The EU, US and UK Are Going Bankrupt, Not China

There seems to be a very profound inability to understand the nature of national wealth and solvency of governments.  Even so, we see many people discussing ‘Who is going bankrupt?’ without much heed to ‘What is capital?   What are assets?  What are credits?’  Since the elites and the top bankers who service them have muddied these waters as much as possible so they could create wealth out of nothing (via the derivatives hedge games) we can’t get a grip on what is real and what is fake anymore.  But history is a great tool for excavating information and seeing the truth again.  For the hard truth of the matter is, the people who live in a defined country are the true wealth.  The things that exist in reality in a defined country is true wealth.  And knowledge is also true wealth which is why the debased currency used for talking about wealth has led us to a situation where we are seeing whole countries slide off the cliff into anarchy.

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All my years blogging about the world, I kept an eye on physical reality, another eye on the spiritual/psychological reality and the political reality.  Tying these three things together gives us a world picture that shows how things operate in reality.  There is a lot of wishful thinking in the world and we have to push this aside and attend to real reality.  As a refresher, here is one of my older stories about the real reality versus the IMF:  Money Matters: China’s IMF Representative Battles IMF Head

Sometimes very small matters that barely make the news end up determining the fates if billions of people’s lives. I sense the arcane banking accords, the Basel II understandings and the Pillar I, Pillar II and Pillar III developments are part of the triggering mechanism that is going to play a key roll in the coming financial and political confrontation of the depressed and dying US and Japanese economic systems. As I keep pointing out, the world’s #1 and #2 economies cannot both be running dying currencies simulatneously without explosive results. Today, I am going to compare an interview with the head of the Chinese delegation to the IMF and the head of the IMF itself. Ouch! They tell totally different stories about negotiations!

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Here is yet another story from two years ago:  G20 MEETING IN LONDON IS A FARCE | Culture of Life News.  The issue of sovereign wealth is one that I cover frequently here.  The fact is, people forget all about sovereign wealth and worry excessively about paper money in the sewer of the floating fiat currency regime.  The floating fiat currency regime was launched for one main reason and only one reason: the US, during the OPEC oil boycott, had to import lots of energy and materials to run various wars we were funding at the same time!  So, we dumped the gold standard and opted for perpetual trade deficits.

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There is NO OTHER REASON for the existence of the floating fiat currency regime!  None at all.  It was an emergency move that became permanent.  There is no reason why someone else can’t reinstate the gold standard, either.  If it happens, it will be done because a sovereign wealth nation demands all trade be resolved based not on relative value of the currencies but rather, against a standard ‘yardstick’ device that sets all rates.  And it might not be gold but some other defined and restricted instrument that can’t go suddenly to infinity or zero.

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On to the collapse of the EU thanks to the floating fiat euro floating to the top of all the world’s currencies.  This happened because the EU over-expanded when it let in nearly all of the Warsaw Pact countries.  This made the EU, not the US, the world’s #1 economy!  Ooops.  According to the rules of commerce, the strongest currency has to be from the strongest economy.  Accustomed to exporting to the US, suddenly, the EU was stronger and therefore, trade had to shift.

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But it didn’t shift in the US favor, it shifted in favor of Asia!  Now, Europe is seeing individual countries going bankrupt, one after another, in rapid succession.  Greece already is bankrupt when they announced a 50% haircut on their debts.  Here is an article about who goes bankrupt and how:  The surprising history of Italy and sovereign default – Telegraph Blogs

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…the defaults of France and Britain on their First World War debts to the US in the early 1930s. France began defaulting in 1932. Britain began defaulting in 1933. Italy – which of course was one of the allies of France and Britain in the First World War – was the last World War I ally to default. The only Italian default I can identify, historically, was that from 1940, when it suspended payments to its then World War II enemies.

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Sovereign default is almost always a choice – a matter of appetite to pay, rather than ability. Britain and France were not out of assets in the 1930s, any more than Greece is out of assets now. Because it is a matter of choice, it is a reflection, as much as anything, of culture and history.

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The result of Germany, France and England all suspending payments to the top creditor nation, the USA, back then, led directly to WWII.  Italy choose the side of ‘don’t pay debts to the US’ every bit as much as the rest of Europe.  This caused huge problems for the US and there was this tiny, brief moment when the guys who refused to honor war debts thought they were super-smart and then the hammer of US retribution came crashing down on all of them, eventually.

