The Chinese Matter – by BGE


*My apologies to BGE for getting this up so late. It’s been an odd morning. It’s still a very important thing to get out there. – SAH*

The Chinese Matter – by BGE

In November 1971, not long after the Nixon administration ended the dollar’s convertibility into gold, then Treasury secretary John Connally told his counterparts during a G10 meeting that “the dollar is our currency, but your problem.”   Despite the Bretton Woods era being long gone, this remains true today.  The US Dollar is the world’s reserve currency and this simple fact is the root of our “Exorbitant Privilege” and a primary reason that China’s huge holdings of US Treasuries are their problem, not ours.

Certainly, China could dump their holdings or choose not to take up the waves of Treasuries coming on to the market, but only at the cost of completely wrecking their economy.  The logic of tyrants is not the logic of a free society, but even a tyrant must ensure that those who maintain him in power are fed and well-oiled or he ends up dead, often messily. Wrecking the Chinese economy, which is weaker than popularly believed, would damage those on whom the tyranny depends for support. Crucially, this includes the Army and Intelligence functions whose senior officers have become rich through state-owned corporations.

Finally, it might not work as intended.  The conventional wisdom seems to be that China’s dumping US treasuries would cause interest rates to increase (bond prices move opposite to rates; high rates mean low prices and low rates mean high prices,) thus driving up US interest payments and, in classic mercantilist fashion, wrecking US exports and giving China comparative advantage through a weak renminbi.  Certainly, it would produce a couple of interesting days on the markets but, unless a new reserve currency emerges, a return to economic normality would also mean a return to the dollar shortages that existed up to the day the world hunkered down.  That there was, and will be again, a shortage of dollars may seem paradoxical, but it is very real and arises from the dollar being the world’s reserve currency and China faces the largest dollar shortage of all.

So then, what is a global reserve currency?  Simply put, a global reserve currency is a means of exchange for world trade.  Before the war, it was gold and silver, since the war it’s been the US dollar.  The world needs dollars to intermediate global trade.  The more global trade, the greater demand for dollars.

To give an example, a Swedish export firm is selling product to a Japanese import firm, delivery in three months .  The Japanese firm doesn’t go out and buy Swedish Kronor, rather the Japanese firm goes to its bank and buys a Eurodollar deposit maturing in three months.  The Japanese bank sells Eurodollars forward for three months for kronor to the Swedish firm’s bank, who provides Kronor to the Swedish firm.  (this example and several that follow come from Jeffery Snider at Alhambra Investments.)  While this seems unnecessarily complicated,  scale and liquidity make it routine and much more efficient than the Japanese firm trying to find someone who is selling Kronor.

The key here is the notion of the Eurodollar.  A Eurodollar is simply a dollar liability outside the United States, mostly in London and Tokyo.  The term arose during the 1970’s as oil producers put the proceeds of oil sales into European banks outside the control of US authorities.  These banks, and this includes the overseas parts of American banks, began to use these deposits as funding for US Dollar lending and the money multiplier allowed the supply of dollars to increase immensely while the US money supply need not change.  This seemed to overcome Triffin’s Dilemma, the conflict of interests between short-term domestic and long-term international objectives.  There’s a catch, which we’ll come to later.

Let’s turn, then, to China.  Dollars flow into China through investments and the proceeds of merchandise trade.  China ships goods to the United States and is paid in dollars provided through the Eurodollar system.  The Peoples Bank of China (PBC) ends up with a lot of them and buys US Treasuries.  At the same time, the PBC issues Chinese currency, the renminbi.  The renminbi is not a convertible currency,  it’s essentially domestic scrip.  China has few natural resources and needs to import most raw materials.  For that they need dollars.  Since no-one outside China wants renminbi, it is not a stretch to say that the Eurodollar is the Chinese currency, as it is for most countries world-wide.  Europe, the UK, and Japan have large enough internal markets that their currency has value apart from the dollar, but for China and the rest, no.  For international trade you need the dollar.

This is power, this is hegemony, this is the exorbitant privilege that d’Estaing spoke of.  The military might of the US helps keep it in existence and the productivity of the American economy makes it credible, but it’s the power of the dollar that keeps ally and enemy in line.  The United States can do what other nations cannot and there’s little the other nations can do about it.

We’ll return to China, but first let’s return to the Japan/Sweden example.  The banks perform two key intermediate functions here, first is facilitating trade between currencies (here Kronor and Yen) the second and more important is time.  Delivery is in three months and the bank has done what is called maturity transformation.  They have taken money today for delivery three months from now.  Maturity transformation is the fundamental social function of bank’s always and everywhere.  They borrow short and lend long. This is by nature unstable and, when coupled with leverage, the cause of all banking crises, but it is the key step that allows strangers to trade at a distance and its benefits have long outstripped its cost.

Now the catch I mentioned above.  Money and Banking textbooks begin with the notion that policy makers decide on money supply and execute through some sort of reserve ratio, either to gold or deposits with the central bank.  It isn’t that way and hasn’t been for a long time.  The money supply is limited only by the balance sheet capacity of the participating banks and the balance sheet capacity is limited by the amount of good collateral available.  The Eurodollar market is funded by something called a Repurchase Agreement or repo.  Essentially, a money market fund lends money, usually overnight, to a financial institution secured by collateral.  Before 2008, a great deal of the collateral was prime commercial paper, which included (e.g.,) mortgage obligations.  Since then,  only first world government bonds will do.  This is why German or Japanese bonds can have negative interest rates.  The banks do not hold them to earn interest, they hold them as collateral to meet the margin call when BofNY Mellon comes calling. For dollar loans, only US treasuries will do and there’s not enough of them to meet all the calls on them.  This is the dollar shortage I spoke of.  Triffin’s Dilemma is alive and well.

Chinese firms need dollars to buy raw materials today for delivery for dollars in the future.  For this, they go to Chinese banks who borrow short and lend long.  The key difference is that both the borrowing and the lending are in dollars not renminbi and the borrowing is usually off-shore. The big four Chinese banks used to have a surplus of dollar assets over liabilities (around $125B in 2013,) but have had a deficit since the end of 2018.  They have huge, mismatched short-term liabilities that they need to roll over continuously and their counterparties require US Treasuries as collateral.  The only source of this collateral is the US Treasury holdings of the PBC.  Were the collateral to be insufficient the banks would have to reduce their lending or, potentially, call loans in, which tends to lead to rolling defaults.

China was an economic basket case before the Wuhan Flu.  Debt to GDP ratios had skyrocketed and there was a great deal of over capacity in the system.  All numbers out of China are suspect, but the reported GDP growth rates were a function of growth in leverage not growth in productivity.  They had reached the Ponzi finance stage that Minsky described. They resemble Japan in the early 1990’s where demographic weakness and excessive leverage blew a bubble that the Japanese economy has not fully recovered from almost 30 years later.  The key difference is that Japan was rich and China is not and Japan had accumulated genuine capital through their innovation and reputation for quality.  China does not innovate, it steals, and has squandered what little reputation it had.

The rot in China is concentrated in the state-owned conglomerates.  These state-owned firms are hugely inefficient and there is massive over-capacity.  They have built empty cities, bridges to nowhere, railroads that don’t work, and hospitals that fall down.  Their products are shoddy where they are not actively dangerous.  The contaminated virus tests and PPE that fall apart when touched are recent examples of Chinese build quality.

These firms are owned by the state, but the returns go to highly placed state functionaries including high ranking military and intelligence officers.  They have become rich and powerful and are the constituency that Bloomberg spoke of when he said that Xi had to “satisfy his constituents or he’s not going to survive.”   The common people of China are no concern to Xi, but he must look after those who maintain him in power.  This is the logic of tyranny.

