| Posted December 3, 2008
Today, China is massively
closing factories. High order capital good (HOCG)
producers always suffer more than Low order consumer goods (LOCG )
producers. Because of decreasing exports to the USA and Europe, Chinese
unemployment is rising dramatically and many return to the countryside to
work on the farms.
Globalization, Greed and
Outsourcing proves to be nothing more than a huge trap.
entrepreneurs have over the past years with the invisible assistance of
local authorities and misallocation of funds (low interest rates), moved
the bulk of the production of consumption goods to the East (China and
thousands of reasons and hidden incentives for moving the production
abroad: cheap labor, lower costs, less taxation, no environmental rules,
cheap energy and transportation, the absence of a suffocating legislation.
Last but not least, payment could be done using worthless paper money
which was subsequently even re-invested in the US and the EU.
The goods which
were produced abroad needed only to be imported and distributed locally.
The same applies to many agricultural products. Especially true for the
USA. Whilst the manufacturing process was exported, the Western world
muted into a ‘Service Society’.
Goods produced in
the Far East are imported and consumed by the West. As the Chinese
production cost of the goods is lower than the cost would be in the
Western world, the nominal profits are larger and the profit taxation is
added to the Western import duties and local sales taxes. The end result
offers huge income benefits both for the Western Authorities and
the multi-nationals (Globalism) with have since the very beginning
sold this idea as a Win-win situation.
The trick however
is that the Chinese are paid with worthless Fiat paper money which is
partly reinvested in the West and helps to keep interest rates low and
The West however
has overlooked something extremely important. In order to produce these
cheap goods, factories had to be built. Machinery had to be
installed and local labor force trained.
West and East lived
this win-win situation for many years. Every body lived happy and each
time Western demand started to fail and the fairy tale was fading away,
fresh money was printed and injected into the economy.
One thing however
was overlooked. Money can be printed with no limits but there is a limit on
consumption and a more dramatic limit on the quantity of credit and debt.
People can only indebt themselves up to a certain point. Pass this
limit and they can no more honor it. This is where the Real Estate markets
started to collapse months ago.
As a result of the
Crisis Western consumption is falling, imports declining and Chinese see
exports and local production decrease (Von Mises) exponentially. Chinese
factories are closing down. Unemployment is rising dramatically. This
creates a huge problem as no previsions have been made for the local work
force which are now massively loosing their jobs and income by the
were paid for with worthless fiat paper
but there is no
way to move unproductive factories and all machinery out of the country.
been sealed with Chinese concrete on Chinese soil. Over the past
years, Chinese have learned to operate the machinery and to run the
factories is a productive way.
Today because of the danger for domestic riots, the
Chinese authorities are - as expected - blackmailing the foreign owners to
provide an unemployment compensation. If not, they will simply
confiscate the factories and the machinery.
China is very afraid of one thing and one thing
only, and that is if millions of migrant workers in the big cities
like Shenzhen, Beijing and Southern China will riot, like they
already are recently, with China seeing 100,000 factories close by the end
of this year. And then the workers are not paid the months of back pay
they are owed, and big riots occur. There are something like 130 million
‘migrant’ factory workers alone in China, who moved from the rural areas
to the big manufacturing cities, and who are not registered as residents
of those cities. Many of them are now living under bridges in those
cities, and that is scaring the hell out of those local governments.
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