Sino-US Realestate Relations

Should We Worry About Chinese Land Purchases in the US? || Peter Zeihan

For a while I've thought the hype about China overtaking the US was overwrought because it's the over-rot in the US we should worry about. In fact, the ones who wanted to promote the rot were the ones promoting China.

There was a year during the Obama administration when DC came up with 90,000 pages of new regulations -- that's what they mean by an increase in productivity. Does this add to inflation? No. Because it all makes things better. When you factor in the qualitative improvements this quantitative improvement has brought about, there is no inflation (see car prices). Since Sputnik, the Federal government has injected itself (and our money) into the education of our children, and achievement scores have gone way down. But when you factor in that the young folks are much better people these days (ask'em), well, it's all good. And now that the Federal Government is in charge of the climate, Wall Street will only be flooded with cash.

In the 1980s I read that the USSR's rate of capital investment was growing yearly and way higher than in the USA, and I thought "Uh-oh for us." Then I read that all that capital investment was producing a negative return -- that they weren't just running on a treadmill to get ahead, but running on a treadmill and falling behind -- and I thought "Uh-oh for them." As regards Communist China, we've transitioned into the "Uh-Oh for them" stage but we are still in the "Uh-oh for US."

The Chinese leadership blamed political reform in the USSR for the collapse of the communist regime and vowed not to make that mistake. This is like blaming the cancer on the desperate remedies used to slow its spread. Now they've tossed that politically convenient "two systems" pledge (allowing limited political and economic freedom) onto the Ashheap of Chinese History. What desperate measures will Xi Jinping use to avoid that same fate?

Inflatable Nation

Even a Recession Might Not Tame Inflation

Is it really that bad? Nah, it's worse. It's that "slowly, slowly all at once" problem.

Dealing with US inflation needs to account for the foreign entities that hold so many dollars for purposes that don't often align with our own (our declared enemies have a lot of it). Basically, the dollars will be used in a mercantilist manner to further the interest of these rulers -- often at the expense of the average American worker.

For the moment the dollar won't be replaced in international trade because it's backed by US real estate. We don't like the CCP buying American farmland in "State of Rode Island" sized batches, but the possibility of doing that in a pinch is a big attraction for the dollar (and land is an excellent inflation hedge). If we say, "No more of that, you'll have to buy Fords instead," then their dollars will flood back into the US to buy land and other assets while they still can. At this point, the world will stop trading its goods for our debt.

As international trade collapses, there's less need for US debt as "good" collateral for trade among third-party nations. With foreigners less willing to swap their goods for our debt, the supply of goods drys up just as more dollars race into the domestic market, sparking more asset inflation but not job creation. This likely results in high-interest rates to encourage foreigners to hold onto their bonds. Meanwhile, the Fed funds the government through the printing press and further fuels inflation.

Inflation could be used to lower the burden of the $31 trillion National Debt -- if we balanced the budget. But why do that if you can sell more and more debt at near-zero rates with foreigners willing to buy a lot of it? Well, things that can't go on forever, won't -- and we are heading for a wall of won't (so prepare a bolthole in New Zealand).