Thus, to Xi’s dilemma.  To work off this over capacity and maintain his power, China must increase exports, since, as a centrally planned state, it cannot burn off the excess since doing so would lead to a crisis in the regime.  They cannot increase exports because there was excess capacity throughout the world in the period leading up to the crisis and that excess capacity has increased since.  Oil futures have never “sold” at a negative price before.

With all that has gone on, who will buy and who would buy from China?  If they cannot export, they face collapse since they are all highly leveraged, in dollars so the central bank cannot simply print money.  What they can do is horde US Treasuries and buy as many as they can to shore up the state-owned industries.

Were they to fail, the collapse would roll through China destroying the middle class and possibly leading to famine in the provinces.  Xi does not answer to the people, but he does require the military to fire on the crowd if necessary and the military must count on its soldiers, or at least its sergeants.  They backed the regime at Tiananmen Square, but it is not clear what they would do if called on to fire on a crowd when their people back home are starving.  Famine has been the cause the removal of the mandate of heaven from many a Chinese emperor and could well be again.

So, China is very weak and the biggest risk to the rest of the world is error, either on our part or theirs.  Regarding our part, we really must question how far China’s corruption is embedded in our political, business, and media institutions.  We must also question why our politicians seem hell bent on destroying the economy.  Stupidity and fear are usually sufficient explanations for folly, but at the very least we should question whose interests are being served and why.

For China’s part, the biggest risk is human error.  There is a logic to tyranny, but tyrants are human and humans are not always logical.  Tyrants also rule alone and there is very limited resilience in a centrally controlled economy.  Lastly, the Chinese are often degenerate gamblers.  As drink is to the Irish, gambling is to the Chinese.  Xi is a tyrant, no-one is likely to tell him the truth since the truth might get the messenger killed, rather they will tell him what they think he wants to hear and he has been gambling not knowing the true odds and, thus, making mistakes.  His handling of the virus has been disastrous and he is making a very bad mistake in Hong Kong.

I mentioned above that there are two sources of dollars for China, investment and the proceeds of merchandise trade.  Much of the foreign investments come into China through Hong Kong since, under the one country two systems agreement, you could get your investments out of Hong Kong.  The risk was seen to be much lower.  No more.  By crushing dissent in Hong Kong, China risks losing a large portion of their dollar funding.  What price ego?  If they lose their dollar funding, where will they get oil or any of the other things they would need to make war

So, while China seems strong, it is weak.  Its economy is very shaky and Xi’s gambling could wreck it and cost him his life.  The US appears weak but is strong and that strength is why the dollar remains the world’s reserve currency.  The US economy before the current stupidity was a function of two things, the first is productivity, the US worker continues to be the most productive in the world.  The second is demographics.  The US had an “echo-boom” as its baby boomers had children.  Europe didn’t, Japan and Korea didn’t, China put in the one-child policy and managed to produce a slow-moving demographic disaster.

Precipitous action by China either through dumping their treasuries or invading Taiwan would be disastrous for them and fatal for Xi. The world runs on dollars and the demand for them is still higher than supply.  The only risk to is our politicians and I truly believe they are also gambling not knowing the odds.  We must defend our liberty and, if we do, all will be well.

Noli Timere.












235 thoughts on “The Chinese Matter – by BGE

  1. One of the ironies of the Chinese economy is that it would be a lot worse without the US fracking business. Before the current crisis, fracking kept world oil prices capped at $50 – $60 / barrel, far lower than either the Saudis or the Russians would prefer. Since the Chinese import virtually all the oil their economy uses, $80 / barrel (a stated Saudi target) would have tanked their economy before the Wuflu showed up. Not sure if this is a good or bad thing but it did limit the amount of dollars they required needed to feed oil to their economy.

    1. We used to have to keep the strait of Hormuz open, now we just have to be able to close it. India would be hurt, China devastated. It’s why I really don’t worry about war with China or war by China. I only worry about our politicians and that’s quite enough to be going on with.

  2. The key is who does the intentional self-destruction of our economy serve the interests of? If it serves China’s interests, how does it do so? If it serves a domestic faction’s interests, how does it do so? If it is just people being utterly stupid then we need to purge the stupidity.

    1. The mistake people make is that a politician has any interest in the health of the economy. He only has interest in what enriches himself and those he needs to stay in power If the politician thinks that ruining the broad economy will leave him and his friends in power, then to hell with the broad economy.

      I’m afraid i have a very bleak view of politics. Machiavelli was an optimist, it’s Guicciardini for me.

  3. G-D help us if we become reliant on China’s numbers. Xi has taken the place of the man behind the curtain, but that doesn’t mean there’s anybody actually there.

    1. The Wizard of Oz may have been a Humbug, but at least he KNEW he was a Humbug. Xi seems a fairly astute politician, but I suspect his upbringing means he has nonsensical views of economic issues. Given the information provided here fiddling with the renminbi is slightly less useful than rearranging the deck chairs on the Titanic with respect to China’s export currency issues. Whether the army would turn against him is unclear but if Xi mangles their currency or fails to pay them he’s bucking for replacement and not in a friendly fashion.

      1. I think Xi might have some basic knowledge of economics. Much of his early success back when he was still just the local guy in charge was apparently with the assistance of two or three businessmen that he was working closely with.

        Of course, nowadays he says that he’s pro-Mao. So maybe the economic knowledge didn’t rub off on him. Or he could be lying through his teeth about his belief in Mao, and only making the statements as a way of legitimizing his actions.

        1. He has the Cult of Personality of Mao, and makes the noises of Mao, but he has not done the economic policies of Mao. I don’t know if that is good, or is actually a more dangerous combination for everyone. The military may be “gently encouraging” him not to go cultural Mao, after what they did during the second phase of the Great Proletarian Cultural Revolution (shooting the Red Guard by the score.)

      2. Has Xi ever been out of China, other than North Korea and Russia? If not, those who advise him, or report to him, could lie to him and he wouldn’t know. He could have huge, HUGE areas of knowledge that are totally blank.

    2. The core mistake people make concerning China is believing that the Communist Dynasty is any different from any previous Dynasty. There may have been a Dynasty or individual Emperor that wasn’t arrogant, stupid, vicious, and mendacious…but I’ve never head of one. China has always believed itself to be the center of the world (hence ‘Middle Kingdom’) and has always treated its common folk like farm animals. And not very valuable farm animals, at that.

      1. This is the fundamental error too many people make about Socialism/Communism. The fact of it seems to be that all economic systems are mere overlays over fundamental cultural patterns. All that happens when you superimpose Socialism/Communism is that the Who changes but the Whom (the People) remains the same. Thus Russia replaced the Tsar but retained the overall structure of the State, and China operates according to much the same dynamic that has prevailed for millennia. Even the Latin American kleptocracies retained their fundamental structures with different beneficiaries and the same old victims.

        Socialism in America would not be as bad as it is elsewhere – which is not to say it would be good. The Evils the Left is always decrying in Capitalism would likely be exacerbated, as we have always had various degrees of crony capitalism and transient aristocracy, from the Antebellum South slaveholder states to the Robber (and Cattle) Barons and Silicon Technolords. America has never lacked those who thought themselves qualified to order other people’s lives, we’ve merely successfully limited their reach.

        Which is why we must strive to maintain the guardrails keeping the Big Feet from trampling us. Restore the spirit of the Constitution and remind people, always, that “That sumbitch ain’t been born yet, and never will be.”

        1. I will just interject here that many of ‘the Robber Barons’ deserve better reputations than they are granted by history. The story of the Railroads has been distorted . Yes, land speculation was rampant. How else? The land granted to the railroads was next to worthless without those railroads, and the country need the railroads. Yes, a lot of sketchy people were involved in that, but the whole project was a huge risk, and created a great deal more wealth than the speculation caught.

          Andrew Carnegie not only was a great philanthropist, essentially creating the very American idea of Free Libraries, but his innovations dropped the price of steel, creating vast wealth for the country and the world.

