UK, Austerity?

I think what people refer to as austerity doesn't actually mean austerity but instead means a stopping of the public sector gravy train. This Graphic from the spectator tells us everything we need to know.

The 8 years refers to Osborne's plan which was laid out in the spending review. Denis Healey was the British chancellor from 74-79, in 76 the GBP collapsed and the country, embarrassingly, had to be bailed out by the IMF. Despite Healey being a leftwing labour politician he was a moderate and understood that the painting was on the wall.

The situation Britain faces is comparable to the time of Denis Healey, but the leaders are seemingly blind to the obvious.

China's Japan moment?

 So those of us with a skeptical mind might be feeling both vindicated, and worried, by China's recent turn. The notion of a China crash or a serious distrust of the official China story has been a contentious position to hold until recently. The media has been bombarding us with "CHINA 10% GROWTH, GOING TO DOMINATE THE WORLD, SUPER FAST, UNSTOPPABLE RISE" type stuff. You had to search pretty hard to find a dissenting opinion. However the dissenters aren't the Y2K crazies but some of the investment community with powerful track records of spotting bubbles. Some of the people that have been calling foul on China are Jim Chanos, Marc Faber, Andy Xie and Hugh Hendry. Such a coalition of prominent investors with track records for making accurate calls on massive market realignments should have been raising more eyebrows.

China's real estate bubble might be the biggest in history

Essentially what the dissenters are saying is not entirely new, it is a combination of the Asian "tigers" 1997 crash and the Japanese crash. Paul Krugman, in an article published in foreign affairs in 1994 pours cold water on the Asian "tigers", a perennially contrarian position it seems. Paper tigers would have been more accurate to describe the Asian 5, in 1997 they went into a crisis and by 2005 their economies had still pre-crisis average real incomes. The criticism is the same one that can be leveled against the Soviets; economic growth derived from increasing inputs rather than increasing output per input, efficiency. When you have such a backward country then achieving massive growth isn't difficult if you just increase the inputs, basic education, labor force participation etc. The real trick is getting more bang from your inputs.

If you read Krugman's article, which you should, it will give you a permanent repellent against the fear mongers, you will understand that GDP growth isn't everything and instead can paint a very misleading picture. The Soviet union had remarkable growth for a long period of time and this perception of the rising beast in the east was a constant money maker for the preachers of doomsday. Well before Reagan was turning the US presidency into a stand up act based on the soviet economy in the 80s, and even before the wheels fell off the soviet economy in the 70s, the Japanese economy, like George Foreman shoved ole' Joe Frazier out to the sidelines, becoming the #1 contender for the fight to be the world's premier economy.

This new beast in the east was making TVs not T-54, everything that came out of it was riddled with LEDs and looked like it came from the future. By extrapolating the growth rate of the preceding two decades into the future people were coming up with all kinds of prophecies of Japanese Hegemony which today look ridiculous. The US had destroyed the Japanese cities in WW2, not their brains and the education therein. This led the Japanese to a very quick recovery in the immediate post war period, demonstrating for all that labour was more in important than capital in long run growth, especially when coupled with the higher savings/investments that seem to be a feature of post economic collapse societies. Even when Japan was rebuilt its growth rate following the 73 oil shock was still among the highest in the developed world for most of the following two decades. 

 The Japanese never overtook US GDP per capita however, and the 1990s was actually the beginning of the end for Japan. Since the Japanese crash in 1989 their economy has just been as dead as dirt. Since the crash the Japanese have experience 2 decades of deflation, no growth and rising debt. Despite this the idea of a Japanese renaissance is all but impossible given the state of Japan's population, oldest in the world with the worst fertility rates, and you know how old folks and immigrants are like cats to water, so the only real solution to Japan's problem is written off, just like Japan's future it seems. Perhaps the biggest condemnation is how Japan's former partner in crime Germany, which followed a near similar postwar trajectory of high value added manufacturing export prowess based on high savings rate, rebounded very strongly from the collapse in international trade in 2008 whilst Japan languished. 