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The US, even though we had terrible financial troubles, terrible depression, awful things going on here, we easily defeated everyone in WWII and bankrolled all our allies including Soviet Russia, fought wars on every front or funded the wars on every front and won, totally and completely.  This is the hidden power of a sovereign wealth nation!  This is the lesson we should learn from WWII.  The US then funded the rebuilding of Japan and half of Europe after that destructive war and everyone thrived thanks to US sovereign funding.

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Now, on to a very silly story that everyone thinks is all about how smart some economists are when talking about reality.  It should occur to people that quite a few economists have NO HISTORICAL UNDERSTANDING of anything and are of limited use when it comes to analysis of greater historical forces:  Chinese TV Host Says Regime Nearly Bankrupt | Business & Economy | China | Epoch Times

 

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Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.
Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.

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Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.

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First of all, the Chinese government, ITSELF, clipped the economy back in order to stop a real estate lending bubble.  So, they raised interest rates, they raised the reserve ratio banks had to hold to cover bad loans (two things the US refused to do during the housing  bubble!!!!) and thus, slow down things quite a bit.  So…things slowed down!  On top of this, the export explosion is slowing down due to their customers in the West cutting back on spending!  Duh!  So, when ALL the industrial nations are seeing production fall to 50% the question is, who has enough sovereign wealth to weather this storm intact and who is deep in debt and facing destruction?

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Well, it isn’t China!  Real inflation in all the G20 countries is quite high.  The official inflation rates are all set ridiculously low.  In the US, we have had this utterly horrible situation where important things for survival have shot up in price while the interest rate on savings is essentially zero.  The US government depends, like Japan, on endless ZIRP funding for government debt and the minute it shoots up beyond what was the norm (3%) will destroy us!  So we have to have this fake ‘depression’ while inflation chews our arms and legs off and makes the masses much poorer.

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China is NOT a ZIRP lending country!  It has a healthier economy so it can charge what is, over time, a ‘normal’ interest rate.  It is not trapped in deep debts where the only way to avoid bankruptcy is to pretend there is zero inflation.  Years ago, when Japan first began its ZIRP borrowing, I yelped.  I said, this was impossible.  But it went on and on.  The excuses for this were many but as the decades go by, it is obvious that it is fake and being done to cover up the fact that Japan is bankrupt.  The Japanese wealthy families are not bankrupt, they are rolling in yen.  The government is bankrupt.  This is a significant detail!

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Here is an old story I wrote in the past about this matter:  Chinese Sovereign Wealth Versus US Sovereign Debt | Culture of Life News

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It now seems that the Chinese communists who are supposed to be cruel and stupid, are actually spending their own trade surplus profits to expand trade and increase the amount of money flowing back into China. That is, China’s export profits go back home, not to say, the Cayman Islands or Jersey Islands, etc. The government of China realizes that Sovereign Wealth is when a GOVERNMENT, not an international corporation, holds the profits from trade.

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The US model whereby trade profits are held by individuals who then hide this from the government is obviously a wretched failure because this system has destroyed our industrial base, pushed millions of former factory workers into severe poverty or a life a crime (mostly as drug dealers) and put the government deep into debt. The solvent Chinese system stands in stark contrast with the insolvent Japanese and US systems. That is, the inability to tax trade profits lies in the dark heart of the crisis hammering both Japan and the US and is directly connected with the ZIRP system and declining wages of workers in the home base states.

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Back to Professor Lang in Hong Kong (trained in the US system, thus, unable to understand what is really going on):

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Behind the fiat control of the economy, which can have the appearance of being efficient, there is enormous waste and corruption, Cheng said. It means that little spending is done on education, welfare, the health system, etc.

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Cheng says that for the last decade the Chinese regime has accumulated its wealth primarily by promoting real estate development, buying urban and suburban residential properties at low prices (or simply taking them), and selling them to developers at high prices.

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Wow.  Um, China went, during the last 30 years, from having virtually no navy, no commercial shipping to being the world’s top ship building nation with some of the biggest ports on earth and is building ports all over the planet, and this armada of ships ply the Seven Seas!  How vast is this?  This totally upended real world merchant powers!  Both the US and UK once sailed the Seven Seas and ruled world trade.  Both were the biggest ship building nations on earth.  Today?  NEITHER can build squat except for two facilities in the US which churn out gold-plated military craft that are bankrupting the nation.

