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Comparative Assessment: The Military Option

Any true analysis of near term predictions must take into account the various military options and capabilities of the world's current powers.

Recently, and I apologize in advance for not taking the time to go back and link to it, a post appeared here discussing the Chinese military reality.  There was mention of a submarine that sunk, and that the Chinese troops do not seem to have any real ability to endure field conditions or hardships.

I found that fascinating, because I am a former soldier, and nasty, miserable field conditions are just no big deal.  We call that camping, and even pay dearly for the privilege.

Thinking on a macro level, though, I began to wonder about the concept of an actual outbreak of a shooting war somewhere in the world.

Going beyond the concept of currency wars, which are playing out in real time right in front of us, what would happen if shooting really started?

This thought lead to a cascade of simultaneous war game scenarios, all of which lead to a most startling question: why is there NO discussion at all about the role of an increasingly capable Chinese fighting force or the denigration of US fighting forces from logistical and personnel decreases or budgetary concerns?

Is this subject so taboo as to warrant NO MOPE at all?  Or, have TPTB realized that any mention of the USA military capabilities via a via the Chinese would lead to polarization beyond that which we have now, or worse, to an honest critique of the true dire situation that the failure of western fiat paper has created?

Or, is it just that the Chinese are truly ass backwards when it comes to military capabilities?  It is true that they have no professional military.  But, the Soviets had their one party system, yet they fielded a most formidable military, even with conscription and less than perfect weapons systems as compared to the Americans.

Or is it something else entirely, like for example, the Chinese play a longer time frame, easily out maneuvering the hasty Americans who are bound by managers on a quarterly return basis, and by politicians focused on a narrow, two year time cycle?  If this is the case, then is it not a compelling conclusion that the Chinese are playing a physical gold accumulating, hegemony altering, world commerce dominating game of thrones?

Is this not obvious who has played the best hand, and that the game is revealing itself?

Think about why Bill O'Reilly had Ms. Bartiroma as a guest tonight?  Was she advocating something real, or managed?  Why is she on TV, right now, advocating continued buying of the USA stocks?

I am more convinced by the day that 2014 is it.  The collapse is afoot.  I'm buying more gold.

190 Comments

flyinkel's picture

Stupid dog!

Duh!

See below.

AgNovice's picture

Packing lead

for the 2nd.

Now 2 read.

California Lawyer's picture

Cui Bono

Another thing stands out.

Long ago, some very smart posters analyzed the historical responses to hyperinflation.  Among the likely outcomes, was war.

I happen to believe that WWII helped the USA recover from suffocating, structural debt.  Natural resource supplies were realigned, sovereign boundaries were realigned, a new world order, replete with a new hegemon was installed, and voila, prosperity ensued while the bombed out parts of the world were rebuilt, with credit and interest payments flowing to the banksters the whole time.

Fiat currency of the west has reached a point of collapse, commerce is moving east, while debt is being destroyed by insolvency and default.  The west is collapsing, while the east is expanding.  Growing pains are everywhere.

The thoughts naturally emerge as to THE KEY QUESTION: who benefits from a shooting war?

Or, taking a different angle, who does not benefit, noting that the last one standing then, by definition, must be the one that benefits.

If war breaks out between the Chinese and Japanese, the USA will intervene.  Thus, the Chinese will not engage the Japanese in a shooting war, because even if the Chinese outnumber the Japanese, the Americans are simply better on every respect, save for logistical durability over a long, siege-like duration.  This same model of analysis can be applied to the Russians, the Iranians, or any other coalition of forces assembled.  Thus, the answer to the key question, is rather simple.  The banksters who create fiat, then lend to the sovereigns so they can purchase implements of war are the true beneficiaries of war.

So, look for war to break out if the fiat system begins to shake itself apart.  Kind of what is happening right now . . .

California Lawyer's picture

Hey, Flyinkel

Post a comment already.

flyinkel's picture

This mug

has never been first before.  And is kinda stupid.

1)  The Chinese are extraordinarily clever and long range planners.  Today Putin re-affirmed his alliance with China, why do you think he did that, to say "If you tangle with yin you get yang?"

The question that burns is "Why would the US allow so much gold to flow East?"

1) US feels with its military superiority and ability to track an ant that every outflow is accounted for and simply put away for later re-claimancy or

2) US leadership is intentionally bankrupting itself for purely greedy elites as a control mechanism for purchasing resources at discount prices or

3) US sells itself as being "at war" with China and Russia but this is to move on from banking corruption gains to even greater war gains, when in fact it is a global cartel simply creating chaos for $$$ and population reduction. 

