The G20’s China Bet

By Simon Johnson

The G20 communiqué, released after the Toronto summit on Sunday, made it quite clear that most industrialized countries now have budget deficit reduction fever (see this version, with line-by-line comments by me, Marc Chandler and Arvind Subramanian).  The US resisted the pressure to cut government spending and/or raise taxes in a precipitate manner, but the sense of the meeting was clear – cut now to some extent and cut more tomorrow.

This makes some sense if you think that the global economy is in robust health and likely to grow at a rapid clip – say close to 5 percent per annum – for the foreseeable future.  With high global growth, it will matter less that governments are cutting back and unemployment will come down regardless.  Taking this into account, the IMF is actually predicting (as cited prominently by the G20) that budget “consolidation” actually raise growth over a five-year horizon.

There is no question that some weaker European countries, such as Greece, Portugal, and Ireland, had budget deficits that were out of control.  Particularly if they are to pay back all their foreign borrowing – a controversial idea that remains the conventional wisdom – these countries need some austerity.  But what about those larger countries, which remain creditworthy, such as Germany, France, the UK, and the US?  If these economies all decide to reduce their budget deficits, what will drive global growth?The answer in Toronto was obvious: China.  China is only about 6 percent of the world economy, measured using prevailing exchange rates, but it has a disproportionate influence on other emerging markets due to its seemingly insatiable demand for commodities.  It also has a relatively health fiscal balance – and its fiscal stimulus, working mostly through infrastructure investment, did a great job in terms of buffering the real economy in the face of declining world trade in 2008-09.

Now, however, the Chinese government is trying to slow the economy down – there is fear of “overheating”, which could mean inflation or rising real wages (depending on who you talk to).  Chinese economic statistics are notoriously unreliable, so reading the tea leaves is harder than for some other economies, but most of the leading indicators suggest that some sort of slowdown is now underway.

The G20 knows this, so the bet is that China will pull off a “soft-landing”, with growth staying in the region of 8-9 percent.  China’s recent exchange rate appreciation against the dollar does not help in this regard, and this is one reason why pressure for further appreciation from other governments is likely to remain muted.  Even the United States, above all, wants a robust China.

Talking to Chinese experts – I was in Beijing over the weekend – there are three major worries.

1)      There is already a great deal of wasteful investment in infrastructure.  At some level, there is a desire to clean this up and make it more sensible.  This implies slower growth.

2)      There is much discussion of “overcapacity” in the state sector.  Again, there is interest in addressing this – although it is not an easy problem.  In any case, this further lowers the incentive for state investment both directly and through various forms of subsidies to government-backed enterprises.

3)      The incentives for local government officials have been heavily weighted towards boosting GDP growth; they move up (and presumably down) the government and party hierarchy based on how they do in this dimension.  There is now a great deal of thinking that it would be better to also include other objectives, such as impact on the environment.  This makes sense – air and water quality are hot issues – but it would also imply slower growth.

China’s reported GDP numbers are likely remain robust – the reported statistics are very much part of the broader government management process.  But the economy could still slowdown in ways that would impact commodity prices – these are the key variables to watch, including for energy and metals used in industrial production (e.g., for the link to Latin America, see the NYT today).

The irony, of course, is that China is also a leading candidate to be at the epicenter of the next boom.  In a sense this is what the G20 would like, unless the boom becomes debt-based and unsustainable, as in emerging markets during the 1970s or Japan in the late 1980s.

The G20 is betting that China can keep its growth high enough to sustain the global economy while also not getting drawn into some sort of bubble – particularly one that would involve big Western banks.  Given the nature of China and the volatility of global capital flows – international investors love you without limit, until the moment they leave you – this is quite a bet.

We should also not overestimate the ability of the Chinese government to fine tune its economy.  To be sure, the authorities have done well both in terms of high average growth and in terms of managing the impact of regional and global cycles over the past 20 years.  Can they really do so well indefinitely?

An edited version of this post appeared this morning on the NYT’s Economix; it is used here with permission.  If you would like to reproduce the entire article, please contact the New York Times.

127 thoughts on “The G20’s China Bet

  1. Have you done the math? Given the trade linkages and that China is only 6% of the global economy, even in a good scenario how much lift can it (or BRICs, or EM overall) give to the US, Europe, and other developed countries?

  2. Agree that we depend on China – without them funding our debt, we’d have to just print the stimulus money we don’t have. To say that the PIIGS have unsustainable debt, but the US, Germany, UK and France should continue to deficit spend on credit isn’t credible. Without employment and income to tax, we can’t service our debt. Permit the economy to go through this recession/depression. Putting more stimulus in the system merely allows the Ponzi Scheme of the last 20+ years to keep going – it merely extends and compounds the problem.

  3. The lovely thing about austerity is this – international capital markets are more interested in seeing structural debt obligations cut. If the US passed legislation that raised infrastructure spending and thus short term deficits (and unlike China, we do not have excess capacity in infrastructure relative to our prosperity level), but trimmed the long term growth rates of social security/medicare/medicaid/pension spending, while committing monetary policy to maintaining the price _level_ trajectory (or, nominal growth trajectory) through true seignorage as needed, this crisis would be over (until the next banking implosion, at least).

    Alas, this is not an economic crisis – it’s a political one.

  4. Has deficit spending worked? The problem might be that we haven’t mortgaged our future sufficiently? There are economists still seriously pushing more deficit spending under current circumstances? Is it possible that deficit spending is actually contributing to the problem? The United States, UK, and France are still credit-worthy? Would you sell these countries a used car on credit?

  5. Are they actually worried about China becoming a bubble? Or are they simply hoping that bubble manifests itself far enough into the future that the western economies can handle the fallout?

  6. Here is an excerpt from the above posted link:

    “…Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on ‘monster’ quantitative easing (QE). ‘We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable,’ he said in a note to investors.”

  7. I might not, but lots of “sophisticated investors” are — in droves. 10 yr treasuries have right now a rate of 2.9%

    If someone would lend me money for 10 years at 2.9%, I would definitely take it. The US Treasury should, too.

  8. Right you are. The problem is credibility. We can definitely engineer a balanced budget, even a surplus (think 1990’s). But there is no credibility unless we find a way to keep a future government from giving away the surplus (think 2001).

