Conservative Neanderthals and Rubes

by Linda Brady Traynham

Is the winner the one who owes most?

(Editor’s Note: Linda gets a gold star for this one about China. I’ve written repeatedly that I believe that China will be the successor to the USA. But remember…the WORLD financial system is established on fiat money. Sure, China may jump to the top of the heap temporarily. But the whole system MUST crash. The serf state that secedes and then reinvents the gold/silver money system will be the freest place on earth.)

Conservative Neanderthals have their place, you know. If I had been a member of the tribal council (having won my seat by bashing a rival with a club), I guarantee you I would have argued passionately against planting that first field. “I’m a reasonable man,” I would have said, swinging my club casually, “and I admit that your crazy idea about herding animals so that we do not need to rely entirely on hunting seems to have worked out okay, although I still say if we are attacked suddenly we’re going to lose a lot of the animals and our people and it is bad for our moral character to rely on anything other than our skills and our prowess. However, THIS time you go too far. Settle down in one place? Where our enemies can find us easily? In the hopes that we can grow more maize on purpose better than it grows in the wild? What will the women do? ” (Shouts of “Tend the fields!”) “No, that will take them at least as much time as gathering so we will gain nothing. We will destroy our ancient ways and our sacred beliefs for no real gain. And…have you noticed that since meat is more plentiful the women are producing more babies? What will happen if we build this village thing and they turn their hindquarters to the wind more frequently and we see even more babies who will eat and breed?” Another detractor shouts “We only have the witch doctor’s word for it that the wind causes babies.” Many calls of, “In time we will have a great army!” “We can brew more beer and mead.”

I would have smiled lethally and sourly, and said, “In time we will have more mouths than we can feed, you and I will grow old and weak, and the young men will take our seats on the council without knowing the true ways. Mark my words, nothing good will come of this, and so I shall say every time I stand before you or my name is not Cato the Courageous but Cautious.” And I would have been right.

I like a good labor-saving device as much as anyone, not that I’m always certain my computer qualifies, but there are very few shades of gray in the world. Changing the old ways always brings new problems. Last week 42,000,000 people were on food stamps. This week the number is 46,000,000, 15% of the population. A full third of all the residents of Alabama, and DE-troit isn’t exactly thriving, nor is California. As an, ah, less than admiring reader pointed out yesterday, Texas went into deficit two years ago, although she had the decency to put the blame where it belongs: on DC demands that we provide “free” medical care for the indigent, the illegal, the lazy. (She attempted to claim that I had said that Perry created jobs! You know the Neanderthal better than that; governments and politicians do not “create” real jobs, only individuals do.)

The tab for all that extra “free” medical care was about $1.3 Bn, and up to $2Bn this year. OVER what we had already budgeted for bills that should never have been ours, that is. It took the USA over 60 years to create the disastrous conditions we face, one small, deliberate, incremental step at a time. MENA has gotten there in about two decades and my Neo-Con’s envisioned “army” isn’t willing to accept lavish bribes any more, they want Cairo, Tripoli, Constantinople, Riyadh, and Damascus and their own palaces and seats on the Revolutionary Councils. China has done a brilliant job of saddling the whirlwind they did not begin to understand and has shown a truly magnificent talent for making economic mistakes worse than their social and political ones. “Infrastructure” sounds so sexy and modern, doesn’t it? Bridges over gorges, bullet trains, 101-floor World Finance Centers, fancy condos few can pay for, and hosting the Olympics we can hide under “promoting tourism.”

Dr. Victor Shih, of Northwestern, was asked to estimate what China’s debt is. His response? “That depends on what you include. Large sectors of the Chinese economy are owned by the government. The debt of these state-owned enterprises is what’s called a “contingent liability” — ultimately it’s the responsibility of the government. If you count all of these liabilities, then you get to an extremely high number, something like 150 percent of the Chinese gross domestic product, or more. A more restricted definition is debt that’s owed by either the central or local governments. That is about 80 percent of China’s GDP.” That’s a lot of Yuan any way we look at it. The next question was, “If China’s central and local governments are responsible for the companies’ debts, is that the more prudent number to use?”

Dr. Shih’s answer was very professional: “It depends on the prevailing economic conditions. When the economy’s strong, then there’s no need to look at the wider contingent liabilities, because there’s plenty of money to go around. If the business environment begins to deteriorate, state-run enterprises could go bankrupt. In those cases, you do need to look at the broader liabilities. If growth slows down substantially, people may find that the Chinese government in fact owes a lot more than 100 percent of GDP.” Speaking as an ordinary person who understands budgets, I would say that any entity, be it human, political, or commercial plant that owes a full years’ income has serious problems, and if that doesn’t include the vital overhead of a roof overhead serious steps had best be taken.

