Has the Whole World Gone Enron Mad?

Would it be anti-American if I answer yes? It would seem so, and that seems to me to be a very large part of the problem.

So we ask the question again, is China an economic miracle waiting to happen, or is China headed for collapse? People were saying it was a miracle when I was saying the Hang Seng was a bubble and was on the verge of collapse. Collapse it did, losing more than two-thirds of its value, falling from its 32,000 peak to its 11,000 low:

Note the relationship between the Hang Seng and our own S&P 500 index (thin black line). So, is China on a path to riches? Are they really growing 8.9% this year? Does Communism work? Can the Communist politicians really direct resources in an efficient manner, or is it all paper based fluff?

Mark me down in the later camp. Evidently I am not the only one who believes the entire economic world is built on false information and paper that is much thinner than you will find in a deck of cards (ht Dan, article from Politico):

Is China headed toward collapse?

By: Eamon Javers
November 10, 2009

The conventional wisdom in Washington and in most of the rest of the world is that the roaring Chinese economy is going to pull the global economy out of recession and back into growth. It’s China’s turn, the theory goes, as American consumers — who propelled the last global boom with their borrowing and spending ways — have begun to tighten their belts and increase savings rates.

The Chinese, with their unbridled capitalistic expansion propelled by a system they still refer to as “socialism with Chinese characteristics,” are still thriving, though, with annual gross domestic product growth of 8.9 percent in the third quarter and a domestic consumer market just starting to flex its enormous muscles.

That’s prompted some cheerleading from U.S. officials, who want to see those Chinese consumers begin to pick up the slack in the global economy — a theme President Barack Obama and his delegation are certain to bring up during next week’s visit to China.

But there’s a growing group of market professionals who see a different picture altogether. These self-styled China bears take the less popular view: that the much-vaunted Chinese economic miracle is nothing but a paper dragon. In fact, they argue that the Chinese have dangerously overheated their economy, building malls, luxury stores and infrastructure for which there is almost no demand, and that the entire system is teetering toward collapse.

——

The China bears could be dismissed as a bunch of cranks and grumps except for one member of the group: hedge fund investor Jim Chanos.

His most famous call came in 2001, when Chanos was one of the first to figure out that the accounting numbers presented to the public by Enron were pure fiction. Chanos began contacting Wall Street investment houses that were touting Enron’s stock. “We were struck by how many of them conceded that there was no way to analyze Enron but that investing in Enron was, instead, a ‘trust me’ story,” Chanos told a congressional committee in 2002.

Now, Chanos says he has found another “trust me” story: China. And he is moving to short the entire nation’s economy.

——

Gordon Chang, author of “The Coming Collapse of China,” wrote in Forbes at the end of October. “More important, it is unlikely that [third-quarter] expansion was anywhere near the claimed 8.9 percent.”

Chang argues that inconsistencies in Chinese official statistics — like the surging numbers for car sales but flat statistics for gasoline consumption — indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.

(emphasis added)

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And who else has inconsistencies in their statistics? Sales tax receipts that don’t match green shoot statistics. Shrinking shipping and oil demand versus cash for clunkers sales and supposedly positive GDP growth.

And China’s largest consumers, Americans, have already pulled ALL their future income forward. Can the shopping habits of 5% of the world’s population really produce a sustainable economy for the entire globe?

Below is a piece from Aljazeera. Yes, that Aljazeera.

Aljazeera – China Spending…

Spending on infrastructure is one thing, IF that infrastructure is put to use in commerce! If you, however, build infrastructure just to build something, then the weight of carrying, of maintaining that infrastructure only becomes a future liability. Where is China heading? Are they cooking their books? Who is their customer, and what necessary products are they going to create? Do they already have too much capacity?

And I ask the question, why does this reporter sound sane, yet when I switch on CNBC, I hear reporter after reporter, analyst after analyst, who all sound completely nuts? As if spending more and more, and going deeper and deeper into debt is going to solve a debt problem. As if 2 or 3% inflation year after year is sane? That amount of growth if REAL is one thing, but if it is simply paper growth, it will absolutely kill the value of a currency dead on very short order. Our current version of our dollar, for example is only 38 years old, and yet we are running into currency problems already. What does the future hold? Will we find our Focus? Or is it all just a nutty derivative paper backed game of Hocus Pocus?

About Nathan A. Martin 120 Articles

Nathan A. Martin is President of Wingman Investments, LLC, and author of the book Flight to Financial Freedom – Fasten Your Finances. He sees people, both young and old, facing a new era where they are forced to be responsible for their own financial success or failure. His message is clear; become financially literate or be a victim of the external forces that are impacting everyone. Nathan possesses an undergraduate degree in Professional Aviation and Business as well as a Master’s degree in Aviation Management and Operations.

A former Air Force and retired airline pilot, his flying took him the world over participating in many operations including the invasion of Panama, and combat time during Operation Desert Storm. Experience has come over 26 years of flight - logging more than 12,000 flight hours both civilian and military, and as the owner of a corporate aviation management company whose focus was aircraft efficiency.

Influenced by his parents entrepreneurial activities, Nathan began his business and investment training early in life and has used that knowledge every step along the way... from business school to his own corporations and personal investments.

Visit: Nathan's Economic Edge

1 Comment on Has the Whole World Gone Enron Mad?

  1. I just don’t see how China could ever pull off the continued growth. If you look at the GDP growth of china on a chart it is shooting straight up. That is just not possible. There is the saying that if something seems to be to good to be true then it most likely is. Anybody betting on China will get crushed when that house of cards colapses. That is saying nothing about the US Governemnt who will realize that it will have to refinance 700 Billion with out China. But I guess they will just print the money. After all they are now running a 160+ Billion monthly deficit and nobody even talks about it.

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