China's Fiscal Policy and Government Balance Sheet

The IMF publishes a lot of research. Obviously on a global Bitcoin or gold standard, all this central banking scam doublespeak would become meaningless, and the economy would just be a simple tally of earning and spending. Resultantly, we wouldn't need all these resources allocated to generating central banking fiat scam doublespeak in the form of "official research", and thus those economic resources would be allocated to genuinely productive things.

ANYWAYS. I came across an IMF research paper on the fiscal policy and government balance sheet of China over the last few decades. It's quite interesting, and this blog post contains my thoughts on it.

First thoughts

The first thing that comes to mind? China has a lot of debt, not unlike any other nation. Obviously the US has a lot of debt too, but China doesn't enjoy the same advantages such as possessing (former) world reserve currency status. Also, China seems to have split up its debt into various subtrees of vehicles, going by the various names of SOEs, subgovernments/subnations, state owned banks, various private financing vehicles which seem too big to fail, and so on. It also creates equity for all these entities and puts it on various balance sheets as "assets" when really this is just another form of debt accounting doublespeak. The result of all this is that China may be much more leveraged than meets the eye. It's possible that this is all okay because China can produce things very cheaply and efficiently, and the Chinese people and investors have a lot of savings and capital that can be leaned on to backstop this bad debt (by moving it off the government balance sheet, as described in the paper) in case it goes bust, as well as finance it through inflation tax. Unlike the US, which can lean on capital and economies from all over the world to support its debt binge, China can (relatively) only rely on within. The author does mention how China opened up its economy to outside investment at some point in the last few decades, but I'm sure it's nowhere near as open as the US.

The author doesn't baby China. Tough love. I would love to read a report on the US written with the same tough standard. It would probably be much, much worse.

The author marvels at China's relative outperformance in chapter 6. I think this is a testament to the hardworking nature and culture of the Chinese, as well as the extreme investment in education beginning at a young age.

Central banking and debt based economies = SOCIALISM

Debt, in the context of central banking, is a form of public financing. When this debt becomes too big to fail, or is serviced by even more debt, the debt crosses the line from public financing to public funding. The nature of fiat currency and central banking based economies today is that the ENTIRE economy is in debt. Obviously, since the entire economy is too big to fail, the creation of even more debt to service the existing debt is guaranteed, which makes the entire economy publicly funded. Such economies are called SOCIALIST economies.

The US SOCIALIST economy is going to collapse under, among many things, the weight of its own cancerous parasitical inefficient government and rent-seeking, inefficient economy.

Debt's relationship to growth

However, I want to look at things in a more myopic, isolated, and practical way.

So long as the rate of real productivity growth is greater than the rate of debt creation, things can be alright. The average person can experience an increase in purchasing power despite paying massive inflation tax and handing over the majority of their productivity gains to the government.

I suppose the more difficult question comes when:

For the last few decades, it seems that we were generally in scenario A above, at least from an American perspective. While debt was being created at a massive rate, there were other forces, such as technology improvements and globalization, that offset the debt creation, which allowed the average American to maintain a respectable standard of living. That being said, imagine how much more prosperous we would all be if productivity gains were captured by everybody, not sucked up by the government.

In the case of China, up until recent decades, productivity was almost certainly increasing faster than the rate of debt creation. Now, China's growth has slowed down.

Scenario B (declining productivity) becomes a significant problem because this would be happening amidst a backdrop of constant debt creation necessary in a central banking debt-based economy. When real productivity growth is negative while debt is growing, it becomes a losing proposition to hold debt in all its forms. Debt dump incoming?

Inputs and outputs of production

The four inputs to production are:

The outputs of production are:

Notice how you can't create capital through production. All of Wall Street is like a ginormous cancer on society. But muh "providing liquidity"!

The relationship between consumption and production

DISCLAIMER: In "brainstorming" mode at this point. "Official" definitions for these "official" terms might be different.

Production is when the output is worth more than the input.

Consumption is when the output is worth less than the input.

Inefficient production is when the output is relatively not much greater than the input.

