The Great Leap Forward (simplified Chinese: 大跃进; traditional Chinese: 大躍進; pinyin: Dàyuèjìn) of the People's Republic of China (PRC) was an economic and social plan used from 1958 to 1961 which aimed to use China's vast population to rapidly transform mainland China from a primarily agrarian economy dominated by peasant farmers into a modern, agriculturalized and industrialized communist society. Mao Zedong based this program on the Theory of Productive Forces.
The Great Leap Forward is now widely seen – both within China and outside – as a major economic failure and great humanitarian disaster with estimates of the number of people who starved to death during this period ranging from 14 to 43 million.
Most people think that the United States is borrowing most of the world’s savings to fund the deficit. Ben Bernanke, the chairman of the Federal Reserve, who is presiding over ever higher inflation rates, even made a speech in 2005 called “The Global Savings Glut and the U.S. Current Account Deficit.”
The speech makes it sound as if the rest of the world has way too much savings, so much so that they don’t know what to do with it except loan it to the United States.
People think that the excess dollars that go overseas due to the U.S. trade deficit are being loaned back to us. This is not entirely true. To be sure, there is a lot of real foreign investment happening in the United States, but it’s not nearly to the extend reported.
So where does all that extra currency that purchases all those U.S. Treasury Bills to fund a large part of the deficit come from?
The countries that are the U.S.’s major trading partners create it.
China is the best example. When someone in the U.S. buys something in the U.S. that was made in China, that U.S. vendor bought that product from a Chinese businessman and paid in U.S. dollars.
The Chinese businessman then deposits those dollars into his checking account at his local Chinese bank. The bank then converts those dollars to yuan, the official Chinese currency. Now, the local bank has a glut of dollars and a shortage of yuan, so it sells the extra dollars to the People’s Bank of China and buys more yuan.
As long as the trade between the two countries is in equilibrium there is no problem with this. But when one country is running continuous trade deficits and the other continuous surpluses, as the United States and China currently are, a problem arises.
In the case of China, because there is more currency flowing into China than out, the People’s Bank of China ends up with a huge glut of U.S. dollars. Under the rules of the game of international trade and currency exchange they are supposed to sell those excess dollars on the Forex (foreign exchange market) and buy yuan.
But that would mean that there would be a glut of dollars and a shortage of yuan, which would cause the dollar to fall in value and the yuan to rise.
This means Chinese goods would then become very expensive in the U.S., slowing China’s exports, and that’s the last thing China wants.
So to get around the international trade and currency exchange game, China bends the rules. The People’s Bank of China takes the extra dollars and neutralizes them by buying a dollar-denomenated asset, most often some sort of interest-bearing investment instrument, like U.S. Treasuries.
This keeps the yuan from rising and the dollar from falling.
This is known as “neutralizing” or “sterilizing” excess currency inflows. The funny thing is that the U.S. was doing the same thing by sterilizing excess gold inflows all through the 1920s to keep the dollar artificially low and exports up, and it was one of the major factors that contributed to the Great Depression.
So if the People’s Bank of China used excess dollars to buy U.S. Treasuries, and didn’t buy the yuan on the Forex to sell to the businessman’s local bank, where did the People’s Bank of China get the yuan?
Answer: China creates it!
During recent years, the U.S.’s current account deficit has been financed primarily by money created by the central banks of other countries, in particular China.
Therefore, it is not a matter of the United States using up all the rest of the world’s savings to fund its deficit. It is a matter of the deficit being financed by the central banks of the United States’ trading partners, and, for their part, Asian central banks in particular have consistently demonstrated their ability and willingness to create money in order to finance the U.S.’s current account deficit.
So China is now sterilizing excess currently inflows just like the United States did in the 1920s. But why hasn’t China fallen into a depression like the U.S. did when it played the sterilization game?
Because China has added a little twist.
In the 1920s, Europe paid for U.S. imports with gold, and the Federal Reserve would cheat gold by locking it away instead of expanding the currency supply to match, thereby preventing the commensurate inflation it would have caused, keeping the price of U.S. goods low, and insuring a continuing trade surplus.
This was hugely deflationary.
As the rest of the world bought cheap American goods, gold would just disappear into the black hole of the Federal Reserve and the world money supply would contract.
And when currency contracts, deflation ensues.
