China’s bubble is popping, and Jeb Bush wants the U.S. to be more like … Greece. (More)
“Detached from the reality of China’s own economy”
For years, Republicans have lamented that the U.S. should be more like China. In 2011 it was Michele Bachmann saying China has no social safety net. A few months later, Scott Brown liked that China has fewer regulations. And 2012 GOP nominee Mitt Romney loved that Chinese factory surrounded by barbed wire.
Of course, what they really envied was China’s rapid GDP growth:
China’s GDP growth rate is the black line, indexed to the numbers at the left. Since 2001, it has averaged about 8% per year. The U.S. rate is the gray line, indexed to the numbers at the right. Over the same period, it has averaged about 2% per year. So China must be doing something right that we’re doing wrong … right?
Umm, wrong. That 8% average annual GDP growth is simply China leaping from an 18th century agricultural economy to a 21st century industrial and information economy. And as China caught up to other developed nations, their growth rate began to slow. As that graph shows, it’s been sinking since 2010.
But the Chinese stock market hadn’t, and that’s why analysts call it a bubble:
Earlier this year, China’s stock market was displaying many of the classic warning signs of a bubble.
Grandmas, cab drivers and college kids were all making small fortunes in a frenzy of “chao gu” or stir-frying stocks – Chinese slang for trading.
And the stock rally came at a time when the wider economy was slowing, puzzling many financial analysts. But now they say gravity is taking effect.
“China’s stock market had become detached from the reality of China’s own economy, and appallingly overvalued,” Patrick Chovanec, managing director at Silvercrest Asset Management, posted on Twitter.
“A lot of people believe they’re safe”
As Vox’s Timothy Lee explains, the market-inflating bubble was created in part by changes in China’s laws that made it easier to sell risky investments to Chinese families:
This practice of making investments with borrowed funds is known as leverage, and it was at the core of the 2008 financial crisis in the United States. For example, large banks made highly leveraged bets on subprime mortgages based on overly optimistic real estate projections. When property values started to fall, the banks with the most leverage – and the least of their own capital at stake – lost money the fastest.
People are also making highly leveraged investments in China, but Yan Liang, an economist at Willamette University, points out an important difference: In China the risky assets are more often sold to individuals rather than other financial institutions.
Chinese banks offer wealth management products (WMPs) that promise the security of a savings account but with higher returns. Some WMPs function like US money market funds, offering modestly higher returns by investing cash in safe assets like high-quality corporate and government bonds. But in other cases, banks invest WMP funds in ways that are a lot riskier than a conventional savings account.
In a scheme eerily reminiscent of the mortgage-backed securities that triggered the 2007-2009 meltdown, those WMPs are broken into tranches with varying levels of risk and return:
The people who buy the high-risk tranches are effectively making highly leveraged investments. The people who buy the low-risk tranches are effectively supplying the money to enable these risky bets. But this arrangement isn’t technically margin trading, so traders are able to achieve leverage much higher than 2 to 1.
Despite these risks, most of the ordinary investors who buy WMPs believe they’re making a safe investment. “About 30 percent of WMPs guarantee return of principal,” Liang says, and “70 percent are not guaranteed. But a lot of people believe they’re safe.”
“Running long after leaving the edge of the cliff”
The scheme worked only so long as the Chinese stock market continued to surge. But despite a modest bounce today, that surge is probably over because, as the Telegraph’s Jeremy Warner explains, it was still a 1929-esque bubble:
Already, there are warning signs of a slowdown, similar to those that front-ran the 1929 crash – depressed commodity prices and a virtual hiatus in global trade growth. The Chinese economy is like one of those cartoon characters who manages to keep running long after leaving the edge of the cliff, only belatedly to look down and plunge into the abyss.
China cannot forever, Greenspan-like, keep answering each successive bubble by creating another. First it was gold, then housing, and when cooling measures threatened an all-out bust in the property and construction markets, the taps were turned on afresh, producing a further flood of money into the stock market. The authorities were happy to tolerate the bull market at first, hoping it might encourage a switch from debt to equity financing, but there seems little chance of that now. The stock market boom has only succeeded in adding to the debt.