Whatever the choice, a war will not be fought with only traditional weapons, you can go to dots for all those "crazy conspiracies" of how it will play out.  Could China win by never even firing a shot?  The greatest danger I see is the US population never even understanding there is a war going on in their own backyard right now. (hint it's not Russia and it's not China)

More Chinese weapons, do they need them?  They have been pretty effective so far.

"Going to war" with China and/or Russia is a diversionary tactic to rally US citizens against a foreign enemy and cause them to willingly support and accept unconstitutional leaders because we are "at war".   Perhaps they are our enemy, but not really (see #3)

California Lawyer's picture

@flyinkel - congrats on number 1

Thanks for the comment.  Let me address it a bit.

Gold is flowing from west to east.  This cannot reasonably be disputed.

So, there are possibilities as to whether this gold is flowing unknowingly, inadvertently, by choice, or by force.

I reject out of hand that gold is flowing east unknowingly, or inadvertently.  

This leaves two possibilities: by choice, or by force, or some combination of the two.

This is the fascinating part of the thought experiment.  If, as I suspect, the Chinese have simply played a better position, then gold is flowing by choice, because those western elites had no other choice.  That is, the fiat scheme could have come crashing down all at once by the Chinese refusing to buy treasuries, while dumping their bonds en masse.  But this would have meant the Chinese would take heavy losses themselves, and risk revolt from the populace.  So, no, mass dumping of western paper was not an option.

The Chinese almost assuredly told the Oil producing countries that China would be paying for oil priced in something other than USA frn's, which both shocked and scared the oil producers, which in turn caused the Chinese to guarantee the oil producers' security by a Chinese/Russian deal.  So, China gains energy resources, Russia gains a trading partner and ally in the realignment, while the oil producers care not one bit because they have a ready customer that is proving security.  The loser is the USA.

So, the oil producers bought into the new scenario.  China embarked on a massive gold buying spree, aided by the corrupt JPM on the paper markets, now the game is obviously afoot, with the stakes high but the outcome certain.

Checkmate, right?

JY896's picture

Now here's a meaty topic...

Excellent pick CaliLaw!

My own thoughts on this are in part in some earlier posts:

a) oil producing nations are quietly, ever-so-gradually shifting towards stage left, some while pretending to be in conflict with Russia and/or Iran (the latter being a clear major/primary oil source for China)

b) grand bargain was struck re: Syria/Iran. Why? How? By whom, exactly, and for what terms? Is it merely to tamp down 'hot' conflict for the time being, to save it for later? Is it a true move toward detente? Could it be the US is being allowed a graceful, relatively face-saving exit from hegemony (see: gold flowing East, loosening of absolute dominion over Middle East, drifting away of erstwhile 'sphere of direct influence' S. American countries, cooling of relations w/ Germany and even the UK)?

c) I am becoming more and more convinced that the 'tension' and 'animosity' between the USSR and China throughout all those decades was basically a good cop/bad cop routine. I know for a fact that the power structures and dominant leadership class of the 'previous era' of the USSR was transplanted pretty much intact into the current elite throughout the entire former USSR domain of influence. Whether as politicians, oligarchs or simple outright mob bosses, they are controlled/ruled over by the same caste. Putin's role is to finish the re-consolidation of the old-guard after the (unforeseen? necessary? planned?) implosion and 'chaos' of the early post-Glasnost years. 'The shepherd is working with the sheepdog' example is not quite apt, it's more like two baboons alternating between offering food to and fighting with the 800-lb gorilla.

Russia is seeking to (re)establish hegemony over Eurasia, while China lays claim to E. Asia, Pacific and Africa.

It's a giant game of Risk, and since no armies have crossed borders, the US can continue to pretend that the entire global map is red-white-and-blue, even if that is not strictly speaking the case.

d) Hot war is ONLY in the interests of banksters and/or genocidal maniacs. Even if ALL military objectives in a hypothetical US attack on either large power were to succeed, even without using newks, what then? Aside from causing economic damage and human suffering, how would it advance American interests?

This reminds me of an old joke about the fifites:

A Chinese party functionary sprints to Chairman Mao's office. Out of breath, he blurts out the news:

- Honorable Comrade, the Red Army has breached our northern border! The troops number at least one million! They now control the major border town of 100,000 residents!

