Economics

[Rake]

Sure, Australia could move to prevent a recession but then you'd create massive debts, resulting in a worse recession later. If you start to see this, know you've been screwed by your politicians.

The Australian government did spend a lot of money to avoid recession in Australia. However, because our debt was so low to begin with and the spending was deliberately targeted to expire (ie. not grow over time) we should be back in surplus with a year or two. In fact, proceeding more slowly to surplus would probably be best. The problem is most countries spend during the good times and then try to spend more during the bad times. This does not work.

A bubble deflating slowly is NEVER a good idea except politically. The damages are far worse over the long term than just outright collapsing for a year or two.

I would be interested in any examples you know of this.

Instead, America is still doing the same things because it wasn't punished. People are like children. They need someone to discipline them in order to change bad habits.

I disagree with you on this one. I think the GFC was largely (with some help from Fanney Mae and Freddy Mac, the government lenders you taked about) caused by de-regulation of the financial markets. Especially the repeal of Glas-steigle (spelling?). Regulating the provision of credit goes some way to slowing booms and reducing their resultant damage.

After having read five or so geopolitical books, and 20-30 more chapters from various other books, I can assure you that, even ignoring the Middle East, a World War 3 of far greater magnitude than WW2 will start within a decade (that's a very optimistic time range).

I completely disagree. It think the chance for peace in Asia is very strong. Note that Indonesia, S. Korea, Japan, India are all major democracies. Democracies do not attack each other and tend to band together when attacked.

Note that I did not include Taiwan there as that is a major flashpoint and could be the site and/or cause of a major war in the region. Still, if America backs up a little and China keeps it cool, prosperity and peace can prevail.
Hopefully. But maybe not.

"Remember when we thought America was the most evil country in the world? Those were the good ol' days."

While America has done some amazingly dickish things in its hegemonic history, it is true to say that for a major power it has been benign overall. Especially when you compare it with the British Empire. Just don't make that point to people from Iran or the South American countries that lost their democracy to America.

[mikill]

I completely disagree. It think the chance for peace in Asia is very strong. Note that Indonesia, S. Korea, Japan, India are all major democracies. Democracies do not attack each other and tend to band together when attacked.

Note that I did not include Taiwan there as that is a major flashpoint and could be the site and/or cause of a major war in the region. Still, if America backs up a little and China keeps it cool, prosperity and peace can prevail.
Hopefully. But maybe not.

Same goes for Communist countries, which border all of the democratic countries. Its either the Koreas that are going to cause the spark or Taiwan and China going at it again, but will it spread to a world war i don't know.

[TheEconomist]

I would be interested in any examples you know of this.

You kidding me? How much time you have? From the current debt crises to the Japan bubble, you've been LIVING examples of this. None of that matters though since you can
simply breakdown the math and see that it is true, or go even further back into the past all the way back to 1600's. Debt is exponential, even if a society were to adapt to
new circumstances the same way whether they were in crisis mode or not (which is obviously not true) and the amount of debt that is accumulated during recession were equal
to the impact in productivity (which obvious isn't true) then, at the very least, the exponential nature of debt in and of itself makes the issue more damaging than simply
collapsing.

It think the chance for peace in Asia is very strong.

Today's South China Sea is vastly overblown, in my opinion. It's mostly just political posturing from China to show that it is tired of being bullied and is now a global
power. I agree with you, for now, there is a high chance for a strenuous peace.

However, a decade or so into the future, China simply cannot "keep it cool". That would require China resigning itself to a fate of suppressed growth due to lack of
resources. China has a history of colonialist ass-raping. They're far from willing to take this. There's a reason they're willing to present themselves as dangers to the
world when they could be goody-goody like Japan and be better off in the long run. Perhaps you know that China is running out of living space. Every year they lose 40 to 60
thousand square miles of arable land due to pollution desertification. At the current rate, they would lose all arable land within 200 years. That implies no further growth, massive
investments in green energy, and that such pollution would not damage other things during the period of time (impossible). As a result of this and many other factors,
they're experiencing severe water and food shortages. China's fisheries are running out and expected to be unable to support a liveable amount of nutrition within 50 years.
Furthermore, China massive amounts of pollution is heating the water causing the already quickly dwindling population of fish to travel to other areas of the sea, including the areas claimed by other countries.
China also needs oil, desperately. I'm sure you all know the issues with oil right now in your respective countries. However, our demand for oil has, in the overall scheme,
peaked. China will only get hungrier and hungrier. America has enough to take care of itself within its own borders and Israel has recently been estimated to have more oil
than the rest of the Middle East combined. There was hope in the massive amounts of shale within China, however, China's primitive oil experience mixed with the terrain made it
uneconomical to rely on it. They can either sit back and let America and other countries get oil for relatively cheap and prosper because of this, or
they can push out get their own oil.

