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China: Doomed If You Do, Doomed If You Don’t
China: Doomed If You Do, Doomed If You Don’t
Whichever option China chooses, it loses.
Many commentators have ably explained the double-bind the central banks of the world find themselves in. Doing more of what’s failed is, well, failing to generate the desired results, but doing nothing also presents risks.
China’s double-bind is especially instructive. While there an abundance of complexity in China’s financial system and economy, we can boil down China’sdoomed if you do, doomed if you don’t double-bind to this simple dilemma:
If China raises interest rates to support the RMB ( a.k.a. yuan) and stem the flood tide of capital leaving China, then China’s exports lose ground to competing nations with weaker currencies.
This is the downside of maintaining a peg to the U.S. dollar. The peg provides valuable stability and more or less guarantees competitive exports to the U.S., but it ties the yuan to the soaring dollar, which has made the yuan stronger simply as a consequence of the peg.
But if China pushes interest rates down and floods its economy with cheap credit, the tide of capital exiting China increases, as everyone attempts to escape the loss of purchasing power as the yuan is devalued.
This is the double-bind China finds itself in: weakening the yuan to shore up exports incentivizes capital flow out of China, forcing the central bank to torch reserves to mediate the flood tide of capital fleeing China.
But efforts to support the yuan crush exports based on a cheap currency, creating the potential for mass layoffs in sectors with razor-thin margins and convoluted black box financing. Nobody knows how many times the stuff in warehouses has been pledged as collateral, or how much debt is floating around the shadow banking system in China.
Forget the Fake Statistics: China Is a Tinderbox (August 10, 2015)
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Our Crazy-Making Economy’s Endgame: Festering Frustration Seeking an Outlet
Our Crazy-Making Economy’s Endgame: Festering Frustration Seeking an Outlet
The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime.
We all know crazy-makers: people who make contradictory claims about reality, who say one thing and do another, who change their stories constantly to justify their own pursuit of self-interest, who demand the impossible of others while giving themselves unlimited excuses.
When they can’t change reality to suit their purposes, they change their accounts of reality, and stick with the revised stories even when they are contradictory.
This describes the entire financial structure of the U.S.: crazy-making.
We all know the U.S. economy is diseased, and the Powers That Be are attempting to mask the sickness with contradictory accounts of reality.
To get ahead, you need a 4-year college diploma. But oops, the student debt you’ll need to shoulder acts as a brake on getting ahead. And it turns out many of those who became debt-serfs to get a diploma actually end up in jobs that don’t require a college education.
One reality–soaring student loan debt and diminishing value of the product, a college diploma–and two contradictory stories.
Systems theorist/anthropologist Gregory Bateson developed (with others) the concept of double bind, a psychological and social conflict in which contradictory demands generate a form of schizophrenia:
Unlike the usual no-win situation, the subject has difficulty in defining the exact nature of the paradoxical situation in which he or she is caught. The contradiction may be unexpressed in its immediate context and therefore invisible to external observers, only becoming evident when a prior communication is considered.
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