As production becomes less and less efficient, it eventually crosses the zero bound and becomes consumption.

The most extreme form of consumption is when you simply destroy or use resources without creating anything, typically for the purpose of an "experience". For example, fireworks, drugs, or concerts. But it's not the only form of consumption. Using economic goods to create things such as paintings, violins, or chandeliers, for example, is consumption as well. Such "goods" have a non-zero price, yet they have little actual value in terms of being able to feed people, grow food, or be used as input in more production. The price that these goods command is due to the existence of demand for unnecessary, frivolous consumption. Even a good such as a Ferrari or an incredibly fancy house is consumption because while the output can be sold for more than the inputs, such goods don't actually fulfill a utility that can't be fulfilled by a much cheaper version - say, a Toyota, or a non-fancy house. Such things are a form of consumption.

As we can see, prices can't be used as the sole indicator of "worth" because prices are reflexive, and a reflection of the distorted views of participants, rather than economic reality. Price signals are completely distorted.

However, while this may be a useful economic thought experiment, it may be a bit unrealistic. Any wealthy and advanced society will have demand for "frivolous" consumption. An efficient economy or rational market participant will also only produce something if the outputs can be sold for more than the inputs. However prices do reflect the values of society, and so if people were to not value frivolous consumption, this would be stripped from the prices of frivolous consumption goods and services and society would produce less of those goods and services.

Stupid market participants that produce outputs that are worth less than their inputs will run out of money. More often, it's governments that do this. Governments, especially central banking based governments, can do this on a longer timeframe because they have more resources they can burn down. But eventually, on even longer timeframes, such governments will cease to exist and be outcompeted by more efficient governments.

Do governments consume or produce?

This is a very complex question, and obviously has to be taken on a case by case basis. It's also somewhat reflexive.

In general, governments, at least today, and viewed with an American bias:

America specifically also sows chaos and loots resources from the rest of the world, preventing the rest of the world from being productive so it can maintain its economic colonialist hegemony.

That being said, governments do produce, or are supposed to produce:

These things can't be eaten or directly consumed, but they can be used as inputs in production and enable potentially extremely large amounts of greater productivity. Thus governments can actually be quite productive, at least from an isolated point of view.

In general, so long as governments produce a net higher return on capital than if:

It's a win. Specifically, the formula is: Public Investment Return > Private Investment Return + Opportunity Cost of Government Being Unproductive

As I've said, you can't look myopically when you look at the ROI of some specific investment - there are tremendous butterfly effects. Specifically, I'm thinking about borders and infrastructure here.

Essentially, the government can act as a brain and infrastructure for the rest of the country. There's a reason humans are so dominant even though there are other animals that produce greater amounts of energy - humans have a control center which consumes a lot of resources but also allows for more intelligent navigation and decision-making.

Finally, the inputs to production of goods such as national sovereignty and borders are reflexive, because they depend on external factors. When you have a hegemonic central-bank enabled regime such as the US Empire, you'll need a LOT more resources divested into national security in order to maintain sovereignty and borders. Conversely, if you didn't have hostile hegemonic enemies, you wouldn't have to invest as many resources into producing national security.

What this world really needs is an informed, sovereign, and moral people. This will create peace, prevent evil people from being able to amass power in the form of massive hegemonic war machines, and bring prosperity to the common man and the world.

Conclusion

This was more of an abstract thought process rather than a post-mortem on the Chinese research paper, although the musings I've laid out here are quite interesting and dare I say omniscient. I honestly haven't got that much to say on the research paper itself; central banking is a scam that, given finite productivity gains, ultimately siphons away all the wealth and buying power from the people and puts it in the hands of government. At best, the government can spend or save the money for the good of its people. At worst, the government will waste and loot the people, enriching corrupt politicians, destroying the country, and impoverishing the people. This is what we're seeing in the West today.

Central banking has become a necessary evil in order to consolidate enough power for the multipolar world to ensure sovereignty and stand up to the Western globalist hegemony which seeks to dominate the entire world. I hope that eventually the world can return to sound money, stamp its necessity into every book, law, and placard, and bring peace and prosperity to the world.