- Very well, you may go.

- But Chairman Mao, the Red Army...

- Silence! Bring me an update tomorrow.

The next day the apparatchik returns:

- Chairman, the Red Army has advanced further, and now controls the entire county of 1 million residents! What shall we do?

- Nothing. Bring me a report tomorrow.

The functionary knows better than to argue, and leaves in silence. The next day he is back:

- Honorable magnificent leader, the Red Army has taken the entire province and has set up their headquarters in the provincial capital. The province has over 100M people! What shall we do???

- Bring me the hotline.

Picking up the phone, the Chairman dials Moscow.

- Comrade Stalin? Your army is surrounded, you are outnumbered by Chinese Communists at a factor of 100 to 1. I am ready to discuss the terms of your surrender.

flyinkel's picture

Checkmate

Remembering we're the one who put the king out there naked.  After all, we're the ones that did all the spending.  It was our choice, any buyers of treasuries just became the victims x2 (a devalued dollar, decreases in i rates).  I find it hard to logically blame any other country for wanting another system.  We earned our dethroning of the reserve currency of the world, plain and simple.  Would you want to be paid back in a devalued dollar?  Perhaps when the US goes looking for "the enemy", we should look in the mirror.  I am sick of all this blame balony.

Thanks for the topic, it is a great one.  I just sicken when I hear overseas how we are perceived, I sicken because not only did we fail to "walk the chalk", we jumped off the line and like a crazed glutton the elite fed at the trough through both mouth and anus.

(Don't lecture me on how much more valuable your treasuries become if interest rates go down.  If your country has to buy US treasuries for BOP you would rather have 3% than .5 of an already devalued dollar).  Cranky dog.

ivars's picture

Here is finally quite clear

Here is finally quite clear chart where DOW  ( and S&P) approximately is now- of course it can be bit off in time - i would move the green line more to the right meaning a spike up may happen today- tomorrow- but fall shall restart already Monday Tuesday. So i am staying short with quite large stop. Hope large enough not to be stopped out at spike. 

ivars's picture

I think due to coming

I think due to coming depression created by Western tigtening now, China will be forced first into huge public debt eating off its reserves to some extent, and then into change of mindset as the ones who understand and oppose world banker games will topple those who play along for too long. 

So , given the time needed for Chinese to build up their army technologically and may be even observing their 10 year leadership change period, its is clear to me that by 2023 the leader of China will be some very smart general like Napoleon. A new version. 

Now as France in 1800 , this mainland Eurasian  China will take on banker Island - the USA or more broadly, North America ( I think Canada and Mexico will be already quite formally incorporated by then into the USD empire) . To do that, it may need to expand its resources in Eurasia- Russian East, Central Asia, South East Asia. Like Napoleon picked up whole Europe before fighting England in earnest. As then USA is naval and banking power like England, China is continental ; to continue the analogy, prior to Chinese Napoleon, China will undergo real internal mess as the West contracts money supply and Chinas economy turns upside down.

Not sure , but the fight may start about Japan and or Australia..But most likely South Korea/Vietnam. North Korea training  will come in handy for Chinese. Taiwan is already Chinese, in principle, if things get hotter. 

The most clever bankers will of course same way as in 1800- back both sides, but soon it will become clear to them that Chinese Napoleon has something not so good in mind for them as Napoleon had. Napoleon said that to assimilate bankers as ordinary citizens one has to be real strong. So he was beaten, in the end. 

Probably, China will also lose, but the end of this warring which may last 20 years easily will be fundamental change in human thinking- both due to the tragedy and the understanding of true causes if this hostility. 

The most fundamental American strategy now- facing that conflict with certain inevitability- would be to secure Eurasia heartland within these 10 years. The USA has done something- bases are all over the place- but they do not really have allies there. I think its the last moment  to start doing something serious about it. Ukraine and Turkey would be a good place to start afresh , taking route via Russian south not directly in Central Asia, as Afghanistan and Pakistan have been failures. Other place to secure is Australia. And most interesting- Russian Far East.. Who could help in that? 

I think a very big game is going to start very very soon. 

mac's picture

US military gonna win anything....

China started their "industrialization' seriously just 60 years ago. They stared with the newest technology, while the west had lots of the old technology.

China has a head start, cuz they started with the "new".

