Sunday, October 10, 2010

Undersea Currents

I believe I recently read that China has been a net seller of Japanese Govt Bonds, reversing the intervention of late summer. Nevertheless, this post is a good articulation of some of the underlying geopolitical aspects of current economic policy. I do believe that the Chinese intervention was at the least a demonstration project to make a point.

There is a curiously perverse but symbiotic relationship that exists between China’s mercantilists and America’s finance capitalism. The whole “Bretton Woods II” process contributes to the financialization of our economy, as it continues to hollow out our manufacturing base. It represents an unholy alliance between Wall Street and China’s military, which is driving much of the investment in China because they are reaping so many material benefits. The problem, however, is that at some point Chinese credit expansion has no place to put its money. All of the targets have been saturated, which means that there will be overinvestment in all industries and to an incredible degree. This may well kill industry after industry. It appears to be happening already in Japan.

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