          Rockefeller took an oil industry where practically no one was making money, and founded the petroleum business that fueled the 20th century. His evil reputation is mostly founded on the history of Standard Oil written by Ida Tarbell, who blamed her Father’s failures on Rockefeller. In point of fact, her father had made a series of bad decisions.

          The Progressive Left HATES the ‘Robber Barons’ because they mostly made the world better in ways the Progressives are unable to touch.

          1. Well, there was Jay Gould, though Thomas Nast is mainly responsible for his bad rep and I can’t stand Thomas Nast. The progressives killed the country trying to turn us into Bismarckian Germany. Even Teddy. And don’t get me started on Wilson.

            1. Teddy Roosevelt at least loved America. He may have been wrong-headed, but I will give him that he very much loved America, and was willing to fight and die for our country. Wilson may have even loved America. The progressives since the 60’s, OTOH….

              1. I think Wilson hated America as she was. He was a bigot and a snob, and not very bright for all his BS. I love Teddy, he was a great character, but he was wrong about the use of power.

                1. My father, a Princeton alumnus (scholarship) always said that Wilson was an awful President of Princeton, and a worse President of the US.

                  1. I wouldn’t disagree. I just think Wilson may have loved America – or at least his vision of it – rather than hating it. You will never hear me say his vision of America, or many of his policies, were good.

                    1. Someone who loves a vision of a thing more than a thing doesn’t love the thing. And is a danger to all around him.

            2. Has Xi ever been out of China, other than North Korea and Russia? If not, those who advise him, or report to him, could lie to him and he wouldn’t know. He could have huge, HUGE areas of knowledge that are totally blank.

          2. I am familiar with Professor Burton W. Folsom Jr.’s debunking of the Myth of the Robber Barons — but considered the term adequate and far more succinct than a more accurate description of the kind of political entrepreneurship we typically mean when decrying “Robber Barons.”

            As with modern “crony capitalism” the epithet “Robber baron” much more accurately describes those tossing it about than it does the ones being defamed.

            N.B. – I heartily recommend Folsom’s books, which are both well-done and highly readable. Which is just what you would expect from a Hillsdale professor.

          3. Carnegie transformed steel from a scarce semi-precious metal of variable poor quality to a cheap and plentiful commodity of high quality and selectable and predictable properties. This metal became the very bones of civilization.

            He did so in the span of one productive lifetime.

            Rockefeller saved the whales, by making “Coal oil” (Kerosene) for our lamps, so cheap and consistent and impurity free (standard) as to make it relatively safe and easily affordable to use widely, allowing folks anywhere to see as they wanted without the sun. This also happened to end the market for whale oil, saving those magnificent creatures. The wildly and near-explosively inflammable contaminant removed from lamp oil, “petroleum distillates”, became gasoline to power motors, and thus to create a revolution in sanitation: no more poop/whizz filled streets and resultant disease. Other useful stuff came out of the refining process, to pave streets, lubricate machines, and seal roofs. The invention of petroleum pipelines made it safe to move massive quantities of combustible products around, safely and predictably. Oil thus powered, illuminated, and lubricated civilization.

            Again, in the span of one productive lifetime.

            The two men contributed massively to a resultant uplift of human existence that is still in progress.

            And for -this-, they are -cursed- by some amazingly misguided folks. (And some unspeakably evil ones…)

            Saints? Hardly. But not the monsters retconned into history books.

            1. For the unspeakable sin of making useful products, and selling them, they are called ‘Robber Barons’. For the unforgivable crime of creating jobs, hiring workers, and paying them, they are called ‘slavers’ and ‘exploiters’.

              Because their enemies can’t conceive of the possibility of creating value; therefore those brilliant industrialists must have ‘robbed the poor’. Never mind that ‘the poor’ had nothing worth taking, and were far better off after being ‘exploited’.
              Welfare is pay without work. In order to provide pay without work for some, others have to work without pay. We used to call that slavery.

              1. The History Channel series “The Men Who Built America” covers the likes of Rockefeller, Carnegie, and Morgan. Towards the end of the series they cover the beginnings of the Progressive movement and the advent of anti-trust laws. Then the narrator wonders why we haven’t seen men like that since.

                I may have yelled at the TV a bit.

                1. They did abuse their power. The vendettas they conducted against each other ruined thousands of lives of people caught in the middle. Still, much of the ‘Progressive’ movement was based on sheer envy and the unfounded assumption that ‘nobody should be that rich’.

            2. I recently read that Standard Oil was the inventor of Isopropyl Alcohol in the 1920s. So there’s that useful substance, as well.

            3. While the use of Whale oil dropped precipitously after Rockefeller’s innovations, it was used in the US in automatic car transmissions until 1973.

              Just an odd little fact.

              1. Whale oil in transmission fluid? No wonder some transmissions made such odd noises! 😀

                1. Somehow it is appropriate that behemoths like the Chrysler New Yorker or Ford Crown Victoria would use a whale based product. The whales live on but not the 6 place luxury sedan..

            4. It is always a mixed bag. Crony capitalism and financial shenanigans began, in the United States, no later than the building of the Erie Canal. (Probably earlier, but documentation is scanty.)

              Carnegie was an ass – and became fabulously wealthy by organizing the provision of a fabulously useful product. Rockefeller was an ass – and became fabulously wealthy by organizing the provision of a fabulously useful product. Ford was an ass – and became fabulously wealthy by organizing the provision of a fabulously useful product.

              Same, same in the modern day. Gates is an ass – and became fabulously wealthy by organizing the provision of a fabulously useful product. Bezos is an ass – and became fabulously wealthy by organizing the provision of a fabulously useful product.

              1. Not Gates. Crony capitalist all the way.

                Bill Gates [spit!] used connections to sell a product that did not exist to IBM, then used the advance money to take over a small software company and force them to modify a…misappropriated copy of CP/M-86, and presented it to IBM as an original creation.

                Gates and Microshaft stole every idea they ever sold. And made them suck. They held computer technology back by at least 20 years.

                Steve Jobs, now, he was an ass, but he DID create fabulously useful products.

                1. Steve Jobs did not (for profit) create an operating system that worked on multitudes of cheap hardware. Nor did he distribute (for profit, indirectly) a free internet browser bundled right into that operating system.

                  I’m NOT arguing technical merits Macintosh vs. Clone (MSDOS/Windows) – I’m noting that Clone is what ended up widely distributed, and fired up the information revolution. (Not arguing about the business practices of Microsoft, either – you are quite correct there.)

                  Ransom Olds produced a FAR better vehicle than Henry Ford – but Ford is the vehicle brand that “unbound America.”

                  1. Steve Jobs did not (for profit) create an operating system

                    Actually, Jobs and Apple created most of MS-WINDOWS. Most of Microshaft’s products were copied or stolen from their actual creators. Gates was a con man, at best.

                    Jobs at least used his own ideas, and paid for the ones he got from other people.

                    1. Repeating – NOT arguing technical merits or business practices.

                      (Although, if you wanted to talk about “idea theft” – the people at Xerox PARC might decide to chime in…)

                    2. Jobs gave Xerox a big pile of Apple stock in exchange for their prototype user interface. It’s not his fault they sold it before it was worth anything.

                  2. Steve Jobs also *ahem* ‘borrowed’ what became MacOS. And back in the olden days it was hilariously similar to the GEM Desktop.

                    1. Actually, I think they both “borrowed” from the same source.

                      But, IMHO, it is more a matter of “When it’s time to railroad…”.

                      Ideas are also worth about as much in computer development as they are in the writing world – i.e., nothing until someone does something with them. Sorting through old stuff when cleaning out my parent’s house, I came across some papers that I had jotted down as a teenager – about 1975 or so. These notes described the beginning of a system to encode fancy text and cross-reference information, using just the small number of characters available in the ASCII set. Eerily similar to HTML (little differences, like square instead of angle brackets) – a full fifteen years before Berners-Lee.