The causes of the Japanese banking crisis are similar to the crash of 08; Japan depreciates currency and runs trade surpluses causing massive credit expansion, central bank retains loose monetary policy, the bank respond to the opening of the credit floodgates by engaging in reckless lending, real estate speculation goes crazy, so does investment, banks become glutted with garbage and then when the bubble pops they discover they are insolvent. The crash had a massive fall out with the stock market and real estate in Japan losing the vast bulk of its value in an immediate crash and elongated downturn.

Like the Japanese and other Asian economies in the 90s, the Chinese through monetary intervention, and moderate inflation hurting money denominated assets have fostered a massive expansion in credit for investment as a flipside of the demand of savers, both retail(chinese citizens) and commercial(chinese companies) for an appreciating store of wealth. This along with the perverse incentives of local government to go for high levels of growth, that real estate taxation is their primary income and that they need these inflated credit markets to fund their massive debts - China has very high debt, but its all in the local level level, a finance/economics professor in hong kong recently stated, infamously, "every province in China is Greece".

This excess investment rears its head in other areas such as transport. The Chinese banks are typically either controlled or directed by the state, this allows for massive lending to the Chinese political elites' pet projects. You have heard of ghost cities in China, what about ghost airports? Of China's 200 airports more than 2/3rds are losing money, and part of the 12th 5 year plan(2010-2015) is to build another 50 more plus expansion on over 100 existing ones. Investment is great, but investing literally hundreds of billions to fill a demand that is well past saturated, financed by a combination of taxes and debt is crazy and insane. 
 

A pretty and pretty expensive new airport, filling a non-existent demand.

Speaking of investing hundreds of billions of debt into a transport system that could never possibly achieve a sufficient cash flow to repay that debt, China high speed rail. In late 2011 the head of China's ministry of rail was removed on charges of corruption, it was subsequently revealed that his ministry had debt levels of over $300 billion, despite demand levels being so far from sufficient for the network being able to sustain itself the development of this network continues to connect the 2nd and 3rd tier cities. China is a poor country, if the government is going to insist on controlling their peoples' savings they can at least spend it on something that has some utility to them like healthcare, not superfast trains they can't afford and don't need. 

China's misplaced priorities in an image

The causes of this ruinous spending spree has numerous other possible causes. A lack of democratic accountability opens the door for politicians to pursue their dreams of avarice, or perhaps China's dream of Avarice, the projects are so expensive, numerous and complex that it acts as a unintentional cover for corruption. The corruption aspect might not a good enough explanation for the great bubble of China, but it would explain why China will have a Japan moment, or a Minsky moment if you would be so Avant-garde, before it enjoys anywhere near the kind of lifestyle that the Japanese do. 

Shed of the year

Some of these garden get outs are awesome, anyone else feeling envious?

Here are the winners and runner ups by category.

Normal:

Normal... normal.

Feminist fail Part #1

Seems like a good idea to start a new series, not particularly interested in arguing with feminists for the same reason that I have a poor attendance at the church of atheism, arguing against unfalsifiable gibberish that makes extensive use of abstract skulduggery is tedious, confusing and obnoxious. I made this blog to ridicule the garbage that the left-wing pamphleteers produce. It seems that I ignore feminist sophistry at my loss as it is rapidly becoming one of their biggest enterprises. I am basically just going to pick an article, paper, tenant, speech or whatever about feminism and then give it the old one two like a wife beater a rapist a critical thinker.
 Little disclaimer, when I talk about feminists, I am talking about a specific type of feminist, plenty of ways to describe them but I would build my net this way: Those that describe themselves as feminist without being asked are considered feminists, those that don't satisfy that condition but will answer yes to 'are you a feminist?' are in the everybody else camp. The article that this first entry is attacking is far, very far from the worst(for that you go to jezebel) but it is too damn easy for a lazy b***rd like me to pass up, ENJOY!

Turkey, which way will it go?

Hmm so with all these protests in Turkey it seems that their is a major backlash to... what? You could actually paint a million faces onto this disagreement. Two massively broad camps that aren't as neat and digestible as some would like you to believe.