The Chinese government has tried thump a heavy thumb on the scale. Chinese police are investigating “malicious” short-selling, and the government has imposed severe restrictions on trading. But few analysts expect such steps to shift the underlying reality that China’s stock market has lost touch with her economy. And sooner or later, reality bites.
“People need to work longer hours”
Perhaps recognizing that China is no longer his party’s dream, GOP WHannabe Jeb Bush wants the U.S. to become more like Greece:
Bush made the statement during a meeting with the editorial board of the New Hampshire Union Leader as he explained his ideas on tax reform and the need to generate 4 percent economic growth.
“My aspiration for the country – and I believe we can achieve it – is 4 percent growth as far as the eye can see,” he told the newspaper. “Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours and, through their productivity, gain more income for their families. That’s the only way we’re going to get out of this rut that we’re in.”
Set aside his rainbow-spewing unicorn of “4 percent growth as far as the eye can see.” He thinks the problem with our economy is that American workers don’t work enough hours.
But the average American worker worked 1789 hours last year. Assuming no time off, that’s 34 hours a week. And look at the list of countries whose workers put in more hours: Mexico (2228), Costa Rica (2216), Greece (2042), Chile (1990), Russia (1985), Latvia (1938), Poland (1923), Iceland (1864), Estonia (1859), Hungary (1858), Portugal (1857), Israel (1853), Lithuania (1834), and Ireland (1821).
So … umm … which of those economic powerhouses would Bush like us to emulate?
And yes, you read that right. Those lazy Greeks put in more hours than any other workers in Europe. Maybe someone should mention that when the Eurozone finance ministers meet on Saturday.
“I believe that it’s historic”
You probably need some good news about now – I do – so here it is:
When the Fair Housing Act was passed in 1968, it barred the outright racial discrimination that was then routine. It also required the government to go one step further – to actively dismantle segregation and foster integration in its place – a mandate that for decades has been largely forgotten, neglected and unenforced.
Now, on Wednesday, the Obama administration will announce long-awaited rules designed to repair the law’s unfulfilled promise and promote the kind of racially integrated neighborhoods that have long eluded deeply segregated cities like Chicago and Baltimore. The new rules, a top demand of civil-rights groups, will require cities and towns all over the country to scrutinize their housing patterns for racial bias and to publicly report, every three to five years, the results. Communities will also have to set goals, which will be tracked over time, for how they will further reduce segregation.
“This is the most serious effort that HUD has ever undertaken to do that,” says Julian Castro, the secretary of the department of Housing and Urban Development, who will announce the new rules in Chicago on Wednesday. “I believe that it’s historic.”
Of course Republicans have already said they’ll block funding for the program because “local communities” and “social engineering.” In other words: “We don’t want Those People here.”
“The New Totalitarians”
And that of course brings us to Donald Trump, perhaps the only media catnip more irresistible than Clinton scandals. It seems GOP leaders recognize that Trump’s hairpiece-on-fire racism is offending lots of Americans. They’d like him to shut up or go away or, ideally, both.
Cue the White Right, as voiced by Jeffrey Lord at the American Spectator:
In daring to speak his mind – in fact, to speak what is on a lot of minds that don’t have access to a presidential-style platform – the New Totalitarians have zeroed in on Trump. The objective? Not to discuss. Not to disagree. No, the objective is destroy him. Wreck his business. Smear his reputation. To make certain that not only will he never again have any effective platform in business or the media, but that in destroying Trump anyone else of a similar mindset will be intimidated into silence.
Lord takes his cue from Tom Nichols’ white dude whine at the Federalist:
Totalitarians are a different breed. These are the people who have a plan, who think they see the future more clearly than you or who are convinced they grasp reality in a way that you do not. They don’t serve themselves – or, they don’t serve themselves exclusively – they serve History, or The People, or The Idea, or some other ideological totem that justifies their actions.