                      But Tim deserves every last bit of credit as the “inventor.” I did nothing with that notion, he (and several other people behind him) did.

              2. To be perfectly honest, many a man who has NOT become rich is an ass.

                Surprisingly, there are those who consider me an ass, which is absurd. Sure, the ears are similar but will you look at the feet!

                1. I see no physical resemblance myself.

                  I agree, the Venn would be one of those with one circle completely inside the other. The set of asses, and the (much smaller) subset of the rich and famous. Alas, I am only in the outer circle.

                2. Shockingly, membership in the Equus asinus is open even to humble Agaricomycetes.

                  I have also observed that the E. asinus is over -represented among the Builders and innovators.

        2. The Marquis de Custine wrote a book La Russie en 1839. I have an edition with a foreword by someone in the staff of the American embassy to the USSR talking about how they regarded it as the best guide to the USSR.

    3. I don’t even trust *our* numbers…

      Lately I’ve had considerable sympathy for Albert Speer, the Third Reich’s “economic czar”. Speer was theoretically in control of the entire economic output of Germany and all the occupied countries, but in practice the people below him falsified information to the point where he was doing national planning based on information he got from Allied propaganda broadcasts, which he found were more reliable than what the National Socialist bureaucrats were telling him.

      I expect DJT is in the same boat, except he doesn’t have Speer’s illicit back-channel…

      1. As an experienced free-lance corporate accountant I assure you our numbers are good.

        Good for what is something nobody knows.

        1. Oh, gads, I read that somehow as:
          “as an experienced Lance Corporal, I assure you-”
          and my main reaction was “huh, RES was Army? Didn’t know that.”

            1. Which is part of why I was giggling so hard that I had to share.

              Not only did I totally read something that isn’t even SORT OF there, I granted the Army an entire rank they don’t have based entirely on, well, if RES was a Marine we’d know already. 😉

              1. Hmm. Wallabies are from Australia. Australia, being a Commonwealth country, follows British Army rank conventions. Lance Corporal is a perfectly valid rank in the British Army.

                So, honest mistake there, yes? Can’t do anything about the eyes, though…

        2. Good for what is something nobody knows.

          I’ll bet Larry Correia could make a pretty good guess.

    4. China’s numbers have the obscurity of Bistromath, without the advantages.


  4. > By crushing dissent in Hong Kong, China risks losing a large portion of their dollar funding.

    I started asking questions about that when the mainlanders first sent the PLA to HK to “maintain order”, and supposedly-knowledgeable people told me I was just being silly. I was thinking, if I had a business presence in HK, I would have Suits out scouting for a new location somewhere else, even if it meant considerable expense and inconvenience.

    A lot of people made contingencies for that back during the Handover, but the Chicoms’ assurance of “business as usual” lulled them into staying. And they haven’t put much weight on the spiked jackboot… until recently.

    Businesses with a presence in HK are dependent on money moving freely through without fear of manipulation or confiscation. If the mainland economy starts to collapse, they’re going to pull HK down like a drowning swimmer.

    1. Most people believed In the smiling panda and we’re too busy making money to think twice. the money is mostly other people’s money in any case. I’ve been to China several and lived in HK. When you dance with the devil, keep your hand on your wallet and a clear path to the door.

    2. Friend grew up in HK, and had lots of family back there. Now has one Aunt in HK who won’t leave.

      They all see what China is doing at much closer range and had the family wherewithal to go elsewhere, so they did.

      1. Yup.Xi has a few of the financial patriarchs, but the kids are living elsewhere. As are people working for the Chinese government as spies on their movements… but that’s what loyal, well-paid, well-equipped security and bodyguards are for.

  5. This post confirms, with concrete data and explanations, what I have suspected for a long time; that the Peoples’ Republic of Eat Your Moldy Rice And Shut Up is a huge, terrifying dragon…made of sugar-glass.

        1. The episode of Top Gear where they went to China was revelatory. As was the part when they went to other countries, and saw giant lakes that had always been centers of fishing and industry, that were drying up because China intentionally cut off too much of the water by building the Three Rivers Dam.

  6. Invading Taiwan would likely be overly reckless at this time even without the concerns listed here. Pulling off a successful invasion even without opposing forces at the landing site is *hard*. The Soviets made a landing on one of the outlying islands they claimed from Japan just before the end of World War 2. The Japanese were weak, and only there in small numbers. But even so, the Soviet victory was pyrrhic at best.

    The PRC is working to get itself into a position where invading Taiwan would be an option if needed. But I don’t think it’s ready yet, even absent immediate US support for the RoC.

    1. When US and Canadian forces landed to retake Kiska Island in the Aleutians, they still suffered 313 casualties from accidents, friendly fire incidents, and boobytraps, despite the fact the Japanese had evacuated two weeks earlier.

      1. Hell, when US forces landed in overwhelming force on Grenada it was still a near thing. I know Col. Kratman’s affection for Panama but our expedition’s difficulties in extracting Pinappleface was not solely due to the native forces’ ferocity.

        1. OK, be fair, Grenada was never a near thing – it was just not a walkover, and highlighted a lot of especially bad planning and some spectacularly bad execution (like the initial SEAL raid). The Cuban “engineers” were especially contrary, but there was never any question who would be in charge of the island in a week.

          1. I concede my summary of the Grenada Invasion is affected by John Ringo’s stories of his participation. It wasn’t a near thing but our performance was … uneven. Our forces, still suffering the kind ministrations of the post-Vietnam Democrats and the Carter Administration were … unprepared fr any resistance and – had there been anything like parity of forces – would have produced a disaster..

            1. I happily defer to anyone who was there, but while it may have been a CF at magnitude -5, it did get done.

              But the Cuban construction troops who were there working on the airport and the Grenadian forces had nothing to match the military force applied by the US – which is the way you win. Fair fights are for idiots or those without any other options.

              The fact that the US military has not faced a near-peer opponent since WWII* yet has managed such a checkered record is due to other factors.

              * ARguably when the Chinese entered the Korean War the PLA was only near peer due to headcount, but numbers have a quality all their own, as Stalin didn’t say.

              1. Thing is, everyone has checkered records. As an example, the vaunted German Blitzkrieg of Poland wasn’t. Yes, it was fast. But that had more to do with the numeric and qualitative advantages than it did Guderian’s Blitzkrieg tactics (along with the Soviet declaration of war and invasion late in the campaign). The Germans managed to bungle those up. It wasn’t until France, the following year, that the Germans were able to do Blitzkrieg properly.

              2. My dad was in Korea when the Chinese came in. The bulk of the Chinese troops were from the south and suspect politically. They set up machine guns behind the lines, blew a bugle and off you went. if you went forward you’d probably die., if you went backward you would definitely die. The exchange rate was something like 10 Chinese to every American. Trouble was they had 11 men to every American. It was a mess.

                Fixed Mao’s problem though, he got rid of a lot of politically unreliable men.

          2. There were also inter-service issues in play during Grenada. It wasn’t rivalries, afaik, so much as it was just coordination.

            The good thing about that mess was that in addition to freeing the citizens of the island, the invasion also pointed out numerous areas in which the US military needed to improve. And the services were able (and willing) to use the lessons learned to fix many of the issues.

            It’s probably appropriate that Clint Eastwood’s movie ‘Heartbreak Ridge’ ends with Grenada, given the movie’s themes about making the military functional again.

            1. The (hard and costly) lessons of DESERT ONE and URGENT FURY are part of the reason for DESERT STORM’s success.

    2. When people think of a landing force, they think of D-Day — but how many remember that Eisenhower carried in his pocket a prepared speech in case of failure, taking full responsibility for the disaster?

      1. Eisenhower wasn’t in charge of the landings. If he’d fuffed it a few miles from the beach it would have been on him, but getting the expeditionary force across the Channel was above his pay grade; Churchill, Marshall, and staff officers who outranked Eisenhower were the ones with the responsibility and authority.

