Despite all of the shimmering skyscrapers and industrial output, unless market forces are allowed to truly dictate economic exchanges, today’s Chinese megacities and their residents will merely be facades and actors within a 21st-century Potemkin village, and growth will remain stagnant for years to come. This is due in large part to continual state intervention through centrally planned investment.

What was intended as a means to boost infrastructure improvements has been used instead to continue erecting villas and skyscrapers — with little productive value — in an already oversaturated market created by the previous boom. FULL ARTICLE

Ambrose Evans-Pritchard suggests that a looming problem festers in the East, “China is putting off the day of reckoning with its crisis response, which is to build yet more plant to flood the world with yet more over-capacity.”

Darn those Chinese people making widgets and then selling them overseas! And darn them for making so many of them! And darn them for sailing thousands of kilometers and dumping them on foreign beaches and down chimneys — without demanding anything in return!

China should immediately adopt a manufacturing quota policy, devised by committees of really clever people, to decide how much of certain goods to produce.

Otherwise, Western consumers being drowned in cheap products will have no other recourse than that of unrestricted submarine warfare. That would help alleviate China’s capacity issues! Perhaps AEP could also outsource to enterprising privateers in Somalia to balance this imbalanceness problem thingy.

Seriously though, the boilerplate surrounding “capacity” is so mindbogglingly nonsensical. Have columnists forgotten where all of their goods come from and the win-win benefits of international trade? If Chinese firms cannot turn a profit, the “overcapacity” issue is entirely self-correcting.

And for the record, if there is one big economic problem facing China, it is with regards to yuan convertibility, as Jim Rogers recently noted.

Caroline Baum, a columnist for Bloomberg, notes that the inflation targeting plan executed by Bernanke and promoted by Mankiw has the potential consequence of forcing fixed-income retirees and savers to eventually move back in with their relatives.

Heroic!

In her piece she also cites William Anderson’s post on the subject from earlier this week.

So if that doesn’t turn your frown upside down, this plan should make you feel warm and fuzzy:

Treasury Department Issues Emergency Recall Of All US Dollars

Michael Shermer, a science historian, recently wrote a lengthy post on how he became a libertarian. Among other influences were Mises, Hayek and Bastiat.

The substance of his post suggests that he is well-read and not just a bandwagon fan. Be sure to check out the hundreds of comments responding to his post.

Via DJC

In the past 8 months, Japan’s Prime Minister Taro Aso and the LDP have put together three stimulus (spending) packages totaling more than 5% of GDP.

This new 25 trillion yen is on top of the multi-trillion yen worth ($6.3 trillion) of spending Japan’s government went through between 1991 and last fall.

What will come of it? Here is one result of the previous spending:

Or as explained by the graph’s authors:

By weakening the private economy, government borrowing is not an inflationary threat. Much light on this matter can be shed by examining Japan from 1988 to the 2008 and the U.S. from 1929 to 1941. In the case of Japan government debt to GDP ratio surged from 50% to almost 170%. So, if large increases in government debt were the key to economic prosperity, Japan would be in the greatest boom of all time. Instead, their economy is in shambles. After two decades of repeated disappointments, Japan is in the midst of its worst recession since the end of World War II. In the fourth quarter, their GDP declined almost twice as fast as that of the U.S. or the EU. The huge increase in Japanese government debt was created when it provided funds to salvage failing banks, insurance and other companies, plus transitory tax relief and make-work projects.

In 2008, after two decades of massive debt increases, the Nikkei 225 average was 77% lower than in 1989, and the yield on long Japanese Government Bonds was less than 1.5% (Chart 6). As the Government Debt to GDP ratio surged, interest rates and stock prices fell, reflecting the negative consequences of the transfer of financial resources from the private to the public sector (Chart 7). Thus, the fiscal largesse did not restore Japan to prosperity. The deprivation of private sector funds suggested that these policy actions served to impede, rather than facilitate, economic activity.

Via Mish

See also: Japan from the CEE
Japanese taxpayers still haven’t spent enough
The Japanese just didn’t try hard enough
Explaining Japan’s Recession
What Happened to Japan?
Japan’s Bust: An Austrian Critique of the Fed’s Explanation

According to CNN, perhaps there is: Four jailed in landmark Web piracy case

Can’t say that I have ever used Pirate Bay, but it’s incredulous to equate geeks that live in basements to gun-toting mercenaries. Who is the one holding hostages and demanding ransom?

See also: Stealing Music: Is It Wrong Or Isn’t It?
A Book that Changes Everything (Jeff Tucker’s live blog review)
Against Intellectual Property (pdf)

Note: Zimbabwe recently abandoned its own politically controlled currency after recording the highest level of inflation ever.