When China sterilizes excess currency inflows, however, it’s extremely inflationary. For every excess dollar that China neutralizes by buying U.S. Treasuries, the People’s Bank of China has to conjure up a commensurate amount of yuan out of thin air.
...
As a result of all the currency games being played by China (and other countries), the total U.S. deficit has grown to over $7 trillion since the dollar was taken off the gold standard by President Nixon in 1971. These deficits are sustained by fiat currency from other central banks around the world.
All the while, these foreign banks are hoarding ever increasing amounts of U.S. debt (in the form of Treasuries) and artificially propping up the value of the dollar.
Much of our debt cannot be repaid, and if our trade partners begin to dump U.S. Treasuries on the world markets, the whole credit bubble will implode, resulting in a worldwide depression.
The longer governments and central banks try to cheat the free markets, the greater the pain will be when the correction occurs. Remember, in the end, fixed markets lose, and free markets always win.
I believe that inflation has slowed in China due to fears about deflation. When those fears fade, inflation picks up again and China will sell dollars to save its currency. This hyperinflation in China combined with the crashing value of the dollar will cause most fiat currencies to lose all value and will spell the end of the world's paper based currency system.
Martial law is the system of rules that takes effect when the military takes control of the normal administration of justice.
Martial law is sometimes imposed during wars or occupations in the absence of any other civil government. Examples of this form of military rule include Germany and Japan after World War II or the American South during the early stages of Reconstruction. In addition it is used by governments to enforce their rule, for example after a coup d'état (Thailand 2006), when threatened by popular protests (Tiananmen Square protests of 1989), or to crack down on the opposition (Poland 1981). Martial law can also be declared in cases of major natural disasters; however most countries use a different legal construct, such as a "state of emergency".
In many countries martial law imposes particular rules, one of which is curfew. Often, under this system, the administration of justice is left to a military tribunal, called a court-martial. The suspension of the writ of habeas corpus is likely to occur.
SOCIALISM: You have 2 cows, so you give one to your neighbour.
COMMUNISM: You have 2 cows. The State takes both and gives you some milk.
FASCISM: You have 2 cows. The State takes both and sells you some milk.
NAZISM: You have 2 cows. The State takes both and shoots you.
TRADITIONAL CAPITALISM: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.
MALAYSIAN BUMIPUTRAISM: You have two cows, the State takes one and gives it to your bumiputra neighbour. From the milk you sell from the remaining cow you buy a bull and mulitply your herd. The State takes 30 per cent of your herd as it grows and give them to your bumiputra neigbour. Your bumiputra neighbour has a kenduri each time they receive a cow.
UMNOPUTRAISM: The State takes 30 per cent of your herd and parks them in Switzerland in the name of some UMNO official or close relatives, friends and sons-in-law.
MALAYSIAN GOVERNMENT-LINKED OR BUMIPUTRA CORPORATION: You have two cows.
You employ mainly bumiputras to milk them. But both cows have been sent to the kenduri, so the State gives you more cows and write off the losses of the first two. After several kenduris later, you invite an American or German Corporation to turn around the losses. The Japanese have however already taken their two original cows back home to Japan.
AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyse why the cow has dropped dead.
A FRENCH CORPORATION: You have two cows. You go on strike, organise a riot, and block the roads, because you want three cows.
A JAPANESE CORPORATION: You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called 'Cowkimon' and market it worldwide.
A GERMAN CORPORATION: You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.
AN ITALIAN CORPORATION: You have two cows, but you don't know where they are. You decide to have lunch.
A SWISS CORPORATION : You have 5,000 cows. None of them belong to you. You charge the owners for storing them.
A CHINA CORPORATION: You have two cows. You have 300 people milking them. You claim that you have full employment, and high bovine productivity, and arrest the newsman who reported the real situation.
AN INDIAN CORPORATION: You have two cows. You worship them.
A BRITISH CORPORATION: You have two cows. Both are mad.
A MALAYSIAN CORPORATION: You have two cows. You signed a 40-year contract to supply milk at RM0.06 per litre. Then midway through, you raised the price to RM0.60 or you cut the supply. When the buyer agrees to the new price, you change your mind again and now want RM1.20.
The buyer decided you can keep the milk, who rather go look for milk that comes from recycled cows or the cow urine instead. At the end your two cows retire together with the Prime Minister.
A SINGAPOREAN CORPORATION: You have two cows. Whenever prices of GST, ERP, PUB and kopi-si go up; one cow-peh and the other cow-bu.
Posts