        Of course, from his own words in his “Crusade in Europe”, he had no idea how the joint command with the British worked, or where his place in that org chart was. And that was part of his freakin’ *job*.

        Some people have called Eisenhower “a jumped-up file clerk”, but considering there was a pool of generals who had already successfully managed D-Days in North Africa, Italy, and all over the Pacific, it has never been clear to my why they would pass them over for someone who was, frankly, as close to a nobody as you could get and still have a star on your collar.

        1. Eisenhower never seems to get credit for two pieces of sterling diplomatic work he was involved with;

          Keeping Patton from shooting Montgomery, and Churchill from throttling de Gaul.

  7. Since I finally learned what “C4C” means, C4C. This article reinforces my belief that the world utterly depends on the American Hegemony and “those in the know” outside of the US will continue to complain about it while making sure to take advantage of it. “Those NOT in the know” outside of the US will just continue to whine and complain. Those inside the US that know and still complain about and try to destroy what makes the US great are traitors to humankind.

  8. Thank you! I wish my econ prof had been this clear about the role of the dollar and Eurodollar in world trade.

    1. Thank you. I had the same experience. The problem is that there’s no money in monetary policy anymore. The creation of bank reserves by central banks is not money and that’s why I don’t think there will be severe price inflation unless they continue to accelerate.

  9. If they cannot export, they face collapse since they are all highly leveraged, in dollars so the central bank cannot simply print money.

    That does suggest a reason underlying their push to claim the title of 5G Purveyor To The World.

    Sure, the ability to monitor all communications has a benefit but so does drinking from a fire hose. Being the source of the Must Have technology of the World means guaranteed sales and market dominance for something only they can export.

  10. Great explanation of the world that is BGE.

    I’d be far happier if our cash was backed by metal, be it gold, silver or whatever, instead of the word of politicians and corporate traders, but what the hey, what is, is what it is.

    I do have concerns that Xi and/or our “Gracious Leaders” might well decide the fire’s impossible to put out, without being disadvantaged by the result and hence try to hide it under the smoke of a police action or war. Such would keep Xi’s rich military leaders busy and be quite beneficial to world wide investors in the military industrial complex.

    1. The backing of money by a commodity is just one more illusion. Money is a shared fantasy. Back money with gold, and the fantasy moves to the gold, but it’s still there.

      The Spanish made the mistake of believing that gold had an intrinsic value, and didn’t realize that by importing tons of it from the New World they were driving the value down.

      Of course, chasing their (Jewish) middle class out of the country didn’t help…

      1. The value of gold (or any precious metal) as a support of money has always been that it is limited. It served as an impediment to those who would inflate (devalue) the fisc.

        More important than the Spanish Jews being their middle class was their function as their entrepreneurial class, providing the critical middle-man function of balancing shortages and abundances.

        1. Sadly, the Jews were going to be driven out regardless. If I understand it correctly, there was a long-standing perception that they were disloyal traitors and willing collaborators with the hated Islamic invaders.


          1. The Catholic Church had been trying to destroy both groups for centuries, which kind of forced them into an alliance. You’d never guess that based on more recent events, though.

            1. Everybody, on the borderlands of the Spanish kingdoms and Grenada, which was pretty much everywhere but wayback in the wayback mountains… was a backstabbing traitor. And a glorious hero at times, and a person involved in several bloody feuds to the knife who was looking to avenge his kith and kin, and an evil bastard who needed to get his. And let’s not even get into the incest of all the royal families. (We’ll make an exception for saints, but Spanish saints ended up doing a lot of running for their lives, being imprisoned by their colleagues, or preparing defenses against accusations by the disgruntled and the Karens.)

              Everybody. Every ever-lovin’ one. Muslims, Jews, Christians, Basques, everybody. One big feud, and everybody against everybody on every possible Lovecraftian angle of the polygon of sides.

              Ferdinand and Isabella were basically doing whatever they could get away with, as long as it kept the lid on.

              They declared every single Basque man, woman, and child to be a noble, with all the privileges appertaining thereto, even though the Basques and the Castilians and Aragonese hated each other. Because that was all they could think of, to keep the lid on.

              If there had been a feasible way to deport every single troublemaker, the way they deported the Jews and Muslims unless they became Christian, I am sure they would have done it. And you will notice the amazing ease of being allowed to migrate to the Americas. Funny, that.

              Do you know who got sent to America as explorers and conquistadors? People from the border families of knights. Because it kept them from backstabbing among themselves in Spain, and moved the action elsewhere.

              The really amazing part is how genteel they got, compared to how things had been. And yet there were still countesses running around wearing eyepatches, even in the “refined” times later on.

            2. Jews, Christians and Muslims are three mutually heretical groups; they are by definition trying to destroy each other. How much by conversion has varied, depending on time period, but if they take their faith seriously each wants the others to not exist anymore, because they all joined the Truth.

          2. That could be because some — possibly including my ancestors — opened the gates of walled cities to the invaders.
            Long and convoluted story. Let’s say the results were punishment enough.

        2. Wasn’t there a Fed chairman who said something about the best money being a fiat currency that acts like a specie one?

          If I had my way, I’d get rid of the Fed mandate to maintain full employment (there are plenty of reasons apart from the money supply for people to be unemployed) and implement an inflation band. When the Fed meets they look at inflation. If it’s too high they reduce the money supply, too low and they increase it.

      2. A section I deleted from this post was how money is credit and credit is belief: Credo, Credere. Currencies die when people stop believing in them. It ended the western Romans and it might end us, but not yet.

        1. This. There was not much value left to much-debased late-western-Empire Roman coinage other than Roman-belief-token – that is, take this shiny thing into Roman territory and it was worth what the Romans said it was worth – so when the belief finally got shattered those coins fell to only be worth their debased metal content value.

          There was a thing a few years ago when a nickels nickel content surpassed $0.05 value, which violated the natural laws of fiat currency, so A) people started hoarding nickels, and B) the mint changed their content.

          1. Same thing happened to copper pennies back in the 1970’s. For ever after, pennies have been zinc plated with copper.

            Strike a falling penny with a hard object. If it goes TAK it’s zinc; if it goes TIIINNNGGGGG it’s copper.

        2. Maria Theresa thalers were real money in much of the world. Enough that Italy, Germany, Britain, and The United States of America have all minted thalers to pay foreign debts. Austria is the polity recognized as the succesor to the government that minted the originals in the 1700s, and finally managed to get the countries that were making their own to stop in the early 1960s. I’m not sure why they bothered, but apparently it was a big deal to the Austrians.

          Doesn’t matter if it’s silver, seashells, or giant stone wheels; the big thing about pegging your currency to something physical and in limited supply is that it can’t be arbitrarily inflated.

          1. As I recall, reports are of cigarettes being currency in post-WWII Berlin … and in various American prisons.

          2. Thalers are still minted, and were used in parts of East Africa into the 1970s (my parents had some in reserve when they went to Kenya and Ethiopia in 1974, just in case.)

      3. Why money is simply counters, easier to carry around than rice or pig iron. Paper money is a promissory note, used to be exchangeable for gold or silver thus a, relatively fixed value. Take away the gold/silver backing & the value is whatever the issuer says.

    2. The only metals which can truly back a currency are steel, copper, titanium and tungsten. Industrial metals, that can be used to build a productive economy. Farming, mining, manufacturing and construction are the source of all value, of which any currency is only a symbol. Lose the value, and the currency becomes worthless.
      Governments can only print money; they can’t make it worth anything. They CAN make it worth nothing.

      1. Which is why TSR’s Dragonlance setting used steel coinage post-world-breaking Cataclysm.

      2. I am given to believe that some monies are backed in lead, sometimes with steel-jackets.

        1. Those are the precious metals that I invest in the most (although actually copper jacketed, I don’t have anything that I could feed with COMBLOCK investments)

  11. The Russians, Chinese, and Eurocrats would all love to be in charge of the world reserve currency, but as bad as the US is, we’re less bad than then _by far_.