  9. I’m just surprised and amazed Professor Johnson didn’t ask Mr. Arvind Subramanian back on this blog to tell us how drastically the world has changed since Subramanian’s June 20 post on China’s “announcement to introduce greater exchange rate flexibility” which he called “unambiguously good news”. Ooooooohh Yeah Arvind, it still gives me tingles all over my body when I think of that drastic change in Chinese exchange rate policy around June 20. Somebody get me some water or I’m going to faint. Drastic Chinese “announcements” on exchange rates make me verklempt.

    And as Mr. Arvind Subramanian so well stated “the G-20 deserves a lot of credit for the change in China’s policy”.

    It still gives me shivers and goosebumps.

  10. Mr. Johnson wrote:

    “The G20’s China Bet”

    Treadmill To Hell

    China May ‘Crash’ in Next 9 to 12 Months, Faber Says

    May 03, 2010 – excerpts

    Bloomberg – (Investor Marc) “Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

    China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

    The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.”

    MARCH 15, 2010 – Wall Street Journal

    BEIJING—China’s finance ministry changed the accounting of some government spending in a way that enabled Beijing to announce a deficit below the symbolic level of 3% of gross domestic product for 2010, an examination of budget documents shows.

    Beijing has frequently faced questions from investors and its own public over whether official data accurately represent the state of the world’s fastest-growing major economy.”

  11. “It also has a relatively health fiscal balance”

    Because there was a giant transfer of production, jobs, and wealth to China at the expense of western workers and economies.

    “which could mean … rising real wages”

    What a shame that would be – having workers earn closer to living wages. Would also be a shame if it drove up the costs of their goods so that western economies could compete again. But no, we don’t want that.

    It seems a rigged game – you can’t have free trade with countries that aren’t free. Well, really you can’t have free trade at all, because there’s always significant manipulation either public or private.

    I don’t belittle China’s right to improve their lot, but what multinationals have done is essentially create a “human market” where one set of workers are pitted against another. It’s the human equivalent of trading “widgets” with less cost effective “human widgets” being jettisoned like some commodity on the wayside. Only problem is, those “widgets” have lives, homes, families, and hopes that get thrown away at the same time.

    Ultimately “Free trade” which was supposed to lift boats on both sides by cross-consumption, really has just been a Trojan horse for beating down the American middle class to the benefit of the oligopoly and the side benefit of China improving their lot. At least it has the later bit as bitter consolation I suppose.

    Because of the divergent starting points, China very poor and the West relatively rich, it should have been clear that the logical effect would be a move to a sort of “economic equilibrium”. That is, with the wealth flowing out of countries with reasonable living wages to countries without and ultimately equalizing wages. Had it been controlled it might have been possible to bring up the Chinese standard of living without reducing the western standard of living to compensate, that is to bring their wages up rather than ours down. Unfortunately that clearly did not happen.

    The target of “countries without” becoming more on par with “countries with” isn’t a bad thing, but it should have been controlled in a manner that would have limited the side effects to the wealthier countries. Instead it has been let out like a wizzing balloon, complete with the slamming into the wall that usually results.

    Finally, I do not blame the Chinese – our leadership entered into the devil’s deal with their eyes wide open (in part due to “policy capture”). The Chinese rightly want to have better lives, however it was up to our leaders to ensure that their gain was not our loss in the process.

  12. I guess my question is – if an economy is hooked on X or hooked on Y or hooked on anything – it’s always on its way to Hell. So, how does one construct an “economy” that is sane? It seems like there is always some economic “specialization” going on, the kind that makes bubbles or countries vulnerable to the whims of changing markets.

    I say this only because it seems like there is no vision, at least under current policy, that promotes stability. With the market let lose like some sort of wild animal, it just seems like it’s just looking everyday for something new to “invest it’s way to Hell” in.

    That I suppose is an argument for a little adult supervision in the form of centralized planning and regulation.

  13. Is it real or is QE2 just the semi-hopeful spouting of the libertarian inclined to see the end of the empire as we know it?

    Reading Zero-Hedge it seems there are a lot of people half-hoping for economic Armageddon, complete with all their new guns and “survival skills” coming into play.

    At this point the country is so screwed (though for mostly different reasons than the Libertarian subscribe) that I’m half-egging for it too.

    Problem is, I have a family and many that I love that that would be less than ideal for, not to mention, I’ve never met anyone who would claim to lead the “new revolution” that I would want to lead the “new revolution” (in the same way I’ve never met anyone who was sure they were going to heaven, that I want to be in heaven with).

  14. If these economies all decide to reduce their budget deficits, what will drive global growth?

    Given some time, and lower overall prices, the answer is THE PRIVATE SECTOR. Part of the reason the politicians are so worried about maintaining higher growth rates is because of the now nearly insurmountable debt levels created in the public sector. Spending growth at the local, state and federal levels that was double the inflation rate over the past 25 years has put us in a fine debt fix.

  15. How (no sarcasm intended)? Constitutional amendment? Paygo rules?

    The problem is there always has to be a safety valve and consequently that safety valve always gets pulled.

  16. Canada is certainly on the austerity bandwagon – that’s why they blew a billion dollars (added to the deficit) hosting this time wasting event.
    If any good came from it – it was simply showing that a page of bullet points emailed between the leaders would have been just as effective.
    The most obvious truth is that governments simply can’t address difficult issues – there is always the next election and since the only goal of any government is to be re-elected it’s hard to take tough actions. A government that addresses the demographic time-bomb as well as the expanding size of the public sector coupled with the public sector pension problem will get my vote. The average public sector employee will receive over a million dollars in pension and benefits. How can the private sector pay for this?

  17. I’m convinced it’s as real as it gets. Desperate times will call for desperate measures. The kitchen sink strategy. The United States is not going to go down without going to town on stimulus. As we have already seen during the initial crisis, when national security is threatened, the printing presses go into overdrive immediately.

  18. Bill Gross understands there is a “New Normal.”

    I don’t get why people – educated ones at that – have such a hard time wrapping there head around the simple concept? Maybe Bill’s explanation will help some people.