Now a orbiting laser nuke destroyer (or somesuch) may just pick off all the yankee crap flying at them. Go figure.

ivars's picture

Silver did break very longish

Silver did break very longish down trend yesterday on daily; if it could do it on weekly (after Friday stay above 20 USD) , I would start to think the last bottom will never come. But not before Friday evening. 

cp3's picture

mike stathis

turd,

would you ever have mike stathis on your show?

what are your thoughts on him?

anyone?

cp3's picture

mike stathis

turd,

would you ever have mike stathis on your show?

what are your thoughts on him?

anyone?

cp3's picture

mike stathis

turd,

would you ever have mike stathis on your show?

what are your thoughts on him?

anyone?

achmachat's picture

cp3

wow... good thing your name isn't cp30 or we would have had that message 30 times instead of 3.

ivars's picture

A pair of Navy ships has entered the Black Sea

http://www.stripes.com/news/uss-mount-whitney-uss-taylor-in-black-sea-ahead-of-olympics-1.265744

They can stay in Black Sea for 21 day according to agreement covering entry of ships from countries that does not have borders with Black Sea yet. So the clock has started its count. 5th-26th of February the ships can be legally in the Black Sea and act as the plans are. Sochi Olympics end on 23rd.  Ukraine is there all the time as well. So is Turkey. 

Quote:
NAPLES, Italy — A pair of Navy ships has entered the Black Sea, where the top U.S. commander in Europe has said they will be available to respond to any emergencies arising from the Winter Olympic games in Sochi.

The USS Mount Whitney, an amphibious command ship, and the USS Taylor, a guided-missile frigate, arrived Tuesday on a routine and pre-scheduled deployment to the region, a U.S. Navy release said.

The Pentagon announced their planned deployment to the region in January, after terrorist groups threatened to disrupt the Olympic Games in the resort town on Russia’s Black Sea coast. The events begin Friday and run through Feb. 23.

Air Force Gen. Philip Breedlove, chief of U.S. European Command, said in an interview with Stars and Stripes on Saturday that one of the ships would offer command-and-control ability, a role seemingly filled by the Mount Whitney, the flagship of the U.S. 6th Fleet in Europe.

The military will have assets that can be deployed for medical operations in Sochi, should there be a demand for such support, Breedlove said.

“We will have the capability to respond medically with airlift if it is required,” Breedlove said. “We will require cooperation with Russia to be able to land those aircraft.”

The ships total roughly 500 sailors together, and both have helicopter pads.

Fears over the safety of athletes have increased in recent months following suicide attacks in the city of Volgograd in December and a series of threats against athletes competing in the games, prompting Russia to impose heavy security measures in and around Sochi. Russian and U.S. officials have discussed sharing information on countering improvised explosive devices, and the FBI reported it would send at least two dozen agents to the games.

American athletes will be escorted by diplomatic security, according to the State Department.

Dagney Taggart's picture

Good Topic, CL

I'll read it more carefully tomorrow. It's a little after 2 AM and I can't sleep. Shouldn't have been playing outside the last 2 days because now I have a bad cold. But that means I might be around here the next few days. noyes

Anyway a few points came to mind from past conversations, in no particular order:

1. Maria B is CFR and a blatant liar. Don't trust a damn word she says. Did she say which stocks in particular? Twitter perhaps?

2. Chinese soldiers cannot just breeze across the Pacific undetected on large slow ships to invade N. America. Ignore this fearmongering. They cannot come here unless they are allowed to. If this happens, we will know for sure who the terrorists really are.

3. I've strongly felt that western militaries will be deliberately marooned/used as labrats when the last major conflict in the middle east is started. The hasn't either because the west is broke or the satanists can't get their goat idol to fart at the exact moment Mars, Jupiter, and Pluto are aligned and the moon is rising at Bohemian Grove or something similar. Anyway, if you have friends or family there, just be prepared to never see them again even if they are not fighting.frown

4. Why would China waste money fighting when they can just use it to buy gold and openly kill off 200 million peasants who would have died in a war (herd management). There are far cheaper ways to achieve the consequences of war without actually having one, especially when you don't have to keep up appearances.

Nice breakout in silver. It will be nice if it holds through tomorrow.