    Have a near-future-sci-fi work on the backburner, if it ever gets far enough someone is going to announce at the UN that ‘the stability of the US dollar is too important to leave in American hands!’, and that’s going to be the signal for the protagonists that they’re down to years at best before the window closes to get their assets beyond lunar orbit.


    1. It exists. They’re called Special Drawing Rights (SDR). issued by the IMF since 1969 The IMF and the UN have no direct ability to apply violence and, thus, no ability to tax. No tax, no money. the backing for the SDR is the US Dollar

  12. Thank you very much! This is the equivalent of a graduate seminar in international economics. You should be a professor. Seriously.

    Dumb questions from the slowest student: If China (for now) needs to keep buying up Treasuries, then the price of Treasuries goes up, and our interest rates go down. Do they go negative? Are there bad effects (for the US) from that? And what happens if (when?) China fails and this trade unwinds? Do our interest rates rocket upward? Do we get stagflation again?

    1. Thank you. I had the choice 37 years ago. No regrets. Professors don’t make enough money and I wanted to do not teach.

      Our rates could well go negative since their primary role is as collateral in the international money system. Very low interest rates are a sign of low real growth leaving aside any inflationary components, so that’s bad. I think stagnation is the problem not stagflation, though I’m sure the central banks will continue to push on the monetary string like japan has for the last 30 years. They really don’t know what to do.

      I could argue several ways about China failing. On the one hand, they wouldn’t need our bonds so much, but on the other they would need them more to save what they could from the wreck. Gripping hand, is that nothing much changes. Inertia is a powerful thing.

      1. Good choice — I briefly contemplated the academic track many years ago and realized the joys of lecturing classes of disinterested students was not on my happy fun thing list. Conversations with those teaching classes I was taking persuaded me that the majority of “students” were merely present in class with no real love of learning — with the handwriting on the wall making it clear that the output from our K-12 system was not interested in learning.

        G-D bless those still in the educational trenches fighting to light fires rather than filling buckets; you will be saviours of our nation. As for me, the knowledge I will never again hear the question, “Will this be on the test?” is balm for the spirit.

        1. Wanting to get married – and start on the most enjoyable part of producing 2.5 kids (okay, I overshot just a tad) – is why I resisted the blandishments of my college history professor.

          Considering that I most likely would have gone postal on the majority of my “colleagues” by now, that was doubly a good decision.

      2. Peripheral: Newt Gingrich had a guest who warned that most of the ‘investments’ in China don’t exist:

        [audio src=",f4b83756-b147-5b8f-b585-937365344abd,Pg1LSxVz08766vOGWskz0XYXEDA/episodes/181b2f5b-2677-41ee-a011-688242ca81bd/0e1b955202307275e20f52af7f8f98ef8a89ccb41370da9f819c7b782f8825e5e7d004a08eab46c3cda425fea2b837706c24b4986de52ee7bae5e8ccd1bff56e/Episode%2038%20-%20Chinas%20Con%20Game.mp3" /]

        Egads, that’s ugly, but it’s the link I can get to work. Well, I hope it still works!

          1. Yeah, I was soooo surprised… But apparently certain pension fund investors haven’t heard, notably in California.

  13. …and the productivity of the American economy makes it credible.

    This stands out as something that is, perhaps inadvertently and for China utter accidental good luck of sorts, the Real Danger of the apparent US response.

      1. The traditional answers are “the Rothschilds”, “the Illuminati”, “the Cabal”, or just “them”, whoever they might be.

        Where those answers fall down is that too many individuals/corporations/countries are doing things that range from “not in their best interests” to “potential suicidal”, and for most of those things, there doesn’t seem to be anyone directly benefiting from it. And it there were, they’d be so powerful already, it would be pointless.

        You don’t have to read a lot of history before you see whole countries doing crazy things and you just sit there going, “What the HELL were they thinking?!”

        1. I collect conspiracy theories. the primary argument against a large scale, long term conspiracy is that it would require continued, inherited competence and No one knows nothin.

          Someone recently mentioned that this was like a Retief story. it is. I first came across groupthink in a Retief story. All this panic is in a small, rather incestuous group of people who lived the same curated lives, went to the same curated schools, worked for the same curated firms, and have the same, curated views, It’s no mystery.

          Many of you here are writers who go on about the mainstream NY publishing houses. Why would you think it different anywhere else?

          1. When an urban fantasy has the magical world hidden — well, sometimes you have it run by whatever government is on hand, which is implausible in the extreme. The most plausible ones have it hidden by a secret society that recruits adults of the right temperament.

      2. It’s not about trying to gain anything, it’s about hanging on to power by any means possible. They don’t care if the nation burns as long as they’re still sitting on top of the ashes.

        1. Yeah, but they had, for all practical purposes, already won. They had the schools, the courts, the states, the Feds, most of the staff-rank officer corps, and the media; I’m sure they were shocked that 2016 didn’t go as they expected, but all they had to do was… nothing. Twiddle their thumbs, smirk, fix things behind the scenes to ensure Orange Man Bad didn’t get re-elected, and they’d own the country forever.

          It wasn’t only the optimum solution, you can’t get much easier than “do nothing.” But instead they went shrieking-monkey crazy, exposing and bragging about their malfeasances and crimes, and making enemies they didn’t need to, who will cause them enormous trouble in the future.

          We’re talking about the real-life political equivalent of the joke about the guy who walks in on his wife in bed with another man, puts his gun to his own head, and says “What are you laughing about? You’re next!” before he pulls the trigger…

          1. Because they are insecure. On some subliminal level, they are aware that their power is built on lies and will pop like a soap bubble if enough people stop believing the lies. Any event they do not expect terrifies them, and they never expected Orange Man Bad! to win the 2016 election. What they believed was solid ground under their feet turned to quicksand. We are painfully aware that it’s only a few inches deep, but they fear that it’s enough to sink them.

            If they continue screeching and flinging poo, it just might be.

      3. ESR’s “Gramscian Damage” theory is that it’s Stalin’s interests being served. Even though the Stalin and the USSR are dead, the Useful Idiots continue to shamble on, zombie-like.

  14. It may seem OT, but I urge everyone to get the Kindle versions of James Clavell’s two books, Tai Pan and Noble House. They are fiction, but have insight into the fatalism intrinsic in the Confucian beliefs, and the resulting behavior. Joss, good and bad, gods that sometimes are at coffee break when they’re needed, concepts that are strange, yet still very, very human.

    1. I don’t think it’s OT at all. Economics leaves out almost all the interesting stuff. China is a very low trust society. the US has been a very high trust society and I don’t think it an accident that so many of our leftists are also mentally ill neurotics.

      And gambling. I’ve never seen anything like it is over in the middle kingdom and I used to get my morning coffee at the local bookies diner, so I know degenerate gamblers when I see ‘em. I could tell you stories.

      1. US casinos near the northern border bring them in by the busload. To supplement the tour buses full, all with signage in ideograms. Meat and drink to the tribes.

      2. I used to have to do cooperate user conferences, had one bigger a year, every other year in NV. The conferences were always setup so that half was alway on the other side of the casino. Traffic is king. Used to kill me to see the folks sitting at the tables as I ran to my next presentation looking like they didn’t have last month’s rent but playing with next month’s paycheck. My money always meant too much to my to do that with it. The house always wins in the end.

        I do like Texas Holdem but only go in with what I am willing to lose and it isn’t much…

            1. I think there are more similarities than either bankers or casino owners would ever admit.

            2. More like insurance companies – I recall the RAH bit about “You want insurance? Just go to a bookie and place a bet.”

              Insurance companies and bookies only very rarely do not generate a profit.