  19. China’s export-led growth means it is feeding off demand abroad, not contributing to global growth. You must know that (as stated above with outlandish sarcasm), China’s currency move is a non-event. If China’s growth is bruited as the hope of the world, it just goes to show that the ‘green shoots’ people are grabbing at straws and that things are certain to go down.
    The only way China will contribute to U.S. growth is if the U.S. tires of its currency policies and legislates a trade solution. The improvement in the U.S. CA would then translate into improved U.S. GDP. The WTO is completely useless against currency manipulation.
    If you want a good picture of China’s contribution to growth of developed countries, look at its trade balance sans oil.

  20. And what’s China going to buy more of from the US and Europe that would boost those economies? And when will this be?

    If we cut spending, then what will make up for the lost demand and when?

  21. “if the U.S. tires of its currency policies and legislates a trade solution”

    Ain’t gonna happen. The people running the US (i.e. running the banks and big corporations) like the way things are going now for *them*, they are making more money then ever before getting almost free manufacturing and services and out of China and selling them here, and getting the value of their dollar holdings maintained by Chinese government manipulation.

  22. “Now, however, the Chinese government is trying to slow the economy down – there is fear of “overheating”, which could mean inflation or rising real wages (depending on who you talk to).”
    If China were serious about slowing its economy, it would slow official currency purchases. Its greatly undervalued currency is causing large misallocations of capital within their economy, as resources are devoted to investments in industries in which they have no natural comaprative advantage. It seems rather silly to hear them complain about inflation at the same time as they continue to boost their monetary reserves with foreign currency purchases.

  23. I’m afraid you’re right. But another downturn with more unemployment (and expiring UI benefits for those put out of work in the last round), and the masses that have been disenfranchised by bansker lobbying may rise up with a club.

  24. The G20’s China Bet
    Well, I can’t say I’ve never heard a more stupid bet. Un certain Blaise Pascal …

  25. So Obama is responisble for our deficits? Not the folks who took a surplus in 2000 and turn it all into a disaster by 2008? Where were all these deficit ninnies in the last decade when we had “deficits don’t matter” tax cuts for the rich? Where were they when the wars they promised would pay for themselves didn’t? To All the deficit hawks in the comments above: you deserve what you’ll get (and it’s too late to prevent your just desserts). I hope you live long enough to see your children and grandchildren impoverished from your short sighted inhumanity.

  26. I am sorry but I never got to China… not that the boat was too slow

    On the first page of the G20 Toronto final statement under point 4 we read: “Further progress is also required on financial repair and reform to increase the transparency and strengthen the balance sheets of our financial institutions, and support credit availability and rapid growth, including in the real economy.”

    And I cannot but stop there and scratch my head and ask why they would need to add on the part of “including in the real economy”? Do they mean that they are foremost working on the unreal economy? Well that would indeed explain a lot!

  27. Re: @ thefourteenthbanker_____Gee…when did Slick Willy become an “Economist”? Oh…that’s right the yield curve is inverting – now when’s the last time we’ve seen that happen? What precursor…what, “Imported Stagflation” – somebody other than “Billy Boy” please tell me, “What’s Going On” ?

  28. China’s Debt Bubble: When Will the Ponzi Unravel?

    Apr 1, 2010 – Yves Smith – excerpt

    “Independent Strategy’s latest report, “China’s credit bubble: the missing piece in the jigsaw” makes a persuasive case that China’s debt fueled growth model is due for a hard landing, but the timing is uncertain, since the debt is funded internally.

    China is barely past an episode of dealing with banks chock full of bad loans (there were debates among Western analysts in 2002 and 2003 as to how bad the damage was and whether the remedies were sufficient). On a more fundamental level, China has copied the Japanese mercantilist development model pretty much wholesale. It arguably hit the wall with the 1985 Plaza accord, when the US found the continued trade deficits unacceptable and succeed in organizing a G5 intervention to drive up the yen (that succeeded too well, the yen overshot, leading to the Louvre accord to push up the greenback). Japan’s central bank lowered interest rates to stoke asset prices in the hopes that the wealth effect would produce higher domestic consumption and offset the effect of the fall in exports.

    We all know how that movie ended.”

  29. Re: @ btraven____Bill is a lover…not a fighter, and lives off the adage, “Don’t Fight the Fed”…and as a Vegas dealer he knows the house always wins.

  30. From Toronto Declaration, p 14 (under Annex II, financial Sector Reform): “We need to build a more resilient financial system that serves the needs of our economies, reduces moral hazard, limits the build-up of systemic risk and support strong and stable economic growth.” Emerging governments also require evolving governance (rooting out corruption from within); emerging markets are China, Brazil, India and Russia; China has the advantage of working from centralized command and control; China doesn’t have to put up with the obstructions of Democracy and Republicans.

  31. “China has the advantage of working from centralized command and control; China doesn’t have to put up with the obstructions of Democracy and Republicans.”

    What are you saying???

  32. If I were headed to hell, then I’d rather be on a treadmill. Works better than an autobahn to hell ….

  33. China is solving it’s problem quietly without making a fuss or blaming anyone. It expects the same from others.

  34. More Bubbles…We Can’t Lose

    The Re-Inflatable Chinese Economy

    09.03.09 – – excerpt

    “But what’s going on in China doesn’t look like a real recovery. I was wrong because it turns out you can find your bubble here. The Chinese government has re-inflated the economy, especially the equities and asset bubbles–some unknown but significant share of the astounding $1 trillion in loans made by state-owned banks in the first half of the year went into stocks and property speculation. China has been stockpiling commodities and binging on construction projects, a few of which will be great long-term investments, most of which won’t.

    I am not alone in thinking all this is unsustainable in the long run, that China has exacerbated long-term imbalances in its economy–too much investment in state-owned companies at the expense of the private sector, too much investment in wasteful local infrastructure projects, too much supply where there’s not enough demand.

    You don’t have to believe me. Listen to what Chinese officials are saying. The best line in recent days came from Lou Jiwei, chairman of the sovereign wealth fund, China Investment Corp., talking about why he expects to have a good year:

    “Both China and America are addressing bubbles by creating more bubbles and we’re just taking advantage of that. So we can’t lose.”

    Even if seemingly smart people think they know what’s going to happen in the long run–and quite a few are worried–the problem with predictions is that the short run can last for quite a long time. Maybe this new China bubble will outlast the global slowdown. Maybe China can outrun its problems long enough to confront them.”