OK that's enough. I'm tired again. See you all later today, maybe....

cp3's picture

YT

sorry for the triple post, it did not show up as being posted ...

type this into YT, "Stathis schools Schiff"

any replies appreciated

"

Excalibur's picture

Stathis schools Schiff

Listened to the first few minutes, and Stathis believes that the Chinese should have a social security system and not save as much as they do.  As he says, they save BECAUSE  there is no social security.  What is wrong with that? What is wrong with being being self reliant? Does he think the western welfare model is the one to copy? Yes, with people saving less and spending more it would expand the economy through consumption. There is a difficult balance between saving and consumption in every economy as there is between safety nets and poverty, and that balance has been completely lost in the indebted nations. 

Stathis has a deep issue with Jews and he likes to get personal, so Schiff is a good target for him. As for his investment calls, maybe he has a great track record? Does anyone know?

mac's picture

how about a rumble with Russia? MSM blabs..

...can't believe the incessant attack on everything Russian coming lately from cnn and cnbc and bbc etc..

Why this abuse of the host of the Olympics?...bombs, gas explosions and murder going on and then there is Ukraine, that is a hot spot thanx to ???

silver66's picture

Boots on ground in China

Great post CL

One thing to note is Napoleon went to cash only when he took over France due to their hyperinflation.

A couple of things about China from my own experience. When I toured the country as a guest and met with locals I was struck by how much like us they were. They wanted their child to be educated, to look after their parents and they wanted the nicer things in life. Just like most people in North America. Now I know politicians are often out of sync with the people, but that is my observation.

Second thing, a client that I have turned into a stacker, owns two factories over in China. We have had many very frank discussions over the last 3 years about what I view is going on in the world and the risks of China to North America. His view is different than mine. He views most Chinese as "lazy fucks" who are good for cheap labour and that is being taken away by other countries in Aisa. His turn over of employees is huge and when the going gets tough they are likely to just not show up. His turn over is the norm not the exception and the quality of work is very poor. The only reason the plants still work economically is because of the cost advantage. He feels that will change in a decade and the jobs will come back to North America.

His view on the Chinese military is they have numbers but no moxy. Remember what the US warthogs did to the Iraqi's on the highway in the first gulf war. You rule the sky your rule the battle field.

Just my 2 cents to this post

Silver66

F.Capra's picture

China-Maybe Not Such A Threat

China may recede as a threat as its relatively lower labor rates decline. Its most critical vulnerability is its land locked status, large population and lack of natural resources. Hoarding gold is its solution.

The U.S. has a superior strategic posture with two large oceans on the east and west and favorable resources in North America. But can it back away from a military flung over the globe and use the existing advantage?

Thanks for starting to pose some of these questions, CL.

¤'s picture

Here ya' go CAL

Ask and you shall receive...yes

China's PAL

http://www.tfmetalsreport.com/comment/381027#comment-381027

And one more article...

China struggles to crack down on fake military officials

Number of criminals making financial gains impersonating PLA officials soars amid culture of state corruption

Friday 22 November 2013 

 
PLA, China

The PLA is riddled with corruption, notoriously secretive, and enjoys weak disciplinary oversight. Photograph: Dan Chung for the Guardian

China's unbridled boomtown ethos has famously spawned a world of counterfeits. Fake Apple storesfake pharmaceuticals and even fake meat has hit the headlines.

But in recent weeks, police have had their hands full with a more treacherous kind of sham – fake military officials.

The Beijing-based newspaper Guangming Daily reported on Friday that police in coastal Shandong province's Cangshan County arrested 15 people posing as officers from the People's Liberation army, the country's military, on 5 November.

The so-called fake military officer gang, backed by counterfeit badges and "confidential documents," had unsuccessfully attempted to convince local police that central military authorities had dispatched them to secure the release of prisoners.

On Thursday, China Business News reported that one fake military officer in the central Chinese city Xi'an lost 800,000 yuan (£81,000) to another fake military officer in an elaborate scam. "The mantis stalks the cicada, unaware of the oriel waiting behind," the newspaper wrote,borrowing a traditional Chinese expression.

The PLA is riddled with corruption. Notoriously secretive, the organisation enjoys weak disciplinary oversight and a strong tradition of camaraderie, enabling a culture of rampant graft. The sheer number of criminals to impersonate PLA officers in recent months- and the scale of their gains- testifies to widespread, tacit understanding of the organisation's grey economy.

According to China Business News, a 49-year-old man surnamed Mu first swindled 400,000 yuan from a local man surnamed Zhang - he claimed that he was a high-ranking military official, and promised that the fee would guarantee a place for Zhang's daughter in a northern Chinese military academy.

