1 Let's lance this boil re @LukeGromen claim that global CBs stopped sterilising reckless US deficits 6 years ago.
2 Until then we had to suffer the China, like Japan decades before, and Russia before that in the 1970s, had solved the Rubik's cube and was going to rule the world.
3 Bankers, the eurodollar invisible but hyper-active type. They really bought this BS hook line and sinker. They couldn't lend fast enough to all things China. Which is to say there was a massive credit expansion. That money was printed out of thin air.
4 This was the last great period of money printing before we entered the nameless depression. The type of money printing that QE enthusiasts can only drool over.
5 Export orientated investments, container ships, direct inward investment, commodity investments, you name it. Stick a China name on it and you got funded. China was an investment driven productivity miracle. Only obnoxious macro hedge funds could deny such reality.
6Funnily enough the same was said of Russia in the 1970s and Japan in the 1980s. And all this spending took their respective GDPs to c.15pc of global GDP. But then they - all 3 of them - peaked. Stagnation ensued.
7 The narrative of the last great credit expansion was similarly flawed. Someone suggested I hadn't read Mises. That I was oblivious to his point that there is no means of avoiding the final collapse a credit driven boom.
8 Don't worry I get it. The 1999 tech / telecom TMT credit boom and the ensuing mortgage fuelled credit expansion that followed and then bust felled the US. There was a final collapse. That's why the US is on its ass. It happened. Mises was right...
9 But that is to ignore the last great credit driven boom of this century. The China credit boom. The elephant in the room.
10 Now let's think a moment. Bankers back then - until 2015 - were willingly creating dollars out of thin air. They wanted to sell them and buy Chinese assets denominated in CNH. Sell $s buy CNH. By rights the Chinese currency should have appreciated . Except it didn't.
11 The PBOC adhere to the mercantilist model. Investment at all cost. Enrich the privileged status quo. A CNH that can buy more $s is globally desirable. It boosts Chinese consumer incomes and spending and hence GDP growth but it robs the SOE insiders of their filthy lucre.
12 Turkeys don't vote for Thanksgiving? And so SAFE - the fx reserve agency of china - sweeped up all private sector $ balances and sold them to buy $s, to buy Ts, and prevent this rebalancing from happening.
13 This is why the next 20 years will likely witness the global stagnation of China. Those of you that only read these things seeking trade ideas should disengage now - renminbi sovereign bonds are on the JGB flight path.
14 Poor policy decisions? you bet. But by whom? Who made the error in the first place? @LukeGromen and his gang argue that somehow it's all the US' fault for running deficits and needing foreigners to sterilise or fund such deficits. I guess it depends on which team you bat for?
15 Funnily enough when the euro$ bankers recognised that their China domination theory was flawed they stopped creating new $ bills. There was no longer this one-way sell dollars buy Chinese renminbi assets. And so there just wasn't the surplus $s for SAFE to sweep up to buy $s
16 Or to sterilise US deficits...that their actions implicitly created in the first place. The reserve currency sovereign - the USA - has no control over its savings rate - it's held hostage by overseas creditors. They over-save and so you over-spend.
17 This has to stop. The world needs GDP growing faster than debt. The system is reparable. It's just that something is stopping it. Trade economists will tell you that deficits are not permanent. And yet the US has run permanent trade deficits last 50 years...
18 What's the glitch? The mercantilists won't tolerate their currencies appreciating to the benefit of their consumers. They stop the process in its tracks. $DXY at 70 would spur foreign incomes and GDP without need for more debt. Except reserve currency managers prevent this
19 Billionaire communists prefer the status quo. They accumulate huge T holdings to disguise their $ price fixing, 64% of all their central bank assets are in $s. They're not hiding the fact. And that's why I say the only way to fix this mess is to persuade them to let the $ fall
20 Failing that, we have to expropriate their wealth via pricing US treasuries deeply negative. That's how you alleviate the debt burden in the US and make the situation manageable - you boost US incomes by transferring income from billionaire Chinese communists.
21 This expropriation boosts US incomes by lowering the debt burden. History shows that you don't need a final collapse. You can slowly but surely over the course of 30 or 40 years recalibrate the debt vs GDP by taking from the creditor class and giving to the debtors.
22 So sell Chinese billionaire communists and buy square pegs in round holes.
23 But please! Stop pleading for a final reckoning. For the great re-set. To raise rates. In 2009 I wanted to purge the system of its rottenness like you. I was angry. Today I think it's much better to charge the wrongdoers with long duration negative rates...to sting like a bee.
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