In anticipation of these problems, China has already begun to instill nationalism and militarize the people. When the top generals are proclaiming that the coming world
conflict will be the ushering in of the Chinese century, you know something is wrong. Although much of this can be explained simply by the country's Communist political
structure, there is also the important inherent cause of this which is the vastly skewed male demographics. From Nazi Germany, to Imperial Japan, to the European expansion,
and all the way back to the Roman empire. A period of aggression has always followed a period of imbalance in males to females in the population. Much like its aging
demographics, the imbalance of men to women is only going to get worse at increasing rates and at exactly the same time that they country will be going through rough economic transitions
regardless of demographics. It is hard enough for democracies to maintain control and not resort to war for the economy during these times, how will a Communist country with a radically
militarized and nationalistic people respond at such a time when China's military is gaining more and more influence in the government with the next political transition
having many military leaders in the roster.

Sure, in today's politics, you can argue that cooler heads will prevail but the issue isn't whether or not China is going to keep its head cool. Today it's politics but in
the future it will be actual desperation. And, I don't just mean China. This is to say nothing of the Korean peninsula, the middle-east or what have you. Given the global
trade, all of these issues are interconnected. A spark in one of these areas can bring everyone to conflict.

For a better explanation and analysis, I'll refer you to Stratfor.

-- Sorry, copied this from notepad. Weird formatting

[phazonjunkie]

I completely disagree. It think the chance for peace is very strong.

That's what they were saying in the early 1900's, then there was a tiny little mix up with a certain Archduke & his wife...

Note that Indonesia, S. Korea, Japan, India are all major democracies.
Democracies do not attack each other and tend to band together when attacked.

Which is part of the problem......More alliances/counter alliances you have, the more likely a conflict will escalate.

[TheEconomist]

That's what they were saying in the early 1900's, then there was a tiny little mix up with a certain Archduke & his wife...

Haha, yes. I remember in my college Western Civ class they had a table full of the reasons that the people at the time thought they wouldn't go to war. Replace that table with today and they have the same reasons Not only was there a world war, there were two and then a cold war

[Genopath]

There are so many points I could tackle from this thread. TF is right. However, I would like to point out a few things from my point of view given his conclusions. Just for the record, I have B.A. in Economics and work in research when I'm not lurking in SC:L :P

Indeed, China’s Economic Growth (EG, measured in delta %GDP) post-financial crisis was in a very large part explained by infrastructure investments. The Chinese government is behind this economic inefficiency no doubt. On a different note, the debt levels of the big 4 are increasing at alarming rates. However, these two statements are problems but I wouldn't go and say they will result in a bubble and/or a recession of the magnitude of the last financial crisis. I believe it will most likely result in immediate institutional reforms at a cost of deceleration of China’s EG.

Given its economic model China, is one of the most fickle and unpredictable governments in the world. We are talking about a government that can pretty much grab any institution and mold them to their needs at any point in time. This is unlike the US which took a vast amount of time to just agree on a solution. Now the cost will be a deceleration and is also worth saying it will also be attributed to other factors but I digress. The IMF has seen this and has forecasted a decrease in GDP at constant prices for the next 5 years. Even still, these shouldn’t be alarming news for China as 10.45% GDP to an 8.48% decrease while huge in absolute numbers, represents only one side of the story. The other side here is GDP/capita which is forecasted to double with respect to 2010 by 2019 ceteris paribus. Thus, China would still be in a decent position despite these financial blunders.

On another note, your conclusion derived on Asia’s military expenditures is not cogent. I would even go further and state that even considering the Middle East, a world war is an implausible scenario given the current conditions. Yes, Asia’s military expenditures are on the rise but they still remain in absolute terms analogous to European countries. Let's talk about China, which is the only country that surpasses the UK's military expenditures. Even accounting last year’s increase in expenditures, China spends around 2.2% of its GDP in military budget and is represents less than 1/6 of the what US spends. China is simply trying to catch up and secure a position as world power in military terms so that it is allowed to put more pressure to Taiwan without being bullied by US and friends. Personally, this might be a very utopic goal but I see no other justification for an increase in expenditures. Even so, this scenario is quite different from a world war escalation.

[TheEconomist]

Finally, someone who actually knows Economics

We are talking about a government that can pretty much grab any institution and mold them to their needs at any point in time.

The flip side of that is that there can be no meaningful change when it goes against the government. The Bo Xilai and conflict over free market reforms shows this. Free market reforms is definitely going to be more difficult than reforms in the West because there's too many people with too much power making too much money to let it change.

The IMF has seen this and has forecasted a decrease in GDP at constant prices for the next 5 years.

The same IMF that said close to nothing about the 2008 collapse? Or, perhaps, you're talking about the IMF that never even mentioned there being a bubble until October of last year when even casual news readers knew about the risk. Or, maybe, the IMF that encouraged Europe to spend, spend, spend until it got in its current predicament, and now it asks everyone to bail it out while encouraging austerity? Or, maybe, the IMF that is basically the right-hand of American economic imperialism. The IMF has always been a joke. They've never foreseen economic problems and are barely competent in coping with them once they arise, especially when its large economies.

Fundamental economics have been the only reliable predictor; not complex economics or economists, and the fundamentals of China call for a Japan-like lost decade while they transition into a consumption based economy. Breaking China's economy down into its most basic, you can see that the banks are almost entirely reliant on the sale of land to pay debts. With an unheard of price-to-income for real estate, there just so way it can continue to go higher, much less at the rate that would be demanding to pay off debts. Even worse, China's shadow banking system is large enough to imply that there is even larger amounts of debt than anyone knows about. What happens when banks can't get payment? That's right. Financial crises. The worst kind of crises that is much, much worse than the currency amount that starts it.

The truth is that, internal indicators have already shown that China is going off a massive cliff. Marc Faber said it best, which was something along the lines of, "I've been investing for forty years, and I've heard all of the excuses imaginable for bubbles and something is definitely wrong in China". Port activity, electrical consumption, commodity consumption, imports, exports, construction, everything, you name it. All of these things have grown at roughly double the actual GDP growth. For example, when they grew 10%, their electric consumption grew 20%. This quarter, their electrical consumption has only grown 7% and that's during a time when it usually grows the most. Will it get better? Exports might but the slowdown in Europe and the rest of the world (India, Brazil, Russia, Canada, Australia, you name it) has only just begun and is no where even close to bottoming. Even so, you have to understand that its only been going this well so far for China because of economic stimulus. The government is running out of stimulus to keep it going and that's when the real problems will start, as in all Socialist systems. In fact, if you believe some of the internal investigations into true inflation, then China already in negative GDP growth territory, far from the slow deceleration IMF predicted. With inflation being officially reported as being 4-6%, while food inflation is as high as 36% with general CPI increases being 12-16%, then China has already gone into a recession larger than the IMF allows. If the IMF's information for recent events if HIGHLY questionable and thus being questioned by large, official bodies of government, then how believable is their predictions into the future?

Remember what the IMF was created for. It wasn't to analyze economies and help them out, like a lot of people believe. It was to ensure that developing countries would develop into free markets, similiar to how the American government encourages democracy. The IMF tells a country whatever it needs to hear to get on this route, regardless of whether or not it results in ruin for the country, i.e. the Plaza Accord for Japan. I don't see why its predictions would somehow become any more honest now when its very existence is being threatened by developing countries wanting to create their own equivalent.