          1. I used to work with a guy who played poker regularly. He said that new poker players are like ATMs for the veterans: you can reliably get money out of them. So poker, at least, is a game of skill and psychology, masquerading as a gambling game. But for most casino-based gambling games, you’re absolutely right.

              1. The story is that back in WWII, Richard Nixon paid an experienced sailor to teach him the game, and only once he was confident in his ability did he begin playing in earnest. Multiple versions of the history are told but all agree he was a skillful, disciplined player who rarely lost.

                … when he returned from his service, he brought home thousands of dollars in winnings—enough cash to help fund his first run for political office, when he won a California congressional seat in 1946.

                “He was the finest poker player I have ever played against,” former Navy comrade James Udall recalled in a 1970 Life magazine interview. “I once saw him bluff a lieutenant commander out of $1,500 with a pair of deuces.”

                “I never saw him lose,” another Navy man, Lester Wroble, told Life.

                Nixon, who left his job as a lawyer at a federal agency in Washington at age 29 to join the Navy, was an unlikely card shark. He grew up in a deeply religious Quaker family in southern California, where gambling—along with drinking and swearing—was frowned upon. (His Quaker background would have also excused him from military service in the war, had he chosen not to enlist.)

                “In everything he did, Nixon tried to master the fundamentals,” Ken Hughes, a historian with the University of Virginia’s Miller Center, and author of the 2015 book Fatal Politics: The Nixon Tapes, the Vietnam War, and the Casualties of Reelection, says in an email. “When he wanted to learn poker in the Navy, he studied the game before risking any of his money, spending hours and days with the best players he could find, listening to their lectures, learning their moves, playing practice games with no stakes.


                The lesson is: if you’re going to pay to learn the game, make sure you pay the right teacher(s).

        1. I confess to enjoying gambling, but I am very particular about how I do it. I won’t bet on sports, I won’t play slots, nor roulette, dice or other implements of chance.

          No, when I gambles I want to sit at a table with other card players and be smacked around and told I’m too stupid to be allowed out of the house with money on me.

          1. I used to count cards, but that was too much work. I like to handicap horses but that’s just a good way to spend the day out in the sun.

          2. I played a lot of poker when I was younger. my schoolmates were mostly rich and I was entirely poor. I could calculate odds, grind away, and most importantly, not drink

            5 card draw or stud, nothing wild. I hate Texas holdem, it’s a bluffers game not a percentage game. Doesn’t work for me.

            1. Wild cards are for people who don’t like skill in or strategy. Draw or stud, yes. Friends and I devised a variant on 5-Card Draw which allowed successive discards and draws — two cards on the second draw, one card for the third and last. It didn’t seem to do much to improve hands but did allow more betting and encouraged weak hands to stay in.

              Law, I’ve not thought about that in decades.

              1. Husband’s work used to play 5 card Pinochle while they waited for trucks to come in, or it was their turn. Rotating players, especially at the bigger Log truck ramps. You might loose or win a whole $1 on any one day.

                1. I used to play Hearts (but never got into Spades) and Bridge for coinage in the dorm Commons Room — it helps sharpen the attention to have something on the line. We also played Casino though I mourn it’s been so long I’ve forgotten the rules.

                  I enjoyed Cribbage (penny a point, corners worth a dime, quarter the game and skunk pays double) when I could find an opponent but American players are so rare I usually had to teach a person to play — and as Luck would have it, everybody I taught would spend the next two or three months beating me. After that my superior intellect and skill would get me even again, then a bit ahead.

      3. Not just the Chinese. Casinos – and games of chance – are a prominent feature in many Japanese computer RPGs. And often, doing extremely well at the games is required to get some of the best equipment in the game.

      4. China is a VERY low-trust society, and they want to get That Big Score. It’s the “one last job” thing-they can do that one task and everything works out.

        Everything is negotiable and everything is in flux until you get the money your pocket.

        1. Or it’s just a cultural weakness. The American Indians had a problem with alcoholism, might be that east Asians have a special weakness to gambling.

          Not that we don’t have Vegas or various casino ships in the US, of course.

          1. Not that we don’t have Vegas or various casino ships in the US, of course.

            Or state-run numbers games lotteries.

            And, of course, “casinos” were a popular tool of charities, operating a casino with scrip being used to bid for items auctioned at the end. It was even a plot element in a Forties Cary Grant film.

            “Joe Adams takes on the identity of a dead gangster in order to avoid the draft. Adams plans to use a war relief charity to get his gambling operation up and running, until he falls in love with Dorothy Bryant and has a change of heart.”

            1. If the government sells millions of tickets and gives some of the money to a few randomly-selected ticket buyers, it’s a State Lottery and a wunnerful way to raise money for the gummint. If a few private citizens do the exact same thing, it’s a Numbers Racket and the government throws them in jail.

              Even though most illegal Numbers Rackets have a much better payout ratio than any State Lottery.

              1. Casinos make their money on a very tiny margin over “even odds.” The house advantage is normally between one and two percent, depending on the game.

                Just took a look at the Powerball for my State – margin just barely shy of 25%, even including operating costs and retailer commissions.

                1. The California state lottery payout is about 48%. That’s right, the government rakes off over half of it.

                    1. Oh, that’s the raw number. And if you take a large payout as a lump-sum, you only get part of it, BEFORE taxes. They milk that lottery six different ways.

                      I call it the State Stupidity Tax. Part of the vigorish goes to the schools. Maybe that’s why they’re so bad; if they actually taught the students they wouldn’t grow up stupid enough to buy lottery tickets.

              2. The nice thing about being the government is that you can throw your competitors in jail. Or shoot them.

          2. Indians allegedly had an alcohol enzyme deficit where Europeans had an enzyme benefit.

            I spent a couple years reading a bunch of internet translations of Chinese webnovels.

            I can believe an abnormal interest in gambling.

            Not sure I see the same evidence wrt Japanese and Korean fiction. Though, some of that might be the level of regulation of Japanese gaming, and of Japanese fiction for children. There’s definitely evidence of Japanese characters with serious alcohol and gambling habits, and my cross section of Korean fiction is a little sparse.

            I’m not sure I would want to generalize from Chinese to East Asians on the gambling thing.

            1. As I mentioned above, casinos are common in Japanese computer RPGs. Even Final Fantasy XIV – the big online Final Fantasy game – has one. And quite frequently in those Japanese CRPGs (though not in Final Fantasy XIV), the only way to get some of the most powerful gear in the game is to spend a *lot* of time playing games in the casino in order to get enough casino currency (as opposed to normal currency, which is used everywhere else) to get those items.

        2. The Republic of China, on the other hand, doesn’t have the same problems that the Peoples Republic of China has. Hong Kong doesn’t, either. But Hong Kong spent a considerable amount of time under British rule, and with British culture influencing everything from the top down. The Republic of China ended up the way that it has without having a period of foreign rule first (unless your family is native Formosan, of course).

          1. I’ve been to Taiwan several times. I like it there. They drive on the right side of the road and you still see old American Cars every once in a while.

            My observations about Chinese gambling started from an observation that quite poor Hong Kongers would day trade the markets. Then I went to Macau.

          2. Chinese culture, at least on the mainland, has always has a deep aspect of “corrupt the barbarians” to it. The families/clans that are in charge of China are very good at figuring out how to triangulate with the new people in charge. Hong Kong was run by the UK for long enough that they found a hybrid that works (for Hong Kong, wider expansion may vary). Taiwan didn’t have the same large clans/family, at least not on the same scale.

  15. China has become the very large schoolyard bully, with the glass jaw.

    It is essential to remember that it took Vietnam about a decade to wear down our resolve, and cause us to depart. They had many allies in this effort, material and political and just plain stupid.

    Vietnam fought off an invasion from China, with almost no allies or help of meaningful contribution. China was far less restrained in that effort than we were.

    Vietnam kicked China’s ass, hard. China muddled around for a while, then declared “objectives met” and departed. It was -epic- to watch. It is also highly instructive.