  35. I prefer a firm hold on the reins, following the oxen pulling the plow :-)

    Whatever happened to the “green shoots” – buzzwordology gone the way of “perception is reality”…?

  36. The Wrecking Crew seems to have an infinite capacity for being delusional…taxpayers bail them out and 2 years later they start preaching about the lazy unemployed…

    I’m sorry, but they WANT to incite violence, right?

  37. Yeah, if I was Mr. Subramanian, I would spend more time paying attention to China’s history on foreign exchange “announcements”, more time studying China’s history of lies to their own people and lies to foreign powers, and put a little less weight on those free lunches from Professor Johnson at the Peterson Institute cafeteria. Because nobody is going to respect Mr. Subramanian’s opinion if he writes many posts or papers like that one on June 20.

  38. I love all the experts who are telling us we need to be more like China. Yeah, if you want 80% of your population slopping back greasy noodles and phemaldehyde flavored beer everyday and thanking “dear leader” Hu Jintao and Wen Jiabao who are seen as lying sacks of cow s.h.i.t. by every country they negotiate deals with. If you want a country where they harvest organs from living prisoners, put carcinogens in state produced babies milk, don’t allow their own population to invest in real estate for fear it will bite into state profits, treat visiting foreigners like purple skinned monsters who are apt to swallow them whole at any moment, and see public restrooms as a luxury where you squat and can’t find toilet paper in 10 square mile area, China is the way to go.

    Oh yeah, and no welfare or social security safety net (then we sit back in amazement as China’s elder population suffers a painful and quiet death in the shadows of their families’ homes and wonder how they save so much in government costs).

    Where do I sign up????

  39. Actually I was too kind, I should have said China puts poisons in the babies milk, not carcinogens (although I’m sure they do that also). Those Chinese babies died within days or weeks of drinking the state produced babies Milk. It was Melamine.

  40. And the workers in urban areas that come from the rural areas are not even allowed to take their families with them because of strict internal migration regulations.

    And… and… and…

  41. scathew;
    I believe you’re referring to Ross Perot’s “giant sucking sound.” And everyone (except the 19% of voters who cast their votes for him) thought he was crazy. Turns out he was prescient.

  42. EXACTLY. You have excellent students in China from the countryside/rural areas (who are the real go-getters) can’t get a job because they don’t have the big city residence card. So the spoiled kids born in the city with lazy attitude and drags his feet everywhere he goes, get preference for city jobs over the poor rural kid with outstanding college scores. It’s so f_cked up in China, you can’t believe it until you see it with your own eyes.

    And I’m not even gonna go down the Uncle Wang (sometimes real Uncle, sometimes “Uncle” to the young female) road, where “Uncle” finds them a decent job in the city even though they can’t tie their own shoes. I’ve seen it all.

  43. Per Kurowski wrote:

    “And the workers in urban areas that come from the rural areas are not even allowed to take their families with them because of strict internal migration regulations.”

    Up To 100,000 students ‘Ordered’ To Work For ‘Suicide Factory’ Owner Foxconn

    4:30PM BST 02 Jul 2010 – – excerpt

    “AS many as 100,000 students at a vocational school in the central Chinese province of Henan have been ‘ordered’ to work for Foxconn, the giant electronics manufacturer that has been plagued by a wave of suicides…

    Foxconn, which had revenues of $62bn (£41bn), more than Apple, Dell or HP, manufactures a range of products for the world’s leading electronics brands, including Apple’s iPad and Sony’s Playstation 3.

    However, it was hit by a series of suicides at its factory in Shenzhen earlier this year, as workers complained of long hours, strict rules and loneliness. Foxconn had to double its monthly salary, to 2,000 yuan (£200) in the face of a public outcry…

    However, a spokesman from the labour department in Henan said …The students are going there voluntarily.”

  44. You can’t just “go” through this depression, because there is nothing to go through. That would finally make America into a Banana Republic and send all production to the “developing” world. Don’t be dumb Fred. The real problem is Republican created private sector debt and anti-labor policies.

    Everything about this ‘crisis’ is over trade and profit by the MNC’s, EVERYTHING. If the trade doesn’t change, nothing will change.

  45. She is also forgetting that the Chinese goverment works for the MNC’s. Either you get that our you don’t.

  46. The infrastructure is for the MNC’s and their profit machines.

    Gawd, this board is dumb.

  47. When I was little, my father told me a very interesting little story. It goes like this. Once there were a great many of wisemen, whose wisdom penetrates the sky and whose intelligence shamed God himself. There is just one thing, they all live in America, they are all blind, and they never stop the rant. So it is quite natural that they had never seen or heard of an elephant, and even more natural their wisdom would be immediately deployed to tell the rest of the world what an elephant is; and of course including the Indians where elephants live in their country.

    So the first wiseman touches the elephant. He immediately told everyone that the elephant is a trunk, smiling with his hands still visible wrapped around the elephants leg. The second wiseman refutes him, of course, being wiser to himself. He declares that the elephant is a big round skull. Somehow he manages to climb on the top of the elephant’s head. The third, of course, never agreeing with any wiseman of his equals, coolly stated that the elephant being a big slippery fun, having been helped by his son to stand on his shoulders to feel the elephants ear. Just the left ear, mind you. The fourth wiseman, being related to the President of the United States of America, has the privilege of acquiring the tusk of the elephant. He embraces the smooth and hard valuable big tooth of the elephant and exclaims that by the decree of the president, the elephant is a giant piece of bone. Of course, the declarations go on and on, all persuading the wisemen themselves that they are the wisest and the most valuable of the world. And being always told that we are always low intelligence, we concur!

