Tag: China

Categories
Finance Politics

Day 1857 and We’ve Got to Talk About Kevin

My husband was joking with me that he’d been arguing, in the way that men do, about what the state is or is not obliged (or allowed) to do about the movement of the capital class and where they keep their resources.

Capital flight and asset diversification are not just individual decisions but increasingly society ones as well. And it’s not just the wealthy who are worried.

This discourse emerged in the middle of the intense upswings in gold & silver prices subsequent profit taking and draw downs.

• Gold ran to roughly 5,600 USD/oz before sliding 7–10% in a day, still leaving it massively higher on the month.
• Silver briefly traded above 120 USD/oz, then fell 15–20% and is now back under the 100–110 area, which technically puts it in a short‑term bear move after a parabolic rise

These actions were stirred up by debate on Federal Reserve independence (ameliorated somewhat by the new chair Kevin Warsh over Kevin Hassett), China’s buying patterns (both official & wealthy retail) in precious metals and what these two interconnected news items might mean geopolitically for regular people. See this on buying in Australia and on China’s flows for more context.

From remittances to capital controls, the debate is particularly spicy as the dollar has been made to trade deliberately lower for the export agenda, rising remittance dollars (and debate on what’s missing in tracking them) has upset many Americans, and the money printing of the Biden years has raised awareness of inflation and national debt.

Obviously it has been a combustible mix. And thus we see renewed interest in decentralized assets and hard commodities. And then, of course, there has been the trial balloon floating in California of a wealth tax. What should we do about our most moneyed citizens and what do they owe. We tax income not wealth and that change is likely to have huge repercussions.

It seems perfectly sensible that anyone who has dollar denominated assets might be concerned about where that currency is headed, who is benefiting from the changes, and what on earth the Chinese are up to both as a people but also as a nation with unclear monetary goals and tensions between its leader and its military.

Ultimately though this is an incident about the dollar, its long term value, who will oversee it (and which Kevin was meant to have the gig) and where wealth can and cannot go to deploy itself in an era where the rules based order and Bretton Woods are no longer a given.

Categories
Uncategorized

Day 1849 and The Great Look Backward

The ChinaTalk Substack has an excellent analysis of the “Net Left” (wang zuo, 网左). A group of young Chinese yearn for the cultural revolution era.

Accordingly to the essay, the “Net Left” traces its earliest roots to a niche group on Weibo between 2011 and 2015 known as the “Franco Left” (fa zuo, 法左).

An American social media user might notice these dates as being concurrent with the stirrings of the Great Awokening whose murky protean identity played out across Tumblr beginning in 2011-2015 as well. Oppressor and oppressed was the narrative for the identity politics which was nouveau chic branding on Marxist capital versus labor.

This simplified narrative attracted a massive influx of young people who were frustrated with their poverty and pressure but struggled to find an answer. Suddenly, the solution was no longer buried in thousands of pages of Deleuzian tomes. Everything was reduced to a single, omnipotent, and evil symbol: “capital.”

Longing for the Cultural Revolution

Even the struggles of Chinese youth sound like American Gen Z’s struggles. American youth were once pushed toward upward class mobility by The Sort.

Now they critique the high costs of that expensive competitive credentialist systems who put them in debt. Youngsters just starting out see its current failure as a mechanism for training and selecting talent and are opting for new solutions.

China has “small-town test-takers” (xiaozhen zuotijia, 小镇做题家) who don’t have the social capital to make the leap. Sounds familiar doesn’t it? In their case it is strongly gendered, which mirrors some red pill and incel culture on the American web.

Just as in America, many Chinese youth blamed capital and its elite power holders. Who needs to read dense critical theory when the warmth of collectivism is easier to understand than the Frankfurt School or Continental Marxist philosophy.

It seems all great powers are experiencing flavors of third worldism where all is “the oppressed ” and those with capital & power are oppressors. And yet Europe, ever the laggard, is trying “almost revolutionary ideas” to make them more like nimble capitalist powers.

The Europeans must be scared of the tractors I saw protesting the Mercosur trade block deal even though ironically German-Italian initiative claim their goals are making “the European Union less susceptible to pressure from trading partners and global powers” after a week of embarrassing news.

They wish to boost economic growth, calling for “an emergency brake” and a revamp of the EU budget to focus resources on making companies more competitive. I wonder who they think will run and staff these firms?

Just as the rest of the world nostalgically looks back for a leap backwards, Europe says “we want to have a fast, dynamic Europe.” Good luck with that based on the protests I saw.

