Web of Debt

There are valid reasons to doubt any report issued by any government that is unilaterally controlled without checks and balances. That is why one should look and see what’s happening, and don’t automatically believe reports.

The answer is indeed simple on one hand: The government owns the banks; period. No banker would dare resist or what the Central Financial Control authorities dictate. Therefore, as intended by the Central Government stimulus package was deployed at lightening speed.

Last week, I went to Guangzhou, one of the larger cities, formerly known as Canton. The number of building under construction or renovation is staggering. In some areas nearly 70% of buildings have construction scaffolding around them, and work is on-going for renovations. It appears that construction and renovation of infrastructure has taken the bulk of the stimulus package. Cement has doubled in price since the stimulus package was released, and cement plants have to expand to meet the demand.



The Chinese banks do not work for the people. They work and follow orders and instructions from the Central government. But of course, this concept can be subject to subjective evaluation; therefore, we would require a guideline for evaluation. Home purchases are an interesting area to watch. Mortgages are rarely more than 20 years, and they are invariably Adjustable Interest Rates. In recent time interests have been seen as high as 17%. However, salaries are rarely if ever adjusted for cost of living increases; therefore, this practice will continue to transfer wealth from the bottom up. Housing is generally overpriced when compared to number of hours of work are required to purchase a home in China, versus elsewhere. In general, Chinese will need to work about 30% more to buy a 2 or 3 bedroom home, than workers in most of the US (excepting high cost areas in large city centers). The current property law grants ownership for a period of 70 years, after which the property reverts to ownership by the state. Nobody knows what will happen then, and few care, since home owners expect to have checked out by then. To the Chinese this isn’t a matter of concern because they want a home for their family now, and can’t be worried about what will be in 70 years, since that will be worry for the grandchildren, and particularly also because they don’t have a say on which way things will go in 70 years.

The statement by Samah El-Shahat, about the is meaningless because the author doesn’t explain the divide or what exists elsewhere. Banks can’t become more powerful than government when they are themselves a part of government. They’re already all powerful, to the extent the Central Government makes them so.

Banking services to the general public is pretty much as anywhere else, and on some areas, is less. People pay banking fees for just about everything anyone else in the world pays and in some areas proportionately more. Business loans for small business are a rarity, if they exist at all. These people have not been recipients of any stimulus, yet, it comprises probably 80% of the economy. (The original article agrees with me on this point, in the latter section, “Cracks in the Chinese Wall,” so it seems incongruous to give it as a positive point in the earlier section.)

How the stimulus will get to them is through subcontracts from the big boys. Practice is such that the bottom folks get squeezed to the irreducible minimum. Compound that with the lack of safety net at the lower 70% of the social structure, and it belies any real social benefit. The excuse that bigger companies are better credit risk is irrelevant; loans were never made to small businesses, therefore, China’s infamous default history is only the default of large companies in the first place.

It is true, however, and the most important factor and lesson the US has to learn, that China ensured that the stimulus money went directly to the real economy, (main street), and the banks have no say at all as to who receives the money. The deals are achieved by the various government agencies, and bureaus, and the bank is instructed to deploy the money according to the dictates of the government. The US has totally failed on this account. There has not been any mandate to banks to deploy any money into the real economy; therefore, while both GDP’s will go up, China is adding real wealth to its nation, while the US is making private bankers even richer.

As for China’s bubble, we can be sure that China’s economy will never react to bubbles in the way the rest of the world economy reacts to bubbles, because of different basic economic philosophy, and practice. Speculator will consist of people in the upper 30% of the social ladder. It would be them who will take the risks and for a time, the profits. The general population has got its chin’s hairs burnt just a year ago with the market bubble, and the attitude has gone back to the traditional sure fire way to building a safe future through savings. Also, the Central government has no compunctions on regulating and restricting speculator, and punishing them in retrospect when they have been found to have cause economic fiascos.

Underlying it all, be it the US, the West, or China, is the basic problem that will never go away unless economics is democratized where the rank and file has some control and say on how the system works, and how money is distributed. This is a flaw in the entire world system, which will continue to present social problems for every country with a relentless vested interest in economic central high priests controlled, where the non-initiates have no rights to know or understand. Any “socialization” or “nationalization” of banks can’t be compared to that of how public parks or libraries are managed. There is nothing for libraries or park managers to gain by taking exclusive control of these resources. Banks, on the other hand, have the power to increase liquidity into the economic system; and that liquidity, money, is and has always been the incentive to keep acquiring more and more exclusive control to protect its own power. I rather democratize the system where key officials are elected, and all in the system have passed examinations of competence before they can become candidates.

Insightful comments.

Basically, every where in the world needs the money supply created, managed, and removed only by people who work for the good of the all citizens - not just a few.