “Yeah, well especially in that region, though, we have to protect those who do seek democracy and support those who seek protections for the people who live there. What we’re seeing in the last couple of days here in New York is a President of Iran, Ahmadinejad, who would come on our soil and express such disdain for one of our closest allies and friends, Israel … and we’re hearing the evil that he speaks and if hearing him doesn’t allow Americans to commit more solidly to protecting the friends and allies that we need, especially there in the Mideast, then nothing will.”

Yes, just the kind of incisive, penetrating mind we need to deal with the most complex, most fragile moment in America’s entire history. President Palin. Horrifying. Literally horrifying.

The financial crisis remain an enigma, something kind of distant and amorphous. This column made it sound a lot more real, and the comments are spirited as well.

Even if Congress backs the Paulson bail-out, the $700 billion blast cannot save the US, Britain or the world from the deepest economic slump since the Thirties. If Congress balks, God help us. The credit system is suffering a heart attack. Inter-bank lending is paralysed. Funds are accepting zero interest on US Treasury notes for the first time since Pearl Harbour, because no bank account is safe.

Wherever you look – dollar, euro, sterling Libor (the rate at which banks lend to each other), or spreads on credit derivatives – the stress has reached breaking point. If borrowers cannot roll over the three-month loans that are the lifeblood of business, they will default en masse.

“Money markets are imploding. If no action is taken very soon, there is a significant risk that the global economy will collapse,” says BNP Paribas. Almost every trader says much the same thing. So does US treasury secretary Hank Paulson, who as Toby Harnden reports, literally dropped on bended knee to beg help from Democrats on Capitol Hill.

Republican refuseniks – defying their president – have a grim responsibility if they now tip America over the edge, setting off the “adverse feedback loop” that so terrifies the US Federal Reserve. Like players in a Greek tragedy, they seem determined to repeat the “liquidation” policy that led to the Great Depression – and to Democrat ascendancy for years.

Lehman Brothers’ collapse showed the chain of inter-connections that can cause mayhem across a clutch of different markets. That was just one bank – albeit with $630 billion or so in liabilities.
Credit is the lubricant of a modern economy. A seizure now would probably lead to the bankruptcy of General Motors and Ford in short order, but it would not stop with the US car industry. Waves of job losses would set off a self-feeding spiral. Yet more people would default on their mortgages (and car loans), driving house prices down even further. That, in turn, would threaten the solvency of the best banks. That is the way to Armaggedon.

As Mr Paulson says, US taxpayers are on the hook whether they like it or not. A $700 billion fund to soak up toxic debt and stabilise the credit market is the cheapest way out. It is certainly cheaper than Depression.

No way out. I really can’t say it enough: Get rid of your dollars. At times like this, history shows, the safest place for your money is stuff, or foreign currency. ABD.

This is not the time to give the keys to the kingdom to a clown.

A very strange and confusing story that leaves the reader with many, many questions and no answers at all. Something is definitely wrong with the story the government told us back in August. Stories don’t come any more bizarre than this one. Not even in China. (I thought the post immediately below won today’s prize for bizarre, but this one runs neck-and-neck.)

Read it, and let me know if there’s any way to tie together the bits of information we have to create a scenario that makes even the slightest bit of sense. WTF happened??

During the 2004 election I repeatedly posted this quote from the great H. L. Mencken. Looking at Palin and McCain, I realize it’s time to post it yet again. Savor every word. It is spot-on.

“[W]hen a candidate for public office faces the voters he does not face men of sense; he faces a mob of men whose chief distinguishing mark is the fact that they are quite incapable of weighing ideas, or even of comprehending any save the most elemental – men whose whole thinking is done in terms of emotion, and whose dominant emotion is dread of what they cannot understand. So confronted, the candidate must either bark with the pack or be lost…

[A]ll the odds are on the man who is, intrinsically, the most devious and mediocre – the man who can most adeptly disperse the notion that his mind is a virtual vacuum. The Presidency tends, year by year, to go to such men. As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron.”

H. L. Mencken, in the Baltimore Sun, July 26, 1920.

That vision was fulfilled, of course, in 2004. Let’s do all we can to make sure we don’t elect another moron. Are you registered, and do you have your absentee ballot if you’re living here? Don’t let Palin or the sage who selelcted her anywhere near DC. Your vote really does matter.