Governments frequently whip up a war, the individual equivalent of taking to a life of crime, which politicians do as a matter of course. I don’t call wars “overseas contingency operations,” and I do not refer to obvious debts as “contingent liabilities.” Are US-Sino relations more cordial than we had supposed or is it the nature of political beasts to come up with such terms? Look for those to heat up now that Viet Nam purchased half a dozen submarines to go with their former Russian missile Frigates and even the Philippines picked up another “war ship.” When we get to who owes whom what, some day, perhaps blowing Taiwan out of the water with the thousand missiles placed on the coast of China will look like a more lucrative option than an island with aging factories and a population that hates them. As I mentioned somewhere today, everybody is lining up to scrimmage over the oil and fish in the Spratley Islands.

Consider this tidbit: “China’s banks have been engaging in risky ‘off balance sheet’ lending somewhat reminiscent of Enron’s shenanigans. Last week, Beijing released a national audit revealing that local governments owe an estimated $1.65 trillion in outstanding loans. This week, Moody’s has indicated that the problem is significantly worse, by as much as $540 billion. And that’s only local government debt. It doesn’t include the central government’s huge obligations, or those of banks that are essentially guaranteed by Beijing.”

Bill Bonner asked yesterday in his Daily Reckoning–in the context of very bad days in the stock market–if his readers liked seeing others in pain. Mr. Bonner is not known, as a rule, for asking stupid questions, but I consider that one, and said so. Of course I like really whopping big down days in the market! I like failed bond auctions. I like economic cataclysms for the elegantly simple reason that Mr. Market will have his way. Until the entire shoddy, irrational, iniquitous, dishonest, failed system of fiat money and Keynesian “economics” lies in shreds we cannot rebuild on free-market principles. I would prefer, being a gentle lady, that we could get to that point without what is going on in Greece and London, but I doubt it. Too many people have too much to lose. Those at the top will do whatever they think will preserve what they have, those at the bottom will do whatever is necessary to survive, and those of us in the middle will scramble madly to increase and protect our assets. I don’t fight Newtonian physics or Kepler’s laws. I pay attention to the world around me.

Another reader asked that I stick to facts and not tell stories, which I prefer to think of as educational and sometimes entertaining; I replied sweetly that my readers like my tales. If you don’t, just skip them although they are very instructive. Generally.. As I was working on this I looked up (being able to watch livestock in two directions being one of the pleasures that keeps me chained to these desks) and saw a wild stampede of cattle, horses–and goats. Now, it is feeding time, so that explained the big livestock which really, really likes the new feed and has a lot more energy these days…but why the goats? The light goes on. The goat girls are getting Chaffhaye Alfalfa (private company), too, adore the taste, and are crazy about filling their rumens quickly and feeling so much better. They know they can slip through cattle-proof fence like Afghans entering a guarded camp undetected and that the big animals won’t really hurt them. Faith headed out at a canter, followed by all of the does and babies, because it is well worth the effort of running a quarter of a mile to snitch someone else’s chopped alfalfa and molasses. The same “principle” works fine with government giveaways. Talk up how bad times are, print a bunch of new money and credit cards for Goldman Sachs to profit from overseeing, and sure you can have an additional 10% on food stamps in a month. As soon as the goats work out there is more feed and how easy it is to procure they head for the newest trough and don’t even have to fill out paperwork. I won’t say most people are as smart as goats, but they know opportunities for freebies when they are advertised.

To add to the gaiety, there will be a regime change in ’12, and the Chinese wrote the book on “losing face.” This gives the current oligarchs a strong incentive to paper over or cover up the problems…and the others a good reason to start screaming the Chinese equivalent of “It’s all Bush’s fault!” as quickly as possible. So they pull a Bernanke! Announcing that no big bank will be allowed to fail. I am certain this will lead to prudent banking practices..

Are the Chinese more impervious to inflation, debt, real estate bubbles, government interference, shams, scans, and dishonest businessmen than we? I cannot see any reason to suppose so. They look like real Rubes, to me.

Linda Brady Traynham is a writer and rancher in Texas.

One Response to Conservative Neanderthals and Rubes

  1. Sorry..I was having so much fun with Neanderthal Conservative Man that I did not make two things clear to new readers: the thousand missiles are already in place to blast Taiwan, and China has debts at least equal to what we owe them. They owe Taiwan rather a nice hunk of change, that being what I had intended to write on originally, and I think it was on the order of a little over half a trillion dollars. If anyone can’t find it easily on Google, write and I’ll find the data. Who knows, maybe it was “only” $546 million. Some days it seems like all goverments do is come up with devastating regulations and borrow money from each other…LBT

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