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The US and UK build NO merchant marine ships!  Nada!  Ziltch!  This is a total and complete collapse of our sovereign powers, our sovereign wealth and our national well-being since both countries rely very heavily on foreign ships to bring in goods and stuff we need to survive!  We export on foreign ships!  We import on foreign ships!  And we build nothing.  This is true bankruptcy.

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China has also built many factories.  My goodness!  Isn’t that odd?  The US and UK have destroyed factories.  Many factories including this month, the last one in my small town, have shut down production and sold their machines to…China!  The Chinese have built railroad systems that are the finest on earth (despite rash accidents and messes, we don’t have much of that here because…we have virtually no rail systems left).  The US can’t afford to build even one high-speed rail system in California, for example.  The US system is falling apart.  China is building.

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Countries falling apart into bankruptcy don’t see lots of infrastructure being built!  They sell it off, bit by bit.  The US has been doing this for years, selling off ports, highways, bridges, rail systems, everything in sight.  Foreign powers own a lot of American facilities.  Many buyers are Chinese.

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Here is what one angry Chinese commentator had to say in rebuttal and I agree 100% with him:

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China has a GDP of 38 trillion yuan and even if what Larry Lang said is true then China’s debt over GDP is 95% versus 234% in Japan, 111% in the US (15.5 trillion/14 trillion x100).

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If China, which has US$3.5 trillion in foreign reserves is a bankrupt why is that the US and Japan are not even when their debts over GDP ratios are much higher and the US has practically no reserves? The US has a burden of about US$55 trillion liabilities covering Medicare, Medicaid and Social Security and yet it is not a bankrupt.

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The reason why Italy (120%) and Greece (139%) are in trouble is because their debts are denominated in euros and they cannot print euros to service their debts. The debts in US, Japan and alleged debts in China are denominated in local currencies and unlimited amounts can be printed. Ask Helicopter Ben !

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The other fallacy is that China’s corporate tax is not 70% but 25% and the tax for individual is not 81.6% but ranges from 5% for those earning up to 500 yuan a month to 15% for those earning from 2001 to 5000 a month which is the average for most workers. The top individual tax rate is 45% for those earning 100,001 yuan and above a month and you won’t find too many individuals in that category.

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I shall take Larry Lang’s data with a large pinch of salt now that the IMF has given China’s financial health a thumbs-up.

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The Chinese have a lot of ‘leverage’ whereas the US only has its navy and air force and nuclear missiles….and robot assassins.  We don’t have much else.  This is why China keeps expanding its economic systems whereas we are putting up more and more military bases and rattling our sabers and invading left and right: we are Nazi Germany and Imperial Japan wrapped in the Red, White and Blue.  We imagine we can avoid bankruptcy by menacing China.  Here is typical bravado one would expect from say, Mussolini when he tried to prevent Italy from going bankrupt by invading Libya:  Obama tells Asia, US “here to stay”.  But look at how popular we are in parts of Asia:  Clinton motorcade hit with eggs in Manila – CNN.com

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Fukushima has basically turned Japan into a basket case, quite literally.  Japan’s rules hope to use US military power to bumble their way out of bankruptcy.  True, Japan has still a huge sovereign wealth fund but this can’t be used since it is required for cleaning up one of the worst nuclear catastrophes in history:  Writer urges Taiwan to abandon nuclear power – Taipei Times

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Having recently published a book against nuclear power, Liu said the president of TEPCO had remarked that nuclear power was actually a very expensive power source when compensation fees are calculated, and that a professor from the University of Tokyo has even estimated that it would cost up to ¥800 trillion, amounting to approximately 10 years of the national budget, if the soil and road surface of radiation-affected areas are to be cleaned up.

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The damage is so much that the Japanese government would go well beyond bankruptcy, Liu said.

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Meanwhile, China struggles to keep things going smoothly as the G7 nations of NATO go bankrupt.  Proof of our own bankruptcy is, our own government can’t bring in a budget:  Stalemated debt-reduction panel members cast blame.  The rich don’t want to pay taxes yet, Millionaires storm Capitol Hill, want to pay more taxes.  The Occupy Wall Street demonstrators are regrouping and pressuring the press and Congress to heed words of warning.  And the IMF rules being imposed in Europe are extremely unpopular:  Mario Monti lays out his plans for Italy as students riot.