At least Europe, like the Net Left and the Tumblr DSA crowd, are basing some of this on a misty eyes interpretation of a past that once was but was never quite this. The first year of Davos emerged in similar situations

Well, it goes back to 1971, which was actually another year of trans-Atlantic tension. Nixon left the gold standard. The dollar fell. The U.S. imposed tariffs on European imports. And the Europeans were totally blindsided. This German economist, Klaus Schwab, convenes this gathering of politicians and academics and business people in Davos. It gradually grows into this giant business conference that’s also an exercise in virtue signaling.

– Peter Goodman New York Times “Davos Stops Pretending

Categories
Finance Politics

Day 1799 and Thucydides Middle Income Local Maxima Traps

I have been catching up on Odd Lots which is the one podcast I listen to with any consistency. As all discussions about economics boil down to great power discussions as of late. The times they are indeed a-changing.

I noticed that both hosts brought up their collegiate studies of international relations across two back to back episodes. First on the Thanksgiving episode with Graham Allison of Thucydides trap fame.

I just caught up on it today and then the subsequent interview with Ray Dalio on his five forces episode. Joe and Tracy brought up international relations studies in both episodes as it does seem to be the current mood.

Dalio is always an enjoyable listen but I’m much more interested in Professor Allison as (to prove the joke Joe made) in the introduction that “a substantial portion of our listeners are really into ancient Greek history”

And indeed Joe is right. I’m a huge Thucydides fan, I went on a Peloponnesian War tour and am a regular visitor of the Balkans and its ancient Mediterranean and Roman history.

So naturally I have followed Allison’s work on rising power and its threat to established ones.

The US and China are in a “Thucydides Trap,” whereby the risk of war is heightened when an established power is threatened by a rapidly rising power. This is the framework that’s been popularized by Graham Allison, the Douglas Dillon Professor of Government at Harvard University. Professor Allison has been writing about China and the US-China relationship for decades

I guess all millennials grew up thinking we’d study these historical concepts in an eternal Pax Americana only to find the end of history wasn’t here to stay and we might fall into the trap. It’s just hard to imagine America feeling threatening to anyone at the moment.

As I listened to the episode, I happened to be walking through a neighborhood on the outskirts of a city that is keen to tear down some of its older homes to make way for new roads and denser apartment buildings. Much of those changes were clearly already in motion, as I saw cranes and construction crews.

The older homes looked multi-generational, but not in that wealthy polished way, so much as the middle income stalled economy compromise.

And yes you see it even in first world nations. In America and Europe, many conditions would benefit from more of a longhouse “in it together” approach. As elders stretch on in years and millennials go into middle age with few markers of adulthood. You’d think we’d want more of these style of homes.

I wondered if a city carving out the old construction through imminent domain tactics and buyouts, would make this outskirts neighborhood more vibrant. It would certainly bring in new buyers of condominiums. Consumption must go up.

I wondered about the families inside of the homes that looked more like multi home construction. Gates and other obstructions made it hard to tell, but the impression I got was more middle income local maxima family compound trap.

China rising, while the first world learns it may be more second world than it realized, makes me wonder if we’ve got it all wrong. More of the planet is in the middle income trap than the World Bank realized.

What if there is no Thucydides trap to fear as other powers sputter and stall. We long for an artificial intelligence boom to launch the globe into a high earning high efficiency world.

Sociologist Salvatore Babones and political scientist Hartmut Elsenhans call the middle-income trap a “political trap” as economic methods to overcome it exist. However, few countries use them because of their political situation. They trace the causes of the trap to the structural problems and the inequalities generated in the early development process.

According to them, the wealthy elites then follow their interests by bargaining for a strong currency which shifts the economy’s structure towards the consumption of luxury goods and low-wage labor laws, which prevents the rise of mass consumption and mass income.  Via Wikipedia

That sure sounds like a lot of the problems we see in America and Europe. All we are doing is getting gummed up in Baumol’s Cost Disease as we try to reinvent new ways of living that consume what remains of the old without the new going as fast as is needed.

But old multi-generational homes blocking the expansion of a city won’t get anyone to mass affluence. So it’s time to bulldoze old neighborhoods and make luxury boxes in the sky.

Not sure that ended well for China either. They popped their real estate bubble. And they wisely tamp their currency to export all their consumer goods. They might be stuck in a local maxima middle income trap too. Maybe Thucydides isn’t the framework here. Or maybe war is the only reset humanity knows.

I myself am hoping we choose to go to space instead but the South China Sea sits waiting. The only currency that matters in this strange moment is GPUs and that’s a different trap entirely.