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Big Trouble in Little China

A worker cleans the promenade in Shanghai on July 24, 2014. (Johannes Eisele/AFP/Getty Images)

A worker cleans the promenade in Shanghai on July 24, 2014. (Johannes Eisele/AFP/Getty Images)

Big Trouble in Little China

The country’s economic problems are starting to escalate.

China is a country of extremes, especially regarding economic forecasts. There are those who think “China will take over the world” with its technocratic central planning. Then there are those who say its debt bubble is so gigantic, the economy will crash and burn.

The truth, probably, lies somewhere in the middle. And it looks like we are getting closer to know the truth.

Official GDP growth, is of course on track at 6.6 percent for the year 2018, stellar among industrial and even emerging economies. But nobody believes these figures, even though they are the worst since 1990.

“Real GDP fell by 1.7 percent and 0.6 percent in Q3 and Q4 respectively compared with the official figures showing growth of 6.4 percent and 6 percent,” Enodo Economics chief economist Diana Choyleva wrote in a note to clients about the annualized growth during the past two quarters of 2018.

According to Choyleva, China is experiencing an unofficial recession.

Enodo Economics estimates Chinese GDP growth was negative during the past two quarters. (Enodo Economics)

While this doesn’t mean the crash and burn scenario is unavoidable, the flurry of official and unofficial economic indicators flashing red make the “take over the world” scenario quite unbelievable for the intermediate future.

Going Down

No matter which official indicator you look at, the Chinese economy is in decline. Retail sales growth is barely above 5 percent, the lowest level since 2003 with automobile sales crashing 13 percent. Total imports in U.S. dollar terms are down 7.6 percent in December of 2018 as compared to the year before.

Imports in China are crashing. (Capital Economics)

China’s current account balance, or the amount of exports over imports and one of the main drivers of Chinese growth over the decades is down to 0.37 percent of GDP, from 10 percent in 2008.

 …click on the above link to read the rest of the article…

Whose Trade War Is It Anyway?

Whose Trade War Is It Anyway?

Everybody complains about Trump, but he wasn’t the one who started it

War is aggression, often with the use of physical violence to conquer land, people, and power. Trade wars, though not quite as bad, also are aggressive in nature. Where two or more private parties want to transact freely, aggressive governments step in the way and prevent trade from happening with the threat of force.

In 2018, most of the mainstream media and the establishment powers blame President Donald Trump and his administration for starting a trade war, which—like real wars—can only produce losers on both sides. “How Much Damage Will Trump’s Trade War Do?” read a headline in The Atlantic, and countless other articles and official statements say similar things.

So the mainstream media and some politicians are pretending that trade was 100 percent free before Trump started to threaten the “free traders” of China, the European Union (EU), Mexico, and Canada with tariffs. The media paints Washington as the aggressor in this trade war. Trump shot first.

However, truth be told, this trade war did not start this year and certainly the United States isn’t the biggest aggressor. In real war terms, the Americans are now starting to shoot back after being under siege for decades and the whole world is complaining about this act of self-defense.

…click on the above link to read the rest of the article…

The Illusion of Free Trade

The Illusion of Free Trade

The current trading system was never free; Trump’s tariffs merely change who gets what

The backlash from popular media and the affected countries’ politicians blames Trump for ruining the beautiful “free trade” system built up around the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT).

As with anything Trump says or does, it’s important to step back and look at the bigger context he’s acting within.

Not Free

The first big-picture news flash is that neither the WTO nor the GATT was “free.” Free trade is trade without government intervention.

One country or industry may produce and export a lot of steel, but if it doesn’t get any subsidies and doesn’t have protective import tariffs, then it deserves to capture global market share because it’s the most competitive. It uses the locally given resources of labor and capital in the most productive way.

Another country may be the best in producing solar panels, making it the world leader in solar panels. The two countries can swap steel and solar panels and balance their trade, with each country doing what it does best.

…click on the above link to read the rest of the article…

The Trouble With Taxes

The Trouble With Taxes

Can we imagine a world without?

“There is no more persistent and influential faith in the world today than the faith in government spending,” wrote economist Henry Hazlitt in 1946. If that was the case then, what about today? Nearly every problem in the world calls for the government to solve it. In return for these services, the government needs money—a lot of money.

The federal government of the United States alone is on track to spend $3.65 trillion in the fiscal year of 2017, or 21.5 percent of gross domestic product.

Now, the Trump administration has been in the news for proposing a reform of the tax system, including some significant cuts. However, rather than bicker over the costs and effectiveness of that particular proposal, let’s take a step back and look at the big picture on taxes. We may even consider asking the question of whether we need taxation at all.

Taxes artificially increase the risk-reward profile for any operation, regardless of profits.

In 2017, we are immersed in taxes like a fish in water. We are so used to it, we could not even imagine a life without it. But the federal income tax only started in 1913, with a relatively modest 1 percent for the lowest bracket and 7 percent for the highest bracket. Since then, it has been fluctuating, reaching a peak of 92 percent on the highest bracket in the 1950s—which nobody could afford to pay nor actually did pay—and currently stands at 39.6 percent for incomes of more than $411,000.

No Taxes

There are many arguments in favor of abolishing personal and corporate income taxes altogether.

The first is that taxes prevent private economic activity, the core provider of employment and the products we need to sustain our lives.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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