    Sure, they learned and improved. Note, they haven’t really ever tried to redress that lost Military face by a rematch. That is a gamble they don’t seem to want to take.

    China had best not get too froggy until Trump has written his memoir. Trump will play that poker game for blood. And he knows how to hit them where they cannot take it. We hold the Trump card, at least for now.

    Reagan crushed the Soviet Union. Trump may well bring about the end the CCP Dynasty.

    They may not go in an as orderly a fashion. But they are running out of clever ploys.

    1. Not only did China lose in its last true war. But the veterans from that war have all left the service. So the people who might have been able to adapt the lessons learned to the modern PLA are all gone.

    2. China only managed to nip off half of Korea even with Soviet assistance. They gave the NVA a lot of support, but the NVA’s victory came from the US Democratic Party. Tip O’Neill’s “Man of the House” autobiography talks about the Party caucus that decided to throw the war to the Communists, and he describes the tactics he used to block funding to continue the war… that a Democratic administration started.

      If O’Neill’s book has any significant amount of truth, what happened would qualify as treason as defined in Article III: “Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort.”

      [“adhere” = “give support”]

        1. Well, they haven’t really been happy with the country since that little spat about 160 years ago.

      1. adhering to their Enemies, giving them Aid and Comfort.”

        [“adhere” = “give support”]

        And here I had this image of Democrats with their lips super-glued to commie asses…

  16. Random conspiracy theory type thought– our echo-boom is AKA Millennials.
    (also mid to late gen-X, who I’ve pointed out got the same clichés as my generation until hassling them would draw attention to the Boomers being, well, grandparent age)

    I wonder if part of that is that the US had the echo boom. And man, is “hey folks had two point four kids” being enough to note a depressing thing.

  17. Maybe it’s dealt with here, (I didn’t see it), but what alternatives to “dumping” US treasuries are there? Could they not invest all those dollars in US assets, ie, companies, properties, etc?

    1. Oh, they’ve been doing that. The Chinese have quietly bought control of all sorts of critical U.S. infrastructure, aided by the politicians they bought earlier. Remember Clinton having to return millions of dollars in ‘campaign contributions’ to the Chinese government and army? There are a lot more that weren’t caught.

      1. They have bought a large number of college degrees, usually in STEM programs, according t what I’ve read.

        Not just for the students they trust to come here and return there but also for the Confucius Institutes, which buy influence and favour among our academia.

        And, as we’ve seen, they buy defenders and quislings among the ranks of those vying to sell them rope with which to hang us.

    2. They are buying US assets and they have holdings in Euro and Yen. Politicians and media too. Disney sold its soul for the “Chinese market”.

      The treasury holdings, though, are what backs the currency and backs their borrowings in dollars. That’s the thing, they can’t buy anything outside China unless they have dollars. if our political will holds and the manufacturing is brought back, they’re toast.

      The worst, absolutely stupidest thing we could do is repudiate the debt. Somebody needs to put a sock in Hannity. The dirty secret about government debt is it’s never paid it’s just rolled over.

      1. Repudiation of debts and obligations happens all the time in War. It is one reason to avoid it. All the balance sheets go “blooey”.

        You may be underestimating the upside value of this move if it comes to War.

        Not -all- debt gets cancelled, just any held by the opponent. That means either they sell it, at fire-sale losses (crash) or they can’t, and we just trim a zero or two off the national debt.

        War enables some really odd reshuffling. Rome pointed out “in War, the law is silent”.

        1. We get away with what we get away with because of the currenct. Repudiating the debt destroys that

        2. Of course, even that isn’t quite cut and dried. If one nations holds the debt of another nation, and those two nations go to war, then the nation in debt can go ahead and announce that it’s cancelling that debt. But if they lose the war…

      2. Don’t think of it as buying assets. Think of it as capital flight. It’s a good deal more accurate.

        Want to know why the market has run up so much over the last few years? At least $7 trillion in capital flight. It’s not just the Chinese; every major financial hub has made net transfers stateside over the last five years.

        1. Understandable and predictable – In any time of uncertainty would you want your money sitting in Beijing or Kinshasa or Moscow or even Rome or Berlin… or in US stocks?

        1. He’s be the Official 5 year old child to the current crop of evil emperors.

          And since we’re day-dreaming, every time he gets it right, he gets to melt the emperor do jour wwith rotten fruit on pay-per-view.

  18. At the cost of my own? in any case, I’d have to become a politician. I promised my mother I’d never do that.😜

    1. You might not lose your marbles. I think all of our current financial advisors started the job without theirs.
      “Why did you take up bank robbery?”
      “It was that or politics, and there are some things I just won’t do.”

  19. China does not innovate, it steals

    Or as I often say, “After you give the Chinese everything they need to manufacture your product, what do they need you for?”

  20. They backed the regime at Tiananmen Square, but it is not clear what they would do if called on to fire on a crowd when their people back home are starving.

    I think CCP has some idea. The first troops tasked to roll into Tiananmen square in 89 (based in the Beijing area) basically refused to do so. They had to bring in units from the provinces, without ties to Beijing residents or college students to perform the massacre.

    If they have to start moving units around for “stability operations”, pretty soon the troops are going to figure out the pattern and Winnie the Xi and his pals have to consider the possibility of PLA units starting to fight each other (locals vs the “intruders”).

    1. Same thing here after Katrina; the Guard units on the gun confiscation weren’t local either. They got away with it…. once.

      1. And even then, they were picky about which units they asked. Which makes it clear it was not innocent.

        So now folks are forewarned…and the Guard don’t have even a figleaf of “but I thought it was OK!”

    2. Tyrants always have guards from outside their state. You can find it in Xenophon. The soviets used MVD troops from the stans in European Russia.

      Only the Swiss and Irish troops stayed loyal to Louis XVI and only the Swiss died for him. The French guards ran away or joined in because they had been recruited in Paris.

  21. Completely off-topic (sorry about that but I know there’s a readership overlap) but are the Instapundit comments completely broken for anyone else?

    As in nothing loads and clicking the little speech bubble does nothing, and neither turning off Brave’s shields nor switching to Chrome proper nor clearing cookies has any effect?

  22. Jayzus. I’m tired of all the Irish stereoptypes here. As soon as I finish me pint, I’m after hitting someone in the face, so. 😀

    And it’s not like I am a degenerate drinker – I just have a thirsty problem.

  23. This all seems faintly nuts to me. At the end of the day, the factories, tools, skilled workers with direct experience of the above: These have ontological inertia. They won’t disappear in a puff of bookkeeping like the value of a currency no longer backed by a sane industrial economy.

    China makes everything that we use, with the exception of food and some high end tools around the margin, and THEY need US for our pretty green pieces of paper?

    After any hypothetical debt repudiation, hyperinflation, bookkeeping apocalypse, the fact of the matter is that you’ll STILL only be able to get memory chips, hard drives, injection molded parts, special-machine builders, roboticists, line engineers, and so on and so forth, where the factories exist. Wherever the factories are when the music stops will be rich. Wherever they aren’t will be post-industrial Detroit.

    1. Nuts? I agree it seems nuts, but that’s the way it is.

      China can’t feed itself and has few natural resources. All of that has to be bought with dollars. All of their companies and all of their banks are funded in dollars. No dollars, no raw materials, no factories. They ain’t producin nothin if they ain’t eatin, not for nothing as we say in NYC. If the music stops, as you say, it won’t be the possessors of the factories, it’ll be food and guns.

      As for the factories, I would note that they didn’t invent any of it. What was done can be undone. Japan is already moving.

      Why not Detroit?

      1. Why not Detroit?

        Shouldn’t we find some place less corrupt than China for relocation of manufacturing?

    2. Just for the record, the quality hard drives come from Thailand or Malaysia. The crappy hard drives come from China. Identification of brands is left as an exercise for the reader.

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