  48. The story would be more complete if we knew what the elephant thought about all those crazy explorers… of course we know he would have hated that imperialist President who got hold of one of his tusks

  49. at the risk of sounding simplistic…you can blame one mega corporation for this China trade imbalance – Wal Mart…when the economic and political power of Wal Mart made it “acceptable” to close supplier’s factories in the U.S. and force them to move to China so they can save a few pennies on a pair of socks…that was the beginning of the end for the middle class in America…too f****ng bad because that middle class helped build this once dynamic enterprise called the U.S.of A for the past 100 years…it’s now on the verge of extinction…

  50. Re: @ don___Perception is_reality_ironically harbors hidden esoteric contretemps…embellishly silenced roars of fetid iconoclast disillusionment – the classic dumbing down of “The New World Order Societies”? Think about it for just a (breathe deep?) moment – China’s population is ~4X the USA, and its (China’s) GDP is ~6X less. Now why is that? You would think that it should be just the opposite – afterall isn’t an apple an apple…an orange an orange, both/all having the same intrinsic valued as the other…given a virtual supply & demand factoring each other out as in a nominal (we want apples,…you want oranges) zero sum game. The USA economic propagandist preaching the dogma – “Repeat-After-Me”___,the Chinese manipulate – but isn’t it just the contrary? Surely…some of us here must realize that it is United States that perpetuates, and grossly manipulates currency? Afterall,…a washing machine, refrigerator/freezer, dishwasher, Flatscreen TV, lawnmower/snowblower, any, and all electronic goods, etc., etc., too infinity does the list go on. Conversely, these products still cost the same as if they were manufactured/marketed in America by american labor with the cost of inflation factored in. Yet we still our told, and swollow the “Big Lie” that our (USA’s) GDP is ~6x China’s GDP – and we’re better off in the future? “Free Trade for everyone”?

  51. Wal-mart wasn’t responsible for the mill towns closing in New England for the cheap labor and coal of the Carolinas, nor when they closed there for the cheaper labor and coal in China. This is our system, the benefactors are doing fine.

  52. Don’t worry, Obama incessantly reminds us he ‘inherited this mess.’ The man-never-far-from-a-teleprompter knows how to market his image. Too bad it isn’t working anymore.

  53. So what is the forecast?

    The international financial system pours capital into China (and the other BRIC countries) creating a speculative bubble that will burst tanking the world economy. The international financial elite, hedged both ways, profit as the markets rise and plummet.

    Post-Keynesian economists recommend taxing unearned income to finance public goods; such as education, health care and infrastructure. In their view, when economic rents are untaxed the profit is capitalized, leading to excessive speculation driving up prices, creating financial bubbles that will inevitably burst.

    The financial elites who profited from the 2008 financial meltdown apparently consider the cycle “business as usual”.

  54. tippygolden wrote”

    “So what is the forecast?”

    One school of thought suggests China will use their ample trade surplus to disinfect their banking system when the time is right.

  55. Run for the hills now!

    July 3, 2010 – Huff Post – excerpt

    “One of Wall street’s biggest bears is veteran investment adviser Richard Russell, publisher of the Dow Theory Letters, a 52-year-old newsletter out of La Jolla, Ca., which about a month ago advised its subscribers to get out of all stocks and keep the money in cash and gold.

    Reiterating that view, he contends we’re in a “papa bear market.” The market, he says, is in no man’s land, with rallies limited and an occasional downside jolt.

    Things will get worse, he believes, as the market continues to probe lower depths. In this bear market, he says, “the Dow (now around 9,686) could fall to 4,000 or 400. I honestly don’t know, but trends tend to carry further than anyone could imagine.”

    The bottom line here, which you can calculate as well as I – Run for the hills now!”

  56. It’s disgusting. Only now we start realizing that we have a large debt and deficit problem. It’s quite sad that we still follow Keynesian economics, which got us into this astronomical mess! When will it stop?

    It reminds me of the <a href=""teachers in DC that don’t teach their students properly and don’t get fired and only now realize that they should change that policy.

  57. A news story this afternoon has Vice President, Joe Biden, visiting Iraq today. They didn’t say whether he was there representing Israeli or American interests.

  58. Oh, scathew, have I got a plan for you–and I’m not being sarcastic. Think about it: how can any economic system based on constant growth continue to operate indefinitely on a finite planet? Of course, it can’t.

    Go to and see how the folks at the Center for the Advancement of the Steady State Economy (CASSE) are preparing a viable, sustainable economic model to be ready when the global financial system collapses. Read their Position Statement and sign on. Then send it to all your friends.

    It should be clear by now, I think we need more than “a little adult supervision.”

  59. I just had one of my brilliant ideas (you can’t read fast enough, eh?? haha).

    Since Professor Johnson seems to think the workers and savers of Germany should bailout the lazy Greeks, the Greeks with open sores on their butts from sitting on patio chairs too long–we can solve this in a peaceful manner. We can choose 10 males from the Greek population and have them de-robe and then have all 10 of the Greek adult males appear on an hour long international TV broadcast in diapers telling why the Germans should loan them money. If after an hour long broadcast the 10 adult Greek males in diapers convince the international TV audience (which could be polled or surveyed LIVE) that Germany should loan them money, we can have Professor Johnson go to Germany as a Greek diplomat (or just an “intermediary”) and ask the Germans if they have any leftover Deutsche Marks for Greece, since they don’t like the Euro anymore.

    It could possibly be the most funny thing we’ve seen on TV since the skunk got his head caught in the chocolate milk carton.

  60. What country will bail America out? Or should we just sell the bankrupt states to the highest bidders?

  61. … Enron / high tech / real estate / black box derivatives / emerging markets / China …

    Just normal market cycles. We need to get back to business as usual. Right?

  62. George Soros: Financial Crisis Has “Only Entered Act II”

    06/13/2010 – Forex Hound – excerpts

    “Love or hate his politics, there is no doubt George Soros is one of the brightest investment minds of the past few generations. Hence when you have Soros on one side saying we have only begun the 2nd stage of the financial crisis, and on the other hand you have “Unicorns and Butterflies” Bernanke telling us all is well (kumbaya!) [and coming off one of the worst economic forecasting records the past half decade you could put together], you can guess which side one might be better off listening to.

    “The collapse of the financial system as we know it is real, and the crisis is far from over,” Mr. Soros said at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”

    Remember, you can choose to accept the red pill or the blue pill; if you choose the blue pill Ben Bernanke has solved all your ills… if you choose the red, please read on for some excerpts.

    * Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.

    * “We find ourselves in a situation eerily reminiscent of the 1930s. Keynes has taught us budget deficits are essential for counter-cyclical policies, yet many governments have to reduce them under pressure from financial markets. This is liable to push the global economy into a double-dip.”

    * Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance, according to Bank of America Corp.

    * “When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.

