Tuesday, February 27, 2007

DOW Down 416

The thing about global liquidity is that sometimes an unseen shift can trigger off a big planetary wave. Everyone understands the American economy is completely tangled up with communist controlled China … right?

China Confidential: Perhaps the most frightening aspect of the slide: the Chinese sell-off was unexpected, apparently influenced, or manipulated, by government officials seeking to cool the Chinese economy.

Given China's rampant corruption and inherent instability--companies typically keep three sets of books, the legal system is still a joke, ruling Communist Party officials are on the make and on the take, the astronomical real estate debt can't be serviced, bloated state owned enterprises owe staggering sums to insolvent state owned banks--the idea that the fate of ordinary Americans and people the world over hinges on happenings in the Middle Kingdom, that events in Beijing and Shanghai can wreak havoc on Wall Street ... and destroy what remains of Main Street ... is more than frightening. It is truly terrifying--and downright scandalous.

If the old Soviet Union economy was a massive Potemkin Village the new China may be a collection of demon puppets. The idea of demon puppets comes from Japanese anime where they are soulless but functional illusions, controlled remotely by nefarious individuals. The difference is the Russian false fronts serve only to hide weakness but a demon puppet is a completely functional masquerade of the real world entity it seeks to mimic.

Chinese companies produce good products, hire workers, make self interested business decisions and sell shares to eager buyers, but they are not western corporations. The right to private property and functional legal restrictions on the power of government to usurp private property for political ends is simply a well crafted illusion in China.