Canada: Do You Need the Chinese Market?

China is a big producer, but their people are not big buyers. China is an exporting nation. The Chinese produce for other nations, primarily the USA. China is basically its prosperous, exporting coastal regions and the poverty struck interior where the standard of living for the billion plus people that live there is about the same as it is in Ghana. These people are not a significant market for Chinese production. 

If China was to repatriate its investments in the USA, it might collapse the American economy….in fact, it probably would….but, it would implode China.  China depends on America! If America sneezes, China will catch pneumonia. 

Canada has traditionally tied its economy to the USA. That is the way the natural transportation routes go. It is much easier to ship to the USA than to elsewhere. The notion that some Canadian politicians espouse that we should be less reliant on American markets and export to China is myopic. Yeah, if the USA falters, Canada stumbles, but China even more so. Trading with China is another way of being reliant on the USA. My sense of the situation is that Canada should position itself as an adjunct to the USA economy, but should do it competitively with an emphasis on technological development and marketing sophistication. Canada, be part of the American economy, but be the most outstandingly profitable part of it.  

Cultures in Collision

It seems to me that there is a lot going on with residents of the Far East that could have a pretty big impact on the rest of us. There are some very big balance sheets in corporate China. Companies loan huge amounts of money to each other and thereby create large assets and liabilities. The overall impact is to create the appearance of mega financial assets and a large economy. Seems reasonable that 1.5 billion people all working and consuming would compose a big economy, doesn’t it?  It might be, except that China consists of about 400 million producers carrying 1.1 billion impoverished people on their backs.

https://www.bloomberg.com/news/articles/2017-11-04/china-s-zhou-warns-on-mounting-financial-risk-in-rare-commentary reports on the debt situation. There you may find the headline “China’s Central Bank Chief Warns of ‘Sudden, Contagious and Hazardous’ Financial Risks” followed an article about Dandong Port Group Co., a large company that just defaulted on its debt. Dandong is China’s biggest city along the North Korean border. This may be one in a cascading series of defaults.

And that brings up another Far East problem. It seems that North Korea has a mountain inside of which it conducts nuclear tests. Mount Mantap. They test missiles over Japan out into the Pacific and explode bombs inside the mountain, hoping to one day marry the bomb technology with the missile technology. Too bad they aren’t doing that work in Canada…it would make a decent sized SRED claim if it was being done by a for-profit company. Anyway, Japan and China have warned North Korea that their seismic readings indicate that Mount Mantap, now hollowed out by the testing, may be about to collapse. This is a big problem for China because the prevailing winds would likely pick up nuclear fallout presently trapped inside the mountain and take it to Chinese cities. No problem for North Korea though. First off, a few thousand deaths don’t matter, and second there is always the atmosphere in which to test hydrogen bombs.

In the meantime, the USA has three aircraft carriers with associated battle groups in the vicinity of North Korea (see http://www.popularmechanics.com/military/navy-ships/news/a28780/aircraft-carrier-strike-groups-north-korea/). This is significant because it is fairly normal for up to 8 of the 11 nuclear powered aircraft carriers to be docked at home at any one time for maintenance or for training or just sitting around waiting for a reason to leave. So there are often only 3 or 4 out on the open seas. Well, three are tending to the North Korea problem.

I think America now realizes that it is not safe to count on Korean Kim to behave like a rational person. Who knows what he will do next? He has no opposition at home. That’s way too dangerous. If you are in Korea and try to talk sense into him, you can easily by lined up before a firing squad…..equipped with anti-aircraft guns. Undoubtedly, Chinese leaders have tried to induce some sane behavior there, but it does not seem to have worked. 

BTC Caution

This month has seen huge swings in the Bitcoin price. Up to $5000 per BTC, then down to $3000 and now up to $4000.  The dip probably had to do with the revelation of North Korea hacking South Korean bitcoin sites and stealing the coins to buy military goods.

Bitcoin is not an investment. It performs the role of money and the price is the exchange rate against the dollar. That rate has shot up in the past several months. Either the value of BTC is inflated or the dollar has collapsed. The dollar is holding well against other money (Euro, Yen, Gold, etc.), so it isn’t a matter of a collapsing dollar. BTC prices seem to have a lot of air in them.

Yes, I get that it is a matter of psychology. Prices are a function of people’s greed and fear --- the hope of rising prices versus the fear of falling prices --- and maybe I am just one of the fearful. Yet, as governments seek to control the cryptocurrency trade, I think more people will become afraid. And you know what will really stoke the fear?  A big power outage.  Try accessing your bitcoins when you have no electricity.