CHINA; IT’S THE BIGGEST PONZI SCHEME EVER CREATED
One of the aspects I enjoy most about the Internet is to be able to read international newspapers, the ones of some repute and not those tacky tabloids controlled by that wrinkled up little prune, Rupert Murdoch! London’s Daily Telegraph in my opinion is amongst the finest of newspapers. One article which recently grabbed my attention was an insight into the inner workings of China, which our economists, industrialists, politicians, investment bankers and diplomats want to keep hidden from us. To begin with, we have to remember one thing; China is a communist country. Because communists do not believe in God, unlike the Westminster system, their laws are without a foundation. In fact most judges in China have no legal qualifications or any previous background in law. Being appointed a judge means you have been recognized as a good communist. A glaring example of that is four Rio Tinto (an Anglo-Australian mining company) executives are being prosecuted for spying and bribery (that is the pot calling the kettle black!) and there is every likelihood they will all be thrown into clink with the keys thrown away. Why? Because Chinalco’s (the largest aluminium company in China) partial takeover bid of Rio Tinto was rejected by Rio Tinto’s board of directors. In retaliation those numskull Chinese think these current actions will put Rio Tinto out of business.
Using the Rio Tinto situation as an example of how a Communist regime operates you don’t need to be a rocket scientist to conclude why in the hell have we for so long we put China on a pedestal? Exclude the fact they are our number one enemy, China wins the title as the most loathsome nation on earth. The country is devoid of any human rights, poverty for all but a few million matches anything that exists in the poorest nations in Africa and the country’s leaders are all cheaters, liars and stealers. So much has been attached to how wonderfully well their stimulus package is working and how this most disgusting nation on earth will lead the world out of recession. This is nothing but a cock and bull story.
Exports account for over 40% of its economy and one thing for sure, if and when the rest of the world emerges from the recession and business gets back to normal, China’s dominance will be a thing of the past. Why? Two things, firstly we really don’t need most of the junk they used to dump on us and secondly, their Ponzi scheme is about to collapse and their bullshit and bravado has about another six months life. This current run up is about China celebrating its 60th anniversary in October. On that anniversary date they plan to have a huge party celebrating their success at becoming in their eyes the “world’s number one” super power. I call it their swansong!
Right now China is constructing buildings that will never be occupied, railway lines that will never feel the weight of a trainload of goods, and roads that will never be used. They are also investing in their stock market (the Shanghai Index is up over 80% this year) in the hope they will be able sell off to their investments to foreign “suckers” before it all collapses. Under capitalism, Ponzi schemes in the main affect individuals. Under communism, everything starts off being owned and generally retained by the government. Bernie Madoff’s only involvement with the government was that his activities were illegal. Uncle Sam lost not a dime, but tens of thousands of investors, mainly individuals lost close to $60 billion. Yes, there are some wealthy Chinese capitalists investing in the stock market, but the bulk of the investment is through Chinese government-owned enterprises. There are very credible experts in Europe who claim Chinese equities are currently overvalued by 50-100%. It is a great time to buy puts!
We are talking about a bubble economy which when it falls (within two years) it will make Japan’s experience look like it was just a hiccup. All Chinese banks have up to 70% of their lending tied up in property, not the real economy and values have gone through the roof. When the real estate market collapses so too will most of the banks. Chinese people are not consumers, they are hoarders. History dictates their spending behavior. Although China claims their stimulus package has increased retail sales by 15%, Chinese habits die hard. I wouldn’t give credence to that statement. It is all about measuring. The western world gauges its GDP on sales and China gauges it on output. In other words factories can keep pumping out junk where there are no buyers and China will continue to tell the world the country is booming when in fact most of that junk will fill up and stay in warehouses never to end up in people’s houses. Fifteen years ago, Chainsaw Al Dunlap who was Chairman of Sunbeam tried the same caper, manufactured enough barbeques for literally every American, invoiced bogus customers, registered the sales, to give a credit down the line but in between telling Wall Street the company was booming thus the stock price soared through the roof. Dunlap sold his stock options at the peak and once he banked the profit, walked away from the company, which immediately fell into Chapter 7 bankruptcy. The story is exactly the same with China.
Remember you first read of China’s imminent demise on this blog!
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