Two Powder Kegs Ready to Blow: China & India

eplosive gold rallyOn the ground, China and India are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations. The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.
All this systemic corruption is accepted as long as the conveyor belt of wealth is moving: that the previous political Plutocracy skimmed their $4 trillion and absconded with their ill-gotten gains is OK to their replacements, as long as there is another $6 trillion to be skimmed.
The problem is there isn’t another $6 trillion to be skimmed. It has taken an enormous credit bubble of $23 trillion plus the monumental credit expansion of the shadow banking system in China to enable the skimming of $6 trillion by the political/financial Plutocracy.
This $23 trillion credit bubble is roughly twice the size of China’s entire GDP ($12 trillion). That this credit bubble is generating less return in the real economy is obvious–diminishing returns have set in with a vengeance.
The revolution never starts with the oppressed peasantry–it starts with the bourgeois who bought the fantasy of another $6 trillion to be skimmed and credit bubbles/ real estate valuations that never go down.
The spark that ignites the powder keg cannot be predicted or suppressed.

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Submitted by Charles Hugh Smith, Of Two Minds:

China and India are both powder kegs awaiting a spark for the same reason: systemic corruption.

The conventional view of China and India sports not one but two pair of rose-colored glasses: Chindia (even the portmanteau word is chirpy) is the world’s engine of growth, and this rapid economic growth is chipping away at structural political and social problems.
Nice, especially from a distance. But on the ground, China and India (not Chindia–there is no such entity) are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations. The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.

This is simply wrong on multiple levels: as the opportunities for crony/neofeudal skimming increase, so does corruption. As the scale of the economy increases, so does the scale of corruption.

China’s “princelings” (offspring and family of the inner political circle and top apparatchiks of the Communist Party) are billionaires, not mere millionaires. A recent expose of offshore accounts held by various Chinese billionaires estimated the wealth skimmed and transferred our of China at between $1 trillion and $4 trillion: China’s Epic Offshore Wealth Revealed: How Chinese Oligarchs Quietly Parked Up To $4 Trillion In The Caribbean.

Even the top number is a gross underestimate, as $4 trillion only accounts for the skim of the top layer; beneath that 1/10th of 1% is the rest of the top 1%, tens of thousands of lower-level political functionaries who skimmed billions of dollars forcing peasants off their land and selling development rights to crony developers–to name but one common skim of many.

A more realistic estimate might be $6 trillion–half of China’s gross domestic product (GDP). Consider the ramifications of the many models of systemic corruption at the top: How a PLA General Built a Web of Corruption to Amass a Fortune.

I know from confidential on-the-ground sources that a significant percentage of the entire top political layer of 3rd, 4th and 5th tier cities have left China for well-padded nests in the West: Australia and Canada are popular choices, as the right to immigrate can be purchased–just bring in the requisite sum of cash looted from peasants. (The U.S. also grants special immigration status to those bringing in major capital and declaring their intent to hire Americans: easy enough with looted millions.)

(Sidebar on how even the lowly functionary skimmer can get huge sums out of China: take a “vacation” to Macau. Buy $1 million in casino chips with your looted yuan. Lose $50,000 at the tables and then go cash in your remaining chips in U.S. dollars. Deposit the dollars in a Hong Kong or other Asian bank and then transfer the cash to L.A. or Vancouver to buy a house for cash. Repeat as necessary.)

$7.77 ShippingAll this systemic corruption is accepted as long as the conveyor belt of wealth is moving: that the previous political Plutocracy skimmed their $4 trillion and absconded with their ill-gotten gains is OK to their replacements, as long as there is another $6 trillion to be skimmed.

The problem is there isn’t another $6 trillion to be skimmed. It has taken an enormous credit bubble of $23 trillion (The $23 Trillion Credit Bubble In China Is Starting To Collapse – What Next?) plus the monumental credit expansion of the shadow banking system in China to enable the skimming of $6 trillion by the political/financial Plutocracy.

This $23 trillion credit bubble is roughly twice the size of China’s entire GDP ($12 trillion). That this credit bubble is generating less return in the real economy is obvious–diminishing returns have set in with a vengeance.

The revolution never starts with the oppressed peasantry–it starts with the bourgeois who bought the fantasy of another $6 trillion to be skimmed and credit bubbles/ real estate valuations that never go down. The leadership in China has managed to create a propaganda bubble of epic proportions: Chinese leaders are supposed to have a long-term view that puts the West to shame.

Alas, the secret view of China’s leadership is considerably shorter-term: U.S. dollars in Swiss bank accounts, real estate in Vancouver, San Francisco, New York City, London, Geneva, etc. and whatever other assets can be scooped up with looted billions.

Corruption isn’t just abstract: Much of China’s building boom will not last a generation, much less a long-term timeline. This toppled tower is an apt metaphor for China’s financialized crony-capitalist credit bubble and its shoddy corruption-riddled construction:

China’s Towers and U.S. McMansions: When Things Fall Apart (Literally) (April 14, 2010).

India’s system is different, but equally corrupt. Combine feudalism and religious tradition with a helping of modern crony capitalism and neofeudal looting, add a dash of post-Imperial flavoring and voila, corruption on every level.

The sad irony of this pervasive, systemic corruption that enriches the Plutocracy is that the average Indian and Chinese citizen is basically honest. Non-Elites will tolerate the corruption at the top as long as they believe their own prosperity is advancing. Once it becomes clear that their prosperity has been hijacked by the Plutocracy, tolerance of oppression, corruption and the vast inequalities of wealth being skimmed by the well-connected few will wear thin.