Yet Mu had his comeuppance soon afterwards, when a 50-year-old firefighting equipment salesman surnamed Hou convinced him to invest in a new military academy. A senior military official surnamed Yang, he claimed, was spearheading the project. Mu swindled an additional 800,000 yuan from Zhang for the investment; Zhang eventually reported him to the police. Police arrested Mu on 29 October, and his swindlers soon afterwards.

Police in Cangshan County traced their own case of fake officials to a "fake military training base" in Wuzhou, a prefecture-level city in the southern province Guangxi, and raided it on 9 November, arresting eight people.

Gang members had defrauded people across the country by promising mining permits and admission to elite military schools in return for kickbacks, Guangming Daily reported; the scam earned them 10m yuan (£1m) and 2m yuan worth of gold.

Pictures posted online show police brusquely apprehending the men, dressed in counterfeit olive-green military uniforms. One shows the gang's leader, a man surnamed Sun, apparently wetting his trousers in fright.

In late October, China's state broadcaster CCTV revealed that a 58 year-old man named Dong Xianwei had defrauded six families of 3.8m yuan since 2005 by posing as a PLA general.

Like Mu, he promised that he would help their children gain admission to elite military schools; he charged 200,000 yuan per placement. The same programme revealed another fake PLA official, Liao Heping, who made 3m yuan in two years by posing as a major-general.

theguardian.com

why do I even bother's picture

China vs Pig Ignorant Dipshits

In the Blue Corner, fighting out of Deliverance, MS - "Its most critical vulnerability is its land locked status,"

vs

In the Red China Corner, fighting out of the Real World - http://en.wikipedia.org/wiki/China_coastline "China’s coastline covers approximately 14,500 km (around 9,010 miles)"

why is it that people who haven't a clue what they are talking about always feel the irresistible urge to make utter fools of themselves? Next thing you'll be telling us that Silver is going to break above 20.50 some time this decade, or COMEX has no deliverable Gold or some other total bollocks. Be gone with you!

John Galt's picture

@ Dagney re: Chinese Troops in America?

Hello Dagney. I beg to differ with your comment #2 that Chinese troops cannot simply breeze across the Pacific on large, slow ships. Instead of thinking in terms of landing craft in Normandy during WW2, we should imagine container ships filled troops quartered inside modified 40' steel boxes. These boxes would get waived through customs by the thousands, and could even be delivered to destinations of choice using American rigs.

Walmarts across America would then become staging areas, and possible bases for Chinese military. (In economic terms, these Walmarts already act as bases of operations to strip wealth from America and move it offshore).

However, I do agree that if something like this was to actually happen we would then know who the real terrorists were. Many of us have already figured this out.

I personally think that China has a different strategy at play, and they have been deploying it for years. While the American military approach might be to lock and load, and rush forward with guns blazing the Chinese seem more inclined to defer to Sun Tsu's "The Art of War" which contends, amongst other things, that direct conflict should be avoided at all costs and for the victor "the best policy is to capture the state intact".

China is doing this now and it watches the West progressively bleed itself out with debt. Real assets then become available at fire sale prices, and we are now seeing Chinese "investors" moving in to buy up distressed factories in the USA to set up shop inside the borders. Of course, Obama is crowing about manufacturing coming back to America when, in fact, what is really happening is that the Chinese are being welcomed in to engage in a quiet economic occupation, as opposed to an overt military one.

¤'s picture

China's Lehman Moment Approaches

China Needs to Tread Carefully on Reforms

China’s trust lending sector – part of the country’s shadow sprawling shadow banking system – has been in the news quite a lot recently. Pacific Money recently outlined the salient details of the case that was the focus of much of the recent attention – a scare involving a trust product called Credit Equals Gold No. 1.

Some have argued that the failure to allow a default of this product was a kind of U-turn in the process of financial reform in China. The argument is that in order for a more market based system for capital allocation to develop, investors and borrowers have to be given some harsh medicine. A default would have been warning shot to all investors that they should be aware of the risk associated with high promised.

However, it is almost certainly too early for a dose of this kind of bitter medicine in China’s shadow banking system. A default of this trust product would probably have had very negative consequences not only for the trust industry, but for the wider economy as a whole.

A key factor explaining this phenomenon is a so-called maturity mismatch in the China’s wealth management product (WMP) business. Funds sourced from investors at short maturities (often three, six or nine months) are actually used to lend to companies and projects for durations of years. Investors who have bought these short-term products receive their cash back at the end of the investment term, but this leaves a “cash hole” on the side of the issuer, as the final borrower still has no obligation to repay the funds.