They want obedience, of course. But even more, they want their rule, and their belief system, to be accepted and self-sustaining. And the only way to achieve that is to create a new society of people who share those beliefs, even if it means bludgeoning every last citizen into enlightenment. That’s what makes totalitarians different and more dangerous: they are “totalistic” in the sense that they demand a complete reorientation of the individual to the State and its ideological ends. Every person who harbors a secret objection, or even so much as a doubt, is a danger to the future of the whole project, and so the regime compels its subjects not only to obey but to believe.
In other words, Those People talk back. As proof, Nichols cites Kelsey Harkness at The Daily Signal:
Oregon Labor Commissioner Brad Avakian finalized a preliminary ruling today ordering Aaron and Melissa Klein, the bakers who refused to make a cake for a same-sex wedding, to pay $135,000 in emotional damages to the couple they denied service.
In the ruling, Avakian placed an effective gag order on the Kleins, ordering them to “cease and desist” from speaking publicly about not wanting to bake cakes for same-sex weddings based on their Christian beliefs.
“This effectively strips us of all our First Amendment rights,” the Kleins, owners of Sweet Cakes by Melissa, which has since closed, wrote on their Facebook page. “According to the state of Oregon we neither have freedom of religion or freedom of speech.”
Actually, according to the state of Oregon:
Respondents’ statements announcing their clear intent to discriminate in future, just as they had done with Complainants, was not a religious practice but was conduct motivated by their religious beliefs. Furthermore, the Oregon Supreme Court has held, in the context of Article I, section 8, that engagement in constitutionally protected expression while engaging in otherwise punishable conduct does not insulate the unlawful conduct from the usual consequences that accompany it.[…]
Respondents assert that ORS 659A.409 prohibits Respondents from “express[ing] their own position” and that ORS 659A.409 amounts to “a speech code.” To the contrary, the language of ORS 659A.409 focuses on the discriminatory effect that accompanies certain speech “published, circulated, issued or displayed” on behalf of a place of public accommodation. It does not cover expressions of personal opinion, political commentary, or other privileged communications unrelated to the business of a place of public accommodation[.]
In other words, the bakery owners have every right to stand on a street corner, or in a church, or go on the radio, and say “God condemns LGBTs.”
But they can’t say “Our business will not serve LGBTs.”
And the U.S. Supreme Court agrees:
[I]n Hurley v. Irish-Am. Gay, Lesbian & Bisexual Grp. of Boston, the U.S. Supreme Court held that “modern public accommodations laws are well within the State’s usual power to enact when a legislature has reason to believe that a given group is the target of discrimination, and they do not, as a general matter, violate the First or Fourteenth Amendments.”
“This is what happens when you tell gay people you won’t do their ‘wedding cake'”
Oh, and as for the so-called New Totalitarians … it was the bakery owners, not the lesbian couple whom they denied service, who pushed this case into the media spotlight:
Later, the Oregon DOJ sent Cryer’s consumer complaint to the Kleins, with a cover letter requesting that they respond to the complainants. It was an attempt to encourage reconciliation.
Instead, Aaron Klein posted the discrimination complaint to Facebook (not taking the precaution of redacting the couple’s name and address from the document). “This is what happens when you tell gay people you won’t do their ‘wedding cake,'” he posted.
The Kleins then took to the news and media. They cozied up to anti-gay hate group Family Research Council, campaigning at appallingly anti-gay hate rallies, for their business’ totally-fictional right to discriminate against LGBT people.
After filing the discrimination complaint, the Bowman-Cryers became the victims of death threats – as well as outrageous and horrific claims by conservative media outlets and anti-gay groups.
The bakery owners revved up the right wing rage machine and aimed it at the couple by revealing their names. The owners then went on the radio and declared they would continue to defy state law. And when the Oregon Bureau of Labor and Industry took that public behavior as evidence of unlawful discrimination … the right wing rage machine howled “Ministry of Thoughtcrime!”
Like Donald Trump, the bakery owners, and most of the right wing … it seems consequences are for Those People.
Good day and good nuts