For myself and many others back in the 2008/09 period, it seemed obvious what China should to do from an entirely nationalistic perspective on the grand geopolitical chessboard. With the reputation of the U.S. laying in tatters following a gigantic financial collapse and an utterly embarrassing, unlimited taxpayer bailout of the criminals that caused the crisis, the entire world (including Americans) was looking for something else. Something new, something more lawful. Something more just and more stable. The U.S. dollar and the Federal Reserve System had been exposed and entirely discredited in many people’s minds. One of history’s most bold and monumental geopolitical moves was ripe for the taking. China could attempt to back its currency with gold, something I discussed with Max Keiser in a May 2010 interview. Immediately, capital flows would flood into the country, Chinese consumer purchasing power would explode and a rebalancing of their economy would experience a traumatic, but monumental and necessary shift. They could have announced such a plan and then implemented it slowly and with safety nets for manufacturers. It wouldn’t have been easy, but the window of opportunity was open. Instead, they did nothing, and now I think it’s too late.
I think there are two obvious reasons why the Chinese authorities failed to take bold action on the world stage. First, many of the wealthiest billionaires and elites in China have benefited greatly from so-called “free trade” partnerships with the West. The ponzi relationship in which we print pieces of paper and give it to them for manufactured goods has resulted in fabulous fortunes for the Chinese power players. Not to mention their existing personal, social relationships with Western elites. So why rock the boat?
The second reason has to do with the likely political and social turmoil that would have resulted from such a move. The enormous economic rebalancing from such a power play would financially ruin many people during the transition period. Some of them might be locally powerful figures who could then rile up newly unemployed peasants and the conditions for revolution would be ripe. That’s not to say this would be the outcome, but pulling off such a grand move would open up the political situation to such a risk. A risk no one in power was willing to take. So they didn’t.
There is a third possible reason, and that is the U.S. quietly threatened China militarily if they attempted such a move. This is certainly possible as well.
All of these questions were on my mind back on May 2012 when I wrote an article titled: China Better Have a Plan. Here’s a passage from that piece:
The fact that the Central Planners in China are basically standing around like deer in headlights as their economy plunges into the abyss is nothing short of astounding. Sure they have lowered the bank Reserve Requirement but so what? That is an epic joke of a move in light of the gargantuan problems that economy is facing, and is blatantly pathetic in its irrelevance. I’m not going into detail for the thousandth time why China’s economy is nothing more than a Keynesian Centrally Planned house of cards on steroids with mal-investments that make the U.S. housing market look benign. I have done that too many times over too many years to exert energy on that topic once again. That said, what I do want to do is look back at the post 2008 period and try to figure out why they never really took polices to rebalance the economy away from fixed asset investment toward consumption. In fact, not only did they not rebalance but they doubled down on the prior strategy! Well now the chickens have come home to roost and we are about to find out if China has any real “long term” plan to get themselves out of this mess.
Ultimately, what I think the authorities in China decided to do was let the U.S. hang itself. The Chinese elites didn’t want to be held responsible for the collapse of the U.S. dollar or the world monetary system. So instead, they decided to wait it out, buy gold and prepare to take over on the world stage once the monetary system imploded in on itself. This seemed like a reasonable plan, but they didn’t anticipate one very, very important thing. They didn’t anticipate Bitcoin.
Bitcoin is the monetary equivalent of some genius programmer coming to the global chessboard, picking it up over his or her head and then throwing it on the floor thus scattering the pieces all over the place. This is why I and so many others were shocked that the control-freaks in China were seemingly supportive of it. I believe this was the result of some very forward thinking and brilliant Chinese entrepreneurs seeing the technological achievement for what it is and convincing others of its incredible potential. However, that didn’t last long. Why?
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