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Lastly, Deadly storms carve up the Southeast as more are killed by tornadoes and floods.  And even then, these states send to Congress people who want to protect only the top 1% and who have previously refused FEMA funds.  So it goes: if people don’t wise up, they will end up looking at many decades of bankruptcy with no hope at the end of the tunnel and no foreign ships coming in to disgorge mountains of manufactured goods, cheap.

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16 Comments

Filed under .money matters, Free Trade

16 responses to “The EU, US and UK Are Going Bankrupt, Not China

  1. The Black Swan

    Elaine: Do you see a way out of this mess? I live in the USA, I am in my mid-20’s and it scares me to see where this country is headed. It is hard to have hope when our leaders(rulers) keep making every wrong decision imaginable. I am grateful that there are people like you who are lifting the veil and exposing the truth. I just wonde if there is a way out of this mess that doesn’t involve violent revolution and a century (or millenia) of Dark Ages style living.

  2. Joseppi

    “China is NOT a ZIRP lending country!”

    I do believe that inflation is higher than interest rates in China? China issues stats that inflation is lower than it really is. Also, the housing and infrastructure building bubble was only given attention after it became a bubble. I speculate (worry) that if China suffers a severe downturn that it would cause them to reassess their US debt holdings (liquidate) and cause further stress on the fiat debt system.

    “The government of China realizes that Sovereign Wealth is when a GOVERNMENT, not an international corporation, holds the profits from trade.”

    That is a brilliant fact of life. This reality, if understood and acted upon, would mean we all would occupy a better future. Thanks, Elaine.

  3. Plove

    Speaking of serious business, Disney does Wall Street.

    Newt fetching in pic 3.

    http://tinyurl.com/887ascn

  4. emsnews

    EVERY SINGLE top notch country, that is, the top 20, the G20, LIES about inflation! All of them! Without exception.

    So, when they all lie the same way, what do we say? How about, ‘That’s how the floating fiat currency cookie crumbles?’ :)

  5. Alex Yam

    The Epoch Times is a mouthpiece of an anti-China cult well known for fake news about China, its cult leader is some nut job who claimed he can float in midair and can generate more energy than the entire Milky Way galaxy combined.

    People who believe China is going bankrupt are delusional morons, how the f**k can you go bankrupt when the bank, the law and the military is a single entity that isn’t in debt to outsiders, isn’t tied up by voters or international corporations, and its currency isn’t even free floating.

    Thanks to the internet. The human race has collectively reached a point where everyone knows the system doesn’t work — everything is rigged and everyone is openly lying. The only people who can transit to the next phase unscratched will be the ones who believe in hard work and production, or, if you have big guns, force the little guys work for you.

    In China fake money is for dead people, even kids know this, Chinese believe in production, if something can be produced, it can be produced 10 times more costing 10 times less.

    The problem China have now, is that the west is having less and less to spend, so instead of producing things that sell for $30 we now have to produce something better that sell for $50, the ones who can’t catch up will be forced to live closer to the north western dessert and develop there.

    We had concerns over how to achieve a soft-landing, but it looks like no matter how hard we land Europe will land harder than us.

    Next year Europe is having a reshuffle, US is preparing for an election, China is having a new leader that means nobody in China will make a sudden move (especially since the 2nd head came back from the dead), the bunch of South East Asia morons know this that’s why they are rapidly talking shit near South China sea and trying to cook something up.

  6. Aussie

    Re:… First of all, the Chinese government, ITSELF, clipped the economy back in order to stop a real estate lending bubble.
    …The US and UK have destroyed factories.

    Elaine, you are bang on the money.

    I fear our clueless US and Australian leaders are leading us towards both economic ruin and perhaps war.

    Japan’s right wing military and ideologues went to war WW II because the west closed off their access to resources needed to fuel their industrialising economy.
    At the time the west feared an ascending Japan aping their own imperialist and colonial gun boat geo-strategies in North East Asia.