    Obviously the big fear here is what Nassim Taleb described yesterday; one day we wake up to a failed bond auction. I mean how *much* money is there in the world? China only has $2 Trillion in reserves and can’t buy everyone’s debt. And for all we know central banks are already doing bidding behind the primary dealers to make everything appear rosy. Without audits we know nothing.”

  63. Here are some excerpts from an excellent article found at Jesse’s Le Cafe Americain. Go to the site and read the entire piece, as it is well worth the time.


    “As I noted last year, the SDR recalibration would be a focal point for the BRIC’s to attempt to dislodge the dollar hegemony. The US and UK are fighting it with their bag of financial tricks. This is why Obama refused to touch the gangs of NY in his so called reforms. The big banks and hedge funds are as much an instrument of US foreign policy as is its military. Europe is learning this lesson, and it is taking measures to protect itself. This is part of the long range forecast, and is known as the ‘currency wars.’….
    The financial crisis was used to cover a subversion of justice, what history may some day regard as essentially the start of a financial coup d’etat, wherein a small group of men, many of whom have their roots and connections with a handful of universities, institutions, and investment banks, essentially seized control of the banking system, and by extension the economy, and co-opted the media and the political process, and have been bending it increasingly to their will ever since.
    The oligarchs have ruined the US and the UK.
    And so we see how reform is floundering, and the smirks of the congressional chimps and pigmen are maintained even as the nation suffers the worst unemployment since the Great Depression.

    There will be many useful idiots well outside the circle of power who will agree with this injustice, and vehemently attack the unfortunate in society because of a combination of character flaws, usually selfishness, emotional immaturity, and just plain meanness. It is how it always is. ….
    As for the politicians and financiers, the oligarchs and those that surround them, I have tried to figure them out for a long time, often first hand. Some are just sociopaths, as without feeling as the fellow who would shoot you in the face for your wallet. They merely had better educational opportunities. But as for the others, I think that over time they are so intellectually inbred that it can become like a clique, or a cult. They tend to get in positions where they can make or enforce the rules to suit themselves, and spend most of their time talking with others like them, with similar attitudes and outlooks towards the world driven by their profession. They develop a feeling of isolation from the great bulk of humanity…..”

    Excerpts from:

  64. P.S. Thanks to Stacy Herbert @ for showcasing the Jesse’s Le Cafe Americain article that I’m sharing with baselinescenario bloggers.

  65. Rage,
    Better tell Google and General Electric that, they weren’t aware the Chinese government was working for them. Every MNC that goes in there get the welcome mat, has their products reverse engineered, then has the products and manufacturing methods stolen, then has their contracts reneged on, get pissed on, and then told if they don’t like it there is the door, and “welcome to great country of China when you feel like eating crap again”.

    Do you think when Foxconn workers are committing suicide every other day that Steve Jobs does a jig dance?—or do you think the local factory owners and Chinese provincial government figure if a few warm bodies from the Chinese countryside die so they can squeeze a few more yuan in profit margin that life will go on for them???

  66. equity against it like what they are required to hold when lending to a small business or an entrepreneur?

    One of the great crimes of the Basel Committee is how they have subsidized government debt behind the back of the citizens. For instance the equity a bank needed to hold when lending to a Sovereign that was rated like Greece was during the last five years, until December 2009, was a paltry 1.6 percent…. and the equity banks need to hold when lending to really fancy sovereigns like US, UK, Germany, France… Spain is zero… which implies an authorized the-sky-is-the-limit-leverage.

    What would happen if sovereigns had to borrow, as they should, in a regulatory level playing field?

    Of course my is a joke… unfortunately it is a joke that makes you choke.

  67. Coyote Bill,

    “The financial crisis was used to cover a subversion of justice, what history may some day regard as essentially the start of a financial coup d’etat, wherein a small group of men, many of whom have their roots and connections with a handful of universities, institutions, and investment banks, essentially seized control of the banking system, and by extension the economy, and co-opted the media and the political process, and have been bending it increasingly to their will ever since.”

    An excellent summation as far as it goes but partial, I’m afraid. The coup d’etat cannot be limited to financial interests. A similar coup d’etat has been engineered by interests in the Middle East foreign policy area and by drug and oil interests as well. Should this core truth be doubted, consider the paper “A Clean Break”: A New Stategy For Securing The Rhelm”, written in the mid-nineties by Perle et al and describing precisely the main outlines our Middle Eastern policy has taken since it was written. Next stop, war with Iran and for whom? For you or your neighbor? Ask your neighbor.

  68. So why do India and China have populations of a billion each? What’s THAT story? :-)

  69. Yes, so long as there is no DRAFT, Americans will not really feel the pain that wars bring. The sense we have is of drones and playstation simulation. We would never have had the war in Iraq or Afghanistan had there been a draft. And do most Americans even know how long these wars have been going on? Do they even care to know? They seem so remote from our consciousness. The MSM has certainly been an excellent rubber stamp for the government. Sad to see how far journalism has degenerated into a form of vile political correctness, manipulation, and propaganda for vested domestic and foreign agendas. Under this scenario, war with Iran is foreseeable. The situation in North Korea is also tense. And let’s not forget that Pakistan is a 5- alarm fire waiting to happen.

  70. “Sad to see how far journalism has degenerated into a form of vile political correctness, manipulation, and propaganda for vested domestic and foreign agendas. Under this scenario, war with Iran is foreseeable.”

    I’d even venure to say inevitable. A Congress that can pass anti-Iranian resolution after anti-Iranian resolution with 95% positive margins is testimony to the kind of slavery it has accepted for itself. Only Joseph Stalin in 1948 Romania could point to comparable support. But, when polled, the American people evince no enthusism whatsoever for such an Israeli-centric Middle East policy. To the contrary, by significant margins, they prefer a more even-handed approach. But because of the ever present ownership of Congress by the Israel Lobby, the opinions of the American people are treated as annoyances. These vermin simply do whatever the hell they want to do through bribes and threats. And we worry about La Cosa Nostra?

  71. A news item today has Fourth of July celebrations on the Gulf coast nixed this year because of the oil spill. The world’s seas are likely contaminated forever by this mind-boggling irresponsibility and the best the media can manage are reports about cancelled fireworks displays. Perfect.

