Friday, May 18, 2012

Chinese cash invasions

It is pretty common for fictional collapse scenarios that involve an economic collapse to have one of the elements be that the "world" finally wakes up and pulls all of its money from the United States, and then looks on while we collapse.

Usually somewhere after all this there is some sort of Chines, UN, Norwegian, etcetera intervention that takes over some prime spot of our wonderful country.  It is one of those rare places where the conventional conservative mind view (typical of these scenarios) has a positive view of California - since the Chinese are invading/occupying it all the time.

There is very simple problem to this scenario.

We are all here in the United States aware at the ineptitude of the our government.  What we don't see is how badly other countries run their economies.  And its not just Greece.

Here is an experiment you could try.  Get a short term subscription to the hard copy (they will mail it to you) of the Financial Times of London.  Introductory subscriptions are usually heavily discounted.  And then force yourself to read every issues headlines and skim the stories.

I promise you, you will be stunned.  Idiocies that we think of as exceptional here, are often the norm overseas.  Our threatened budget shutdowns pale in comparison.

So while we may deserve to have everyone wake up and pull their money out of the dollar.  The people who see what is going on in their own country are not in a real big hurry to put it into their own.

Money is fleeing China
Zarathustra, Macrobusiness, 17 May 2012 (hat tip: NC)

The detailed statistics from China’s April monetary statistics show that the change in the position of forex purchases has turned negative again in April.
With a relatively large trade surplus in April, this indicates that capital flow turned hugely negative. I estimate that excluding the trade surplus, capital outflow would be RMB177 billion (I don’t distinguish the type of flow). As explained in the past, under the current arrangements, a capital outflow will contribute to a tightening of monetary conditions within China. Thus we now know, more or less, the reason for last weekend’s decision to reduce Reserve Requirement Ratio. Indeed, while the 50bps cut of RRR would have made RMB421.14 billion available for banks to lend, almost half of that would have been offset by the April’s capital outflow:

Note that the red line is the trade being shown in surplus, while at the same time the blue line is cash leaving the country.
And while I had originally intended this to be Chinese focused, the news kept piling on:

Russian Data Shows Postelection Woes
IRA IOSEBASHVILI  Ira Iosebashvili, Wall Street Journal, 16 May 2012

Russia's top central banker warned on Wednesday that capital flight is a "serious problem," as newly released figures showed $42 billion has left the country in the first four months of the year.

"Capital outflow continues to be a serious problem for the Russian economy," the central bank's chairman, Sergei Ignatyev, told Russia's lower house of Parliament.

I don't think we are going to see the Chinese in California (or the Russians) any time soon, but we may be seeing some of their cash their.

As amazing as it may seem to some, the Chinese may be heading toward a much worse situation than our own.


JaneofVirginia said...

Yes, your point is not only well taken, but we have a fairly recent collapse we can study. In 1991-1992 the USSR collapsed. Doctors, Social Workers, and everyone else were no longer being paid, but for some reason, they all turned up to work anyway, on the off chance they and their families would get some food. When we were in Russia, I asked a lot of people what it was like for them at that time, and how they survived. Somehow they did, and as their government reorganized under a rather successful capitalist model, many of them have done well. We only have to look to other nations of the world, to see what our own collapse may look like. Russia certainly looks better than Bosnia did though.

russell1200 said...

Jane: The idea of looking at recent collapses to see what actually happens! What a concept! LOL I have actually argued this point (not with you of course) a number of times.

Apparently Russians, and even Argentinians (who do riot), have not been reading American collapse novels, and don't know that within a week of a financial collapse all their major cities are supposed to be burned to the ground.

Even worse, they are not even aware that in some cases the urban environments have wound up being safer than the rural outlying areas. It is all very situational, and one scenario does not fit all.

Unfortunately, the bigger recent collapses in both Russia and China were government driven and related to surreal agricultural polices. The Russians had a series of them starting in the late 1920s under Lenin and the Chinese had their own under Mao's Great Leap Forward in the late 1950s. In neithe case did the government lose control.

PioneerPreppy said...

Good points of course but one thing we have not seen is the collapse of the world's police force either. At the time of the Russian collapse there was really no Empire orientated nation ready to spring into action and even if there had been we all know the American military would have come to the rescue.

But who would rescue the cops? Or even send token aid?

russell1200 said...

PP: I don't know. I don't see anyone with much spring. I think the prime candidates for Empire: USA, Russia, China, and India are all looking pretty grim economically.

The Russians tried to make their army more professional so they could match up better with the U.S. and pretty much admitted defeat. The Chinese military is looking like it is good at buying equipment, but is a lot more interested in padding their nest egg. India is also reporting a lot of poor economic news, and have always seemed more interested in a soft empire of influence (thus the naval buildup) than one of conquest.

And of course we are a basket case. But we did spring into action when the Soviets collapsed. It is not at all clear that the Gulf Wars would have plaid out the way they did if the Soviets had still been around.

In addition, the rise of global radical Islam, a want-to-be theological empire coincides very much with the decline of the Soviets. The Soviets were one of their major enemies, and the Russians still are. I don't think the Russians intended to loose all those little countries in the Caucusis, and they barely held onto Chechnya.

PioneerPreppy said...

I am not saying China will try and take over the U.S. or Russia either but occupying a chunk of it? I do not put that past the realm of possibility.

russell1200 said...

PP: The logistics are insane for either of them. They may turn us to rubble with nukes, but there are a thousands of easier prey closer at hand that are at least as valuable.

I posted on this scenario earlier: