Reflections of a stormy petrel

http://finance.townhall.com/columnists/mikeshedlock/2011/10/29/china_real_estate_bubble_bursts_with_violence/page/full/

While the computerized imbecility of the so-called "markets" has been scaring itself stupid with absurd tales of the Euro's coming collapse, the Chinese property bubble has been showing every sign of bursting. It can't even be said that people haven't been paying attention; journalists, for once, have done their duty, and Europe's leading business newspaper, the Financial Times, has published reports that should have worried any business person with their heads other than in their anus. But alas, there is no shaking the hive mind. While property owners in Shanghai rioted against their own developers, the moron mob kept demanding more and more reassurances from basically solid Western European economies, and raising interest rates according to their own self-induced terrors, thus making matters much more difficult. But as there is nothing so bad that a really bad politician cannot make worse - and abominably stupid at the same time - those responsible for the new European stability fund have concluded their labours by carrying out a humiliating and entirely useless visit to China, begging the Chinese for money. China, you miserable idiots, is not your friend. They will do nothing to reinforce Europe, and at any rate they have big and swiftly increasing problems at home. You have sold our dignity for absolutely no advantage.

One of the habits of mind induced by a Marxist education is to consider the economic and political battlefield as a zero-sum game. This lasts even after any belief in socialism has died out, and results in the frequently observed phenomenon that ex-Marxists and ex-Communists make the most brutal, rapacious and conscienceless capitalists. It is, in particular, incredibly easy to spot in the destructive and profoundly stupid behaviour of the People's Republic of China.

This government, knowing perfectly well that international Islamism is at least as much its enemy as the West's, nonetheless looks with unconcealed sympathy and support to the Iranian government's pursuit of the atom bomb, and looks for advantage and alliances in the Islamist fever-swamp that is the government of Sudan. As far as they are concerned, anything that diminishes their imagined enemies in the West, however dangerous and destructive, must necessarily be to their advantage. That the West and China might both lose out if the maniacs of Tehran build an atom bomb does not begin to cross their minds. That there might be mutual advantage in fostering order in the region would never seem to them anything but a piece of pied-piper propaganda intended to get them to perform to their enemies' tune.

Some apologists for Beijing say that Chinese foreign policy is driven by the need to secure sources of raw materials; but this is nothing but a different manifestation of the same pathology. The fact is that raw materials are available to anyone who can afford to pay the going rate. Japan and Italy, two countries who have to import every major industrial raw material from iron to oil, have rarely had any problem. It is only in the mythology of ignorant (by choice) hard left groups, that the Americans have invaded Iraq "to steal its oil": that oil was available to them freely without the expense of a war, as is any mineral from bauxite to zircon. Only China does not think in terms of competing for resources on a free market; it wants to "secure sources of raw materials" - language that should concern any mining country from Congo to Australia.

The one reason that makes this kind of talk a bit less irrational is itself a product of the same post-Marxist zero-sum-game attitudes. China is effectively at a disadvantage on the market for raw materials; not because it does not have army bases in Iraq, but because its currency is notoriously undervalued. And it is undervalued for a purpose: to maximize the Chinese competitive advantage in industrial exports. The same juggling with exchange rates that allows Chinese manufacturares to destroy whole areas of competing Western enterprise, also makes it more expensive for them to buy the raw materials they need. But since the zero-sum-game mentality inevitably leads to paranoia, the Chinese don't think of the remedy - allowing the renminbi to reach its natural market value. As they are always looking out for enemy conspiracies to do them down, they would interpret such a suggestion as an attempt to rig the market in favour of their enemies.

The aggressive Chinese export drive, backed by a massive industrial espionage apparatus, has been unsettling Western economies for decades. The West long ago made a strategic decision to do nothing about it: the prospect of inserting the huge and dangerous empire of Mao Zedong into the world of civilized exchange and industrial progress seemed worth the pain of accepting aggressive competition and dubious pricing. However, when purely internal Western follies brought about a severe resettlement of American finance, the Bush II and Obama administrations did not try too hard to rescue the dollar. They, too, had discovered the game of overcharging for imports and undercharging for exports, and badly needed to find ways to raise employment.

This left the Euro alone on the top of a mountain. The result is the sluggish economy that conservative Americans make so much of. No matter how efficient and high-quality may be the Eurozone's productive sector, it is difficult to compete with rivals of whom the largest deliberately allow their currencies to float at well below ours. And that is, in my view, the reason for the otherwise disconcerting lack of eagerness about rescuing Greece. Greece has certainly been placed in the national equivalent of administration, and will have to go through the most painful process of internal change in generations. But the truth is that the current slide of the Euro is getting the real big boys of the Eurozone - Germany, France, the Netherlands, Italy - out of a situation for which they had absolutely no enthusiasm. The truth is that nobody wanted the Euro to be the world's new reserve currency, and certainly not at this price. The result, however, is that, with the dollar, the euro and the renminbi racing each other to the bottom, the world no longer has a real reserve currency.

What we need is a new Bretton Woods. The trouble is that it took a world war and fifty million dead to get the survivors to agree to the first Bretton Woods, and I doubt that anything today could make the same impression.