  72. ‘Only 50 years left’ for sea fish

    2006 – BBC

    “There will be virtually nothing left to fish from the seas by the middle of the century if current trends continue, according to a major scientific study.

    Stocks have collapsed in nearly one-third of sea fisheries, and the rate of decline is accelerating.

  73. Want to help me gather up all the “regulatory” people who were set up by the “lobby” to be fired because they were actually regulating?

    Didn’t think so…and not that I blame you. That 19 year old got 4 bullet holes to the head for being on that ship carrying cement to Gaza…symbolic, no?

  74. The first financial policy failure and surely not the last was in not nationalizing the insolvent US banks like Goldman and liquidating them. The second policy error is the failure to engage in serious financial reform, severely curtailing the derivatives market to something more resembling a well regulated insurance industry, and separating it completely from the commercial banking system.

    The current economic landscape seems littered with self serving cronyism, broken theories disconnected from reality, quackery, and obtuse boasting from dismal failures. Economics seems more like astrology, or Elliot Wave theory, or the writings of Nostradamus, with so little rigor that it can be used to ‘prove’ or justify just about any outcome, after it has happened. In short, economics seems these days to be little more than propaganda, social commentary rather than harder science or something as simply practical as mechanical engineering.

    What I am saying is that all the economic schools of thought have come up short, failing badly, the free market neo-liberals most spectacularly of all. Their failure is not in having got it wrong, but in continuing to beat the dead horses of their theories until the stench is unbearable.

    The lack of significant financial reform, and restraint of unbridled speculation through the use of derivatives, is going to strangle the western world until they can bring themselves to restrain their banking system gone mad.

    The U.S. turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.

  75. Hi Annie,

    “Want to help me gather up all the ‘regulatory’ people who were set up by the ‘lobby’ to be fired because they were actually regulating?”

    Not sure whether “regulator” applies in this case but here’s a link to a piece on the recent Charles Freeman resignation that assumes the spirit of what you mean, I believe:

    And this instance, simply of one of the innumerable.

    “That 19 year old got 4 bullet holes to the head for being on that ship carrying cement to Gaza…symbolic, no?”

    Not quite sure how you see this outrage as “symbolic”, Annie, but when the Vice President of the United States can’t manage anything more than, “Israel has right to defend itself”, when an American citizen is murdered on a Turkish ship sailing on a humanitarian mission in international waters, you get a brand new sense of the phrase, dual loyalties.

  76. The first positive move would be to agree that our economies need palliative support. The real problem needs to be acknowledged.

  77. Thanks for the post – speaking for us :-)

    But this comment:

    “The U.S. turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.”

    I don’t understand – with fractional reserve banking, in order to launder TONS of actual CASH under the cover of the fog of war, all the FRB did was print up what they already trickled up right? Sept 2008 vacumn hose logging it into virtual reality accounts while the CASH is on runways in Iraq and Afghanistan…?

    The loss to the “middle class” – jobs, savings, cars, houses, other “stuff” like art, IRAs and other retirement funds, emergency assistance (“social security” – unemployment, hunger assistance), infrastructure neglect (falling bridges, environmental disasters) in “value” is 17 trillion – toxic assets are how much – 667 trillion or one quadrillion?

  78. Mr. Johnson wrote:

    “G20’s Bet on China”

    China Property Market Beginning Collapse That May Hit Banks, Rogoff Says

    July 6 (Bloomberg) — “Kenneth Rogoff, professor at Harvard University and former chief economist at the International Monetary Fund, talks with Bloomberg’s Susan Li about China’s real estate market and economy. Rogoff, speaking in Hong Kong, also discusses the outlook for European banks, the global economy and stimulus policies.

    China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.”

    Beijing Seen Vacant for 50% Commercial as Chanos Predicts Crash

    February 11, 2010 – Bloomberg – excerpts

    “There’s a monumental property bubble and fixed-asset investment bubble that China has underway right now,” Chanos said in a Jan. 25 Bloomberg Television interview. “And deflating that gently will be difficult at best.

    “China is the only place in the world that despite having more empty buildings than the rest of the world has yet to reflect those valuations on their balance sheet,” Rodman said.”

  79. But if you could print your own money, why would you pay 2.9% for it? Let’s ask the “sophisticated” investors.

  80. They act like there are not 1000 better candidates in the USA. Watching careerist psychodramas on C-Span is a favorite past time of nihilists, but the most inane recently being a Supreme Court nominee? That’s really bad.

    She’s a political advocate careerist who WILL get everyone on her hit made-it-up to benefit ME ME ME LIST from the bench. And she’ll probably find for Bernie and other Ponzi schemers a “technicality” get out of jail card.

    Sandra Day O’Conner and Souter left the court – they have high personal standards…

    Very Shakespeare drama opening scene – Ginsburg, Sotomayor, and Kagan – bubble bubble toil and trouble – think they’ll do each other’s hair…? :-)

    I miss O’Conner as an archetype female on the bench…

  81. The Great Depression Was Ended By A Large Public Works Program — World War II.

    Paul Krugman On Stephen Colbert: I’m Lucky I Wasn’t Arrested By The ‘Austerity Police’ (VIDEO)

    07- 6-10 04:40 PM – excerpt

    “Nobel Prize-winning economist and New York Times columnist Paul Krugman visited Stephen Colbert recently to talk about Congress’s recent failure to extend unemployment benefits.

    Addressing the jobs situation, Cobert said: “Last week, evidently, the Labor Department reported that we lost another 125,000 jobs — and I’m pretty sure the guy who created that report was then fired”

    Turning to the GOP-led squashing of the much-needed extension of employment benefits, Colbert singled out one new GOP lawmaker. “Thank you, Scott Brown. When you’re starving that it is the best time to go on a diet. You’re already used to no food.”

    As for our current economic state, Krugman had this to say:

    “There’s not enough demand, businesses aren’t spending enough, right now the only party in a position to sustain demand is the Federal government. The Great Depression was ended by a large public works program — World War II.”