    Now Washington ignores the consequences of its own self-inflicted decline on its own nation, and the world, by attempting to control an ascending China thru military choke points on China’s global sea lanes required to feed its economy together with the balkanisation of the Middle East and South Asia following its success in Kosovo etc.

    Both Australia and the US failed to configure our economies to compete in a multipolar world replete with vibrant Asian and BRIC economies.

    So in our leaders wisdom our debtor nations will now encircle and coerce a creditor 5000 year civilizational state China in the process of regaining its historical place a major economy.

    The US and Australia will now create with like-minded fellow travellers an economic trading block in the Pacific region and continue to deem what the acceptable rules of trade/finance and civilizational norms will be?

    All this because China and Asia studied how western nations became successful economies then outshone their mentors and teachers?

    All this whilst China is becoming a more lenient and democratic country (from a low base) and the US declines in the opposite direction with the sad prospective hallmarks of becoming a militarised oligarchic and barbaric state like ancient Sparta where their citizens were reduced to helots?

    Our emperors have no clothes and the internet enables more of us to see things without blinkers.

    I just hope we get more adults in Canberra and Washington because it is better to restructure of own households so we retain our living standards and China can look after theirs.

    China has their own idiots running local governments that are creating the debts Lang raised.
    Fortunately, for China Beijing is run by adults.

    We have the reverse, Washington/Wall Street/Pentagon/Langley run by idiots and Canberra not far behind.

    I am afraid we will all lose out in this idiotic trajectory that is self-inflicted.

  7. China is hell and Chindias 3 billion mostly poor!
    Did you see the google pix of the ‘earth excavations’ the Chinese are doing?
    China is running out of water, and its out of trees and its topsoil is going..
    Its not fer nothing its buying up africa.

  8. ‘The US and UK have destroyed factories’
    I say it was Clinton and NAFTA…not ‘the US’.

    Who built the Panama canal?
    who gave it away?
    Who runs it now?

  9. ‘Lastly, Deadly storms carve up the Southeast as more are killed by tornadoes and floods’
    If Global warming is good, Climate change is better?

  10. and….

    The United States has had a negative trade balance every single year since 1976,
    and since that time the United States has run a total trade deficit of more than 7.5 trillion dollars with the rest of the world.

  11. floridasandy

    my god, you people would trade your country for a nanny state if you could.

    i never thought i would see that.

    italy gave up their sovereignty when they appointed monti, and what happens? the government bails out the banksters.

    don’t you get it? the government is the problem.

  12. Aussie

    @ florisandy,

    The government is the symptom of a deeper problem.
    Washington is captive to Wall street, military industrial complex, pro-Israel interests etc which are members of the1%.

    The deeper problem being politics is funded by big money and democracy thru elections has become a sham.

    Neoliberal economic ideology with its “unregulated free markets dogma” served as the convenient tool to emasculate the government’s ability to balance competing interests in the interests of the national interest and ordinary Americans.

    The US constitution has been undermined.

    Ron Paul cannot get his message in the media – why?

    US media is a joke and reminds me of Communist propaganda from Politbiro China and Kremlin.

    Get real.

  13. floridasandy

    it seems to me that you would have to hold the authors of policy and the enforcers of law accountable for what is happening in the country.

    we may not agree on whether washington is being held hostage or doing the hostage taking, but at least we can agree on ron paul.

    i saw that he got 89 seconds to get his message out in the last debate. obviously, there is a reason that he is being shut down at the debates and we all know what it is.

    it will be interesting to see how the primaries go.

  14. emsnews

    AIPAC and an army of rich lobbyists and rich people hold us hostage.

  15. Denis Murphy

    In China the sword is mightier than the blog. Your job doesn’t exist there Elaine–it’s a death sentence. Your job exists here because the Tea Party philosophy of smaller government allows it. You seem to pleading for a top down central government were dissent is not allowed. Do you really think that would solve our problems, to be more like China? Were that the case you would most likely have a job where you produce something more than words. If building ships is the answer then why don’t you get off your hiney and build ships?

  16. emsnews

    I do not have a ‘job’ here due to the mainstream media deliberately locking out alternative voices. Once upon a time, I was, as Mrs. Levy, a frequent face in NYC media. My former (now deceased) father-in-law was a publisher in Manhattan!

    No, I am as censored here as if I were in China. Yes, I can still blog but that means nothing compared to access to the mainframe systems.

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