Flim Flam Part 2

A few days ago I posted a link to the article that the first excerpt below comes from. The blog basically describes a scam that could be pulled by major financial interests in an attempt to save their butts from the effects of the coming economic collapse. Read the article. It proposes an interesting, and I think plausible theory.

So I'm bopping around the net today when I come upon an article in the Wall Street Journal which is also excerpted below. Funny, when I hear China mentioned in the news it is always about how their frugal ways have allowed them to create this incredible economy; how they keep their money cheap so no one else can compete. The Journal article says that this isn't really the truth, that they have bought into the cheap credit model that we use, which is leading to our destruction.

If this is true, it would sure fit in with the scenario described in the first article.

I read a book last year called "Confessions of an Economic Hitman". The book described these sorts of tactics being used to control governments. I think I need to read it again.

What you need to do is--and bear with me here--send your best Wall St. salesmen and diplomats to China and sell them a bill of goods about how they can “modernize” with our help. The Cold War is over. Capitalism reins. You know us Wall St. types! It's all about the dollar! Have the radio scream the President sold out and sign them up to the WTO as you suck Asia into massive overcapacity and a deep, unbreakable reliance on the US and G-8 as customers while paving over the national independence of their life-giving water and farmland. Then, once they've tasted freedom and affluence, once they're unable to support themselves independently, you pull the plug not on them but YOURSELF. Implode your own middle class as above. Kill the bond markets, cause a run on your own currency, and default on the debts you owe them. Hey, it's the only thing you could do, right? Americans are just stupid, right? Wall Street is just greedy. It's all an accident, an act of God really. No one's to blame. It's classic Judo.
Of Two Minds

After second-quarter GDP numbers revealed a rebound in China’s growth rate to near the politically significant 8% level, it is easy to think nothing has changed. When the world grows, China grows, and when the world collapses, China still seems to grow. But don’t be fooled: China’s impressive headline GDP rate masks an important fundamental shift. Its growth is now fuelled by cheap debt rather than corporate profits and retained earnings, and this shift in the medium term threatens to undermine China’s economic decoupling from the global slump.

This logic might seem surprising given the conventional wisdom that China’s growth has always been fueled by cheap credit. Interest rates sometimes have been below inflation, making them negative in real terms, which is a common definition of cheap money. More striking still, the official cost of capital has consistently trailed the return. The implication is that companies can re-invest borrowed money for a higher return than they have to pay back to the banks. In this sense, bank credit is more than free.
Wall Street Journal