  82. You’ve got to watch Timmy’s grade C movie performance on tonight’s PBS News Hour – Jim tried his best to give Timmy a chance to register recognition of the “human” factor, but to no avail. There’s something seriously wrong with Timmy…

    Since we’re dealing with a deconstructed crazy of nihilists, I suggest a ThunderDome solution. We’ll send in a Charlotte (Sex and the City) archetype – a girly girl who expects men to be noble – into the ring for a mano et mano slap contest with Timmy. If Charlotte wins, the men have to give up running the economy into a black hole and let Brooksley Born and many other ladies take over. If Timmy wins, he can become sole slum lord of his “oh well…” prediction of 1,000,000 foreclosed homes per years over the next couple of years.

    Right on the money, Barbara, when you wrote, in part, “The current economic landscape seems littered with self serving cronyism, broken theories disconnected from reality, quackery, and obtuse boasting from dismal failures. Economics seems more like astrology, or Elliot Wave theory, or the writings of Nostradamus, with so little rigor that it can be used to ‘prove’ or justify just about any outcome, after it has happened. In short, economics seems these days to be little more than propaganda, social commentary rather than harder science or something as simply practical as mechanical engineering.”

    Oh the stench…

  83. I thinks me knows the answer to the question, but me chooses to stay mum.

    But aren’t the religions and cultures of India a wondrous and marvelous thing? Oh my.

    I’m sure some “expert” can tell us it’s because some white dudes tried to take a sectarian or tribal culture and cut it up into cute geographical squares. Or maybe they were force fed Opium by Catholic missionaries. You be the judge.

  84. We’re here to bail out corrupt European bankers. Haven’t Bernanke, Geithner, and Summers taught you anything????

  85. There is no way out, save a real horrorshow revolution in the streets of Amerika which is not likely since the mass majority of Amerikans are somnabulent idiots, or the only other alternative is a great big massive war, – say against Iran, – and ooooh to the tumult that would then ensue, with oil cut offs and spikes, and massive government largess to the oil and energy oligarchs, and horrible costs layed upon the peoples heads and terrifying evildoers, that must be vanquished with ever more unfunded supplementals from the government trough, – but at least – a few people would be put back to work again. Amen, ashes, ashes, all fall down!!!!

  86. In his second last paragraph of this magnificent article, Jesse writes,

    “Knowledge grows by sharing. When you find it, repost and and forward it wherever you can. Little by little, the truth will find a way, but it takes our efforts to set it free. I think that I am running about 12 to 24 months ahead of the curve, so the ideas expressed here will not obtain much credit now. But watch as things unfold. There is more to tell, but revelations have to be made in their due course.”

  87. I can answer that on China, and will leave the rest to our Indian friends.

    I am not sure about 1 billion a piece; it is a bit more than that. But it had always had a lot of people when it is not in wars between the dynasties. China is a typical agriculture society from about 1000BC in the records. The North China plains are especially harsh so you will have to put in a lot of work in the soil to make a decent living. You need to be there to really appreciate what that means. So as long as the society is stable and farmers are still tending to the fields, they needed a lot of help from sons and family to plough the fields. Additionally, agriculture skills need to be passed down from generation to generation and that demanded male heirs too. We all know the abysmal survival rate of a new born then so the strategy obviously became one of giving birth to as many as possible and hoping some would survive to adulthood. With the advent of modern medicine, obviously a lot of these newborns become redundant. Luckily they recognized the problems a lot sooner than otherwise, so despite it is 1.3B plus, it will not go much higher from here. In fact, if any of the arm-chair theoreticians can be believed, then it will start shrinking in the next 15-20 years. With a high and improving literacy rate, people will have a chance of a more prosperous living. The policy certainly is very harsh at times and in places, but it is doing its trick. And what I find more relevant is the education of women, my anecdotes, and many now opt to marry late and to have no children today. In the meantime the males have been busy in money making so naturally the birth is coming down.

  88. Is the technique of writing all questions sufficient to disguise a lack of coherent argument in a comment?

  89. Thank you for sharing the eye-opening insights of a subscription junk mail account executive with a degree in Direct Marketing from MBI.

    See, that’s the problem, we’ve all been listening to people with advanced degrees in economics, when we should’ve been following the advice of a professional spammer.

  90. Re: @ hermanas___Location, location, location! Just follow the middle-east/southeast asia rectangle with a floating double-edge triangle rotating within its very 3D-Geography too various regions of volatility. a classic Stanley (Stan) Laurel and Oliver (Oli)Hardy quote: “this is a nice mess you’ve gotten us into this time”! Oh my – how this web we’ve weaved, yet only too deceive,…no memory in hell is our key to salvation on this wretched (Hillary & Co.) liar’s heart felt remorse beyond redemption.

  91. How about China getting in on the action in Afghanistan? Pull an Ocean’s 11 heist – get some CASH off the runways for themselves instead of letting it be “laundered” and sent to the “lobby”?

    Not a single country in the whole world – THE WHOLE WORLD – except for the USA – is still “friends” with the “lobby”.

    Their entire existence – cultural, economical, philosophical – is organized around the creation of HIT LISTS and killing off the people on their HIT LIST. Please, prove me wrong.

  92. “.. the ever present ownership of Congress by the Israel Lobby…”

    You spew this unsubstantiated gar-a-bage day and night.

    How about naming names?

    Prove your hatred has a legitimate basis. (Ahhh..sure, you can’t, because it is absolutely bogus.

  93. I’m sure the “Israel Lobby” is responsible for GOM spill. Right, Kliment?


  94. I’m a bleeding heart for those poor Palestinians who are still victims 60 years later – with not one, NOT ONE, Arab nation lifting a finger to help them in any substantial way.

    How about we return the U.S. to the Native Americans? How about if we actually just yield the Native Americans 1/2 the country.

    Give it up, kliment, my brother.

  95. Hey, kliment, my brother –

    How come you are not up in arms fighting for Israe1is and their “people” to be able to return to Russia, Iran, Germany, Poland, France, Spain, Egypt etc.?

    Of course, most originally came from Judea…

  96. Thanks, Huyu.

    10,000 BC ago there were other agricultural civilizations, also. The rest were war lords :-)

    Agreed about having enough hands to work the family farm but then some agriculturalists got creative and invented labor saving mechanisms for both classes of beasts of burden – human and animal. Of course, a lot of the labor saving mechanisms grew out of war “machines”.

    So it could be that it’s not just farm labor, but also beating plows into swords and then back to plows, and belief in an afterlife that was the fork in the road that other agricultural states took.

    China remains mostly an ancestor worship culture.

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