The spark that ignites the powder keg cannot be predicted or suppressed. Don’t look to the disenfranchized peasantry as the source, though they are ready enough to cast off the Powers That Be; look to those who believed the gilded promises issued by the looters and discovered that the fruits of their labor and their hopes is disillusionment on a scale as vast as the skim looted from their nation by their self-serving leadership.

 

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Comments

  1. Its just a matter of time, and that time is getting nearer and nearer.  When one looks at all the underhanded shenanigans being thrust upon us by a TRANSPARENT (LMAO) Obama Administration; the CEO’s, and the like, stealing at will from the masses; and then you have the foreigners working mightly to wedge themselves into the cesspool to lap up what crumbs (of our financial society), what more can you expect than a catastrophic meltdown?
    Here’s some more of the same…. http://www.coinweek.com/bullion-report/fallout-already-starting-investigations-london-gold-silver-market-price-manipulations/

  2. China and India are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations
    —————————————————————-
    Good thing we do not have systemic corruption in America or in the EU.
    Ha ha ha!

  3.  …..systemic corruption in every nook and cranny of both nations.”  No different in the US just better hidden!

  4. Wouldn’t it be ironic that America, one of the newest and wealthiest nations, has fallen into the same trap as two of the oldest cultures in the world.
    As China and India goes, thus goes America.  Not the other away around.
    Another question or observation crops up.
    Where did that original $10 trillion in wealth come from?
    Old Wealth?
    Not likely
    It’s very likely a conveyor belt of wealth that originated in the US and Europe went East in the last 40 years, just like the gold flying east by the thousands of tons today.
    Explain that??
    I think we’re being chumped by the two greatest masters of corruption that ever existed on this earth, ushering a new age of Feudalism
    It seems that money flows easily to the highest and most corrupt bidder.
    It tells me that money is a whore.
    Gold is quite the opposite, filled with virture and blessed with great qualities.

    • “Virtue and great qualities”
      Sniff…..sniff…… I believe I’m tearing up!
      But seriously “we” collectively are being chumped.

    • With Fuku radiation killing off the entire pacific I don’t think it will matter in 2 generations. Going to be a lot of loss of life.

  5. I’ll pdf you a tissue, silverslicker.  LOL

    • AGXIIK,
       
      I think an entire years supply of toilet paper would be more appropiate.

    • #Ranger
       
      “I think an entire years supply of toilet paper would be more appropiate.”
       
      Only if you are incredibly full of s….   lol
       
      And even then, AG does not dip into his TP stack easily.  Lord knows, he just might be needing all 25,000 of those rolls. ;-)

  6. Just announced, China is dumping ALL USA bonds, hacked reports say. Also China Sea is closed states CNN.
    Now is this hacked reports or is this comprised CNN reports? We will seeeeeeee

    Report on Zero Hedge: Tyler Durden reporting

    Also on Stage2omega

    Also, China bank chief shuts door on BURNED investors-CNBC
    But this one is about drugs

  7. Every place in the world is a powder keg. We have also been chumped with much maligned Bullshit 2 boot!

  8. 85 people in the world hold more wealth than half the population of the entire world. Swallow that one!

  9.   800 manned Fema Camps at the ready in the U S. Get your Beans Bullets and Band Aids.

  10. I picked up on that too Republic From Mars  ZH and SGT had it and tried to get a handle on the CNN hacked article of dumping the bonds AND shutting down the South China Sea. Wow.
      I think it’s a spoof but if it gains traction it could spook the markets like a false flag. Sometimes false flags get out of control and have to run their course. China, US and the entire world bond market starts racing down the road on rumors like this.
      It’s like war. 
    One shot across the bows (ooops I didn’t know the gun was loaded) and the fight is on.  China’s Shibor shadow banking enterprises could get hit hard.  Who know how the PBOC will react if they see this headline, thinking it’s real, trying to find out who is dumping bonds outside the Chinese central bank, pulls the ‘nuclear’ bond dump trigger, trying to stay ahead of the the shadow bankers who are also trying to gain some liquidity for their unliquid credit-locked up world. The race to the exit could get nasty.
      Like Ranger noted, the Chinese have been dumping long term bonds due to the interest rate risks and buying the short term near cash liquid US notes.  This could cascade when misinformed or apprehensive market markers start selling in earnest with no Yellen or Jack Lew PUT in place.  There’ll be floor until incalculable damage is done.
    El Erein of PIMPCO just resigned and the CEO of Dow Jones did ditto. 
    The wearers of adult pants are not on the job.  People will come to work wearing Depends however.

  11. I made a comment.  I was told to MODERATE it.  I did.  Still not published.  So, I say to you Doc….bleep bleep bleep bleep bleep!  And furthermore bleep bleep bleep!

  12. Here is how I see China and India in the gold world…
     
     

  13.  
    The problem is there isn’t another $6 trillion to be skimmed… Non-Elites will tolerate the corruption at the top as long as they believe their own prosperity is advancing. Once it becomes clear that their prosperity has been hijacked by the Plutocracy, tolerance of oppression, corruption and the vast inequalities of wealth being skimmed by the well-connected few will wear thin.”
     
    This article means war.  When the elites run out of graft and the sheep start getting restless they will start a war to save their own hides. India v Pakistan, China v Japan, China v. Philippines, who knows where they will start it just know that they will.

  14. So blow already.  Somebody get the ball rolling.

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