But, okay, let's say I'm overreacting. China still has enough debt left from their 1989, 1997 collapses to bring a similiar problem. Their reactions in these times was similiar to their reaction in 2008, take the debts off of bank statements and give them to "asset management" companies and let them deal with it. The debt is still in the economy, but not on the bank sheets, so the banks look better than they are. All of China's banks were "2008 financial collapse"-esque in 1998. What has changed since then? Nothing. Even more debt. It's just not on the banks balance sheets. Its still in the economy, and will take down the economy, but you won't see it coming in the bank statements. So, taking even just the amount of debt created a decade ago and the last few years, and making VERY optimistic predictions for debt in the future, China is still heading for a financial crises. And, in a country that cannot handle such a crises in the way that America can. The average Chinese person can go maybe a month of such a downturn before their in a desperate situation quickly. Hence, comes to the political instability (which has already stated but was, like the rest of my predictions, blasphemy a few months ago) I've predicted for China. For the record, no I'm not predicting an end to the CCP, and I am predicted quite a bit of social instability. Which is already being shown with recent estimates stating that there's been 200,000 public demonstrations, with the quantity increasing and the amount of destruction coming from each increasing even faster.

To fully understand China's economy, you can't rely on official sources or typical economic theory, it just isn't run in such a logical manner. China is basically political economics. Hence, there is a huge disparity between what outsiders see and what people who truly invetigate see. The best explanation of this is the book:

http://www.amazon.com/Red-Capitalism...5713419&sr=8-1

I believe it will most likely result in immediate institutional reforms at a cost of deceleration of China’s EG.

Ahhhhh yes, the Japan argument. Never happened and never will happen, in any country. In fact, the day before this argument started the Premier announced that they would not partake in institutional reforms like you said, instead, they would devote even MORE resources to the problems you mentioned. Did you miss this? Easy money is always pursued, no matter how illogical.

In the end, these arguments you have are all arguments that have been made in the past. From Brazil, to Japan. Everyone always assumes that an economy will decelerate at a predictable, mathematical rate. A 10% decrease in 20% of their economy will equal %2 loss in GDP. That is NEVER the case. There's a reason that, every time a bubble pops there's a large debate about whether or not it will be a hard or soft landing, yet there has never been a soft landing in modern economics. When economists have to come up with complex answers to explain how an uncontinuable model will continue, then you should know what's next.

China HAS to transition into a consumption based economy and their failing at doing so. There longer they delay, the worse the collapse.

Even so, this scenario is quite different from a world war escalation.

You argued against current day politics which I already said is just posturing from China to show it will not be bullied. You have said nothing about the fundamentals of China and the situation the country will be in the future. Every major war seems unlikely before it happens. Before World War I, the people of the time were predicting relative peace due to an end to religious wars, global trade, more stable political governments, and assured mutual destruction. These are the same arguments used today.

Again, I'm in the middle of finals week so for a more complete discussion on these things, you're going to need to consult mpettis.com or stratfor.com

[pmg123]

Upping this thread. Great to see a healthy non-gaming discussion here in the forum.

Property or infrastructure bubble, in my opinion, just makes sense. You see Chinese are about 20% of the world's total population and if you add those living in other parts of the world, it may not surprisingly be in the 20 to 25%. If China becomes an even bigger superpower than it is now, which is not too far fetched, by the way, then those infrastructure or properties would see the light of day, so to speak. The same can not be said of Australia and Canada though.

[TheEconomist]

Five months later and I am being proven more and more right every day. Even the China bull funds are running for the hills as I type this. I called all of this two years ago in casual conversation on the forum. I really should've came back here earlier to gloat

Logic 1
Spiffy economics degrees 0

Oh, and the South China Sea issues have only gotten hotter.

@pmg123: Property and infrastructure that serves no purpose will never be anything other than a waste, at least in the time before it needs to be costily remodeled.

[Rake]

Yes, it was an excellent series of predictions.

I bought and read 'Red Capitalism'. An excellent book that convinced me to buy more Euros while the Aussie dollar was high. Good thing I did as now the mining boom is over and the Aussie is dropping.

Another confimation of your (and mine) predictions, falling house prices in Australia:

http://www.theage.com.au/victoria/tu...908-25lc5.html

Unfortunately, too late for my friends that didn't listen to me and bought houses before the drop.

Any predictions for the Eurozone?

I suspect the general European economy will continue to decline as the overall structural issues are worked out (debt negotiations, banking, regulation, intergovernmental fiscal transfers, etc.) which will then be followed by a period of growth that exploits the improved trade situation.

Greece is probably f$&%ed though.


The South China Sea is a mess. China has nailed its patriotism to rediculous claims that even includes other countries Exclusive Economic Zone. That means that one side or another has to do some uncomfortable backing down. I can't see an easy solution in the near term and an ugly naval conflict could be brewing.