The solution is to issue another WMP to fill the hole  (an effective roll-over). This may take a couple of days – during which many issuers are forced to turn to China’s money markets to borrow the funds.

Had a default occurred and Credit Equals Gold No. 1 investors lost their funds, investors in all of China’s multitudinous WMPs would have received a very rude awakening. They would discover (many for the first time) that the products they were investing in could fail, and that the government would not be there to bail them out.

Some would continue to invest, but many would not. The ability of issuers to issue new WMPs to fill the holes would be destroyed. WMP issuers would thus be left with a big funding gap, forcing them and their end-borrowers into distress and an increasingly vicious spiral. The liability side (investors) of their balance sheets would be in crisis, and this would not take long to affect the asset side (the borrowers).

The economic fallout as various coal, real estate, and local government borrowers (to name a few key examples) lost this source of funding would be large. There is roughly USD$1.6 trillion invested in China’s trust industry, and this is not even the entire WMP picture. Many borrowers in this sector are forced to borrow here precisely because they are not able to secure cheaper financing from other lenders. Many would fail without these channels.

Equally, the formal banking system relies on WMP to earn fee income and move assets off the balance sheet. The fallout from a WMP rout would not be easily contained. The ensuing crisis would set reforms back as the government would have to move into full fire-fighting mode.

This hypothetical example serves as a reminder of why China’s reforms must come slowly. Any negative consequences that may result from each reform must be carefully anticipated and pre-empted. The authoritarian government in Beijing cannot afford a Lehman moment.

thediplomat.com

Green Lantern's picture

Here is my observations of

Here is my observations of Chinese people being married to a Chinese Chick, being embedded in a city with over a million Chinese people including the surrounding area, working for a Chinese company (aggressive bastards) who helped American companies earn the Chinese consumer and helped American business man find a manufacturer for goods in China. 

Chinese pay for today, with the efforts of yesterday.  Americans pay for today, with money they haven't earned yet.    I have no Chinese friends with a mortgage.  They take their hard earned money, put it in the suitcase, walk over to the wealthy residential section and slam the money down on the table.  They don't mind waiting ten years to buy shit and know it's theirs.   They don't get married, get a job and run to the bank.

American's go to a US banker, fill out a form asking how many pairs of under wear they wear, and wait for the banker to drop scraps on the table.

Robert Kiosaki says it another way.  If you want a lesson in economics, go to China, where they work for food.  Go to the Us where they work for Ipods and glow in the dark sneakers, then go to France where they don't work AT ALL.  Hey, I didn't say it. 

The American dream designed to enslave.  Mission accomplished.  My wife keeps me grounded in the ways of good monetary habits.  Save every scrap.  And I deprogram her from the brain washing of the Communist Party.   Good deal.  All of her friends and business colleagues all have some programming even if they are unaware of it.  Americans and Chinese are equally programmed.

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Having second thoughts on those Ruskies.  Couldn't build roads and have rooms ready in time for the Olympics. 
And they royally screwed the snowboarding course.  The top competitor dropped out because the course was screwed up, and there have been multiple injuries.  Oh yeah, Putin gonna be knocking some heads together.   Russian style.

Thorus's picture

Pretty straightforward - don't telegraph your punch

>>>This thought lead to a cascade of simultaneous war game scenarios, all of which lead to a most startling question: why is there NO discussion at all about the role of an increasingly capable Chinese fighting force or the denigration of US fighting forces from logistical and personnel decreases or budgetary concerns?

Is this subject so taboo as to warrant NO MOPE at all? Or, have TPTB realized that any mention of the USA military capabilities via a via the Chinese would lead to polarization beyond that which we have now, or worse, to an honest critique of the true dire situation that the failure of western fiat paper has created?<<<

I'd suggest it's pretty straightforward:  If you are seriously concerned about being in a fight for your life, either as a nation or as an individual - it isn't prudent to talk much about what you can or cannot do, or what you will or will not do.  Don't telegraph your punch.

Now, if you think you can just scare the guy off, you can bluster and posture - like putting multiple carriers into the Persian Gulf to worry Iraq - and make no secret of it.

But when you're *really* worried, you keep your mouth shut, you keep your guard up, and you keep your eye on the center of mass.   Eyes can lie - center of mass, not so much.

Regards,

Thorus

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