Peak Peking
China is run by communists who are even worse central planners than America’s deciders. Is that so? Are China’s deciders as thick as Frum and Johnson? Yes, of course they are.
Wednesday, April 24th, 2024
Bill Bonner, reckoning today from Dublin, Ireland...
“I believe Xi, Vladimir Putin and Iran really are an axis of evil. I think they’re in coordination on it. So I think that Vladimir Putin would continue to march through Europe if he were allowed. I think he might go to the Balkans next. I think he might have a showdown with Poland or one of our NATO allies.”
House Speaker Mike Johnson, April 18
Geography may not be Speaker Johnson’s best subject. But so what? He thinks he knows where the ‘axis of evil’ lies. The phrase was coined by speechwriter David Frum. It referred to Iraq, Iran and North Korea. Now Russia and China have made the list.
[Frum also wrote a book entitled “An End to Evil.” The idea is so preposterous that we thought it was a joke. Alas, it was no joke. Frum is as simpleminded and earnest as Johnson.]
Forbes:
The Senate passed the $95 billion foreign aid package funding Ukraine, Israel and Taiwan in a bipartisan vote and sent the legislation to President Joe Biden’s desk on Tuesday, ending a prolonged delay in securing military assistance for Kyiv — which faced strong opposition from several top House Republicans.
There was a time when ‘foreign aid’ meant help to poor people in poor countries. Now it is essentially a payoff to the US firepower industry and the Israeli lobby.
How it will affect the Primary Trend is our subject for today.
We’ve seen how federal policies created the extreme Bubble at the end of the 1980-2021 Primary Trend.
And we’ve seen how their new policies — higher interest rates, huge deficits — contribute to the new Primary Trend of lower (inflation adjusted) stock and bond prices along with higher inflation levels.
We also looked at how trade policies amplify the trend, by raising US consumer prices and wasting precious capital trying to put a stick in the spokes of our challengers’ wheels.
Dear Readers wrote in to protest: “China does it too,” or words to that effect. But it is not fair or unfair, good or bad, right or wrong that we’re talking about. Our focus is on the effect of public policies on the financial world.
Real economic progress is made by voluntary exchanges of goods and services. You can get political power, as Mao put it, from the “barrel of a gun.” But not economic power. Before Deng Xiaoping unleashed China’s entrepreneurs, Mao’s China was a hellhole. It produced approximately nothing that the world wanted to buy. Now, it is the world’s leading exporter.
But today US policymakers follow Mao’s example... not Deng’s; they try to bully, blast, tariff and sanction their way to success. Most likely, they will only exaggerate the Primary Trend. Asset prices will go down; most people will get poorer.
And if we are right, we’ll see this trend reflected in the Dow/Gold ratio. The price of gold should go up. The Dow should go down (adjusted for inflation.) We’ll stick with gold to preserve our wealth while prices go down. Then, when the Dow/Gold ratio sinks to five, grosso modo, we’ll switch back into stocks.
Peak China
There is a new belief among macro-historians that we’ve already seen “Peak China.” China found a sweet spot in world commerce, they say, by putting hundreds of millions of peasants to work at pittance wages. And then, America made a big mistake by opening its markets to cheap Chinese products.
But that phase has played itself out, they say. China’s wages are no longer so low. And the US is closing its doors. China will play a smaller role going forward.
What’s more, China is run by communists who are even worse central planners than America’s deciders. Is that so? Are China’s deciders as thick as Frum and Johnson? Yes, of course they are. Do they make the same mistakes... the same self-serving blunders? Yes, of course they do. Will they not lurch into wars, depressions, and self-imposed poverty? Most likely.
Far be it from us to claim to know how the future will play out. But the Chinese peak may still be ahead of us. The Financial Times:
Governments in the US and Europe have focused heavily on the need to “de-risk” supply chains away from China after Russia’s invasion of Ukraine and border closures under the pandemic. But the more competitive the mainland becomes, the harder it is for international industrial players to leave.
Both old and new industrial companies repeatedly emphasize the need to be in China for research purposes as well as to access its vast market. Windrose Technology, an electric truck start-up that has so far produced 13 vehicles, aims to eventually list in the US but currently relies on mainland China partners, including state-owned Anhui Jianghuai Automobile Group, for manufacturing. “As an EV maker, if you are not linked to China and you pretend to be the world’s best truck in the EV space, no one’s going to believe you,” said Wen Han, Windrose founder.
And this from AsiaTimes:
In recent years, China has transitioned from a low-cost maker of cheap household goods to an advanced producer of electronic products and green tech. Cheap labor has been replaced by robots and AI. A new factory for Xiaomi, originally a smartphone maker, produces a new electric car every 76 seconds, or 40 per hour, without being touched by human hands.
And NikkeiASIA reported this week:
China's flying cars ready for liftoff with EV technology
XPeng, EHang and other Chinese companies are commercializing flying cars this year, tapping the country's advantages in electric car technologies to claim a large share of the emerging global market.
XPeng AeroHT, a subsidiary of the electric vehicle startup, aims to sell a dual-mode electric vertical take-off and landing (eVTOL) vehicle, which can drive on land like a car and detach a flying module for air travel.
The aircraft will be priced in the 1 million yuan ($138,000) range. Qiu said the company hopes to eventually bring the price down into the hundreds of thousands of yuan.
"If large-scale mass production becomes possible, we can dramatically reduce costs" for materials like carbon fiber, he said.
Will China’s leaders err? Of course, they will. But will they be able to stifle the energy of millions of entrepreneurs and business people? Maybe not.
Meanwhile, in the mature societies of the West (including Japan), grapple with the problems of the past – its institutions, its promises, and its debt. The post-WWII order, with the West in charge, appears tired, old, and weak. Upstart nations pose a threat; they must be kept in their places. New technologies must be regulated and controlled. Free trade must be replaced by managed trade. Free speech must be corralled by the elites. And even the earth’s climate must not be allowed to change.
Most important... old-age benefits must be protected. These are democracies; the geezers vote.
By contrast, the more dynamic societies of the ‘Global South’ — Brazil, Indonesia, South Africa, Turkey, India, Russia and China…including the new ‘Axis of Evil’ — want a New World Order. They think it’s time for them to have a place in the sun.
And that may mean muscling the flabby retirees from ‘The West’ off the beach.
Stay tuned.
Regards,
Bill Bonner