Via BoingBoing

The NY Times is reporting a new plan from the Obama administration: sell bailout bonds under the rubric of patriotism.

It theoretically could have legs, if only US households actually had savings to invest with.

See also: Just Print the Necessary Funds

Via Clusterstock

If you don’t know then be sure to read Forbes fantastic overview of the maverick banker who saw and timed the current banking implosion.

Too many nuggets to quote, read the whole thing.

Via Clusterstock

Wondering about the various mathematical formulas that were used by various Wall Street firms in quantifying risk? Here are several pieces that discuss the role quants played in modeling risk and uncertainty:

- My Manhattan Project by Michael Osinksi (NY Mag)
- Recipe for Disaster by Felix Simon (Wired)
- How Wall Street Lied to Its Computers by Saul Hansell (NY Times)

In addition you may enjoy two relatively recent pieces by Michael Lewis, The End of Wall Street’s Boom and Wall Street on the Tundra

Via Clusterstock

Surprised whenever you hear how the GOP is purportedly the party of fiscal responsibility? Here is some visual proof to illustrate the dissonance: Spending Under President George W. Bush

They have survived numerous scandals in the past and now come into the crosshairs of a recent editorial at Bloomberg.

For more, be sure to read Did Joseph Wharton Cause The US Financial Meltdown? by Tim Hartnett and The End of Business Schools? by Pfeffer and Fong

The always germane investigative reporter takes on the various stimuli and bailouts coming out of DC:

Part 2 3 4 5 6

Here is the write-up from ABC discussing the special episode.

Open thread to discuss what happened to the land formerly known as the Western Shangri La.

- Delinked from gold in order to join the IMF and settle Nazi-era court cases.
- Caved to the IRS and the Germans on withholding tax information on expats.
- The SNB continues to sell gold in accordance to the Central Bank Gold Agreement.
- And now they are intentionally devaluing their currency.

What are they drinking over there? Got bored of eating cheese and chocolate on the Paradeplatz?

Good news, Alan Greenspan has finally admitted that it wasn’t low interest rates that caused the bubble, but the Asians. [The same Asians that were spooked by Geithner in the late '90s.]

I felt inspired and used icanhascheezburger to capture his honesty:

Note: Greenspan is in good company as both Paul Krugman and The Economist have jumped on that same bandwagon.

See also: When in Doubt, Blame the Asians
Did the Fed, or Asian Saving, Cause the Housing Bubble?
Did exchange rates cause the bubble?

From The Economist:

See also: The Japanese just didn’t try hard enough

Quick, someone tell Intel and other semiconductor firms that their multi-decade deflationary price practices hinder economic growth:

Bloomberg — China’s consumer prices fell for the first time since 2002 as food, clothing and fuel costs declined, threatening growth in the world’s third-largest economy.
[...]
The drop in prices raises the risk that deflation will become entrenched, prompting consumers to delay purchases, squeezing company margins and triggering wage cuts.

It’ll be a sad day if Chinese policy makers buy the deflation “boogeyman” story.

That is the Time cover story from February 15, 1999. It discusses the fallout from the 3Q & 4Q collapses of Russia, LTCM and Asia.

One of many gems:

And awful as the Asian correction is, it was, in a sense, inevitable because those economies had trundled billions of dollars into useless real estate and industrial development. “In general,” said Summers, 44, as he sat in the Frankfurt airport last September recovering from a hectic trip to Moscow, “we start with the idea that you can’t repeal the laws of economics. Even if they are inconvenient.”

Real-estate bubble… repealing economic laws… inconvenient realities… Larry Summers…

Where have I heard that story before? Oh and there is also a foreboding quote from a younger Geithner later on in the piece.

Be sure to read Jeff Tucker’s germane piece from December 1998 discussing these phenomenon and the policy makers.

Via Robin Tovson

Not that I’m a proponent of the existence of government-issued bonds, but Japan’s new finance minister has a new proposal that is seemingly incredulous.

Stating yesterday, “It is worth considering no-interest-bearing bonds.”

Why? Because, “Japan’s households have around 1400 trillion yen ($15.2 trillion) in financial assets, half in savings and cash. Some lawmakers are seeking to unlock those savings and raise money to fund stimulus programs to spur the economy after gross domestic product fell at an annual 12.7 percent pace last quarter, the fastest since 1974.”

Out of curiosity, why do interest rates exist at all? What does time-preference mean? Will the phenomena of “risk” and “inflation” cease to exist during this time frame?

Think anyone would fall for it?

See also: The Japanese just didn’t try hard enough