Commentary on Political Economy

Tuesday 3 August 2021

ONE MORE DAY IN THE LIFE... of a Franciscan Monk

 Joe Aston at AFR:

“Over the past decade, Sydney Airport has paid its shareholders dividends of $5.7 billion. But it has now been eclipsed in “value” by Afterpay, which has never made a profit, has never paid a dividend and has less than $1 billion in net assets

It is being acquired for an implied $39 billion by Square, which last quarter generated 70 per cent of its revenue from bitcoin. Afterpay shareholders will receive Square shares, currently priced at 120 times forward earnings. Welcome to 2021!

Square made 70 per cent of its revenue last quarter… from Bitcoin… ah well, Mr. Powell and his cohorts will see to it that the party rolls on… until the punch bowl turns into a… POWDER KEG!

It's just as bad or worse in the West!

China’s young ‘lie flat’ instead of accepting stre

Crackdown on after school tutoring reflects Xi’s effort to alleviate pressure on family lif

For tens of millions of middle-class people in China’s large cities, life has become a hamster wheel of increasing effort and diminishing rewar

For tens of millions of middle-class people in China’s large cities, life has become a hamster wheel of increasing effort and diminishing reward © Kevin Frayer/Gett


August 2, 2021 11:36 am by James Kyng

China’s social contract is fraying, and a song deleted from the country’s internet captures the problem vividly. “Lying flat is good, Lying flat is wonderful, Lying flat is right, Lie down so you don’t fall,” Zhang Xinmin sings in Chinese as he lies on a sofa strumming a guitar

“Lying flat”, a trend among young Chinese to opt out of stressful jobs, represents the antithesis of a development model that has delivered extraordinary growth over four decades by enlisting the maximum effort from its peopl

Beijing is more than a little perturbed. “In this turbulent era, there is no such thing as lying flat and waiting for prosperity,” said Wu Qian, an official spokesman, this week. “There is only the splendour of struggle and endeavour. Young people, come on

Such concerns lie behind several initiatives to galvanise people and encourage families to have more children. Crucial among these moves was the decision last week to crack down on after-school tutoring, a $100bn business that heaps stress upon school children while taxing the finances of their paren

New rules issued by the State Council, or cabinet, ban for-profit tutoring in core school subjects. The news hit like a thunderbolt, driving down the share prices of US-listed industry leaders TAL Education, New Oriental and Gaotu Teched

The antipathy of Xi Jinping, China’s leader, toward after-school tutoring had been telegraphed. In March, he criticised a “mess” in the sector and called it a “chronic disease that is very difficult to cure”. But the fact that Beijing has been willing to administer what could be a mortal blow to an industry that employs hundreds of thousands of staff reveals how seriously it takes the proble

For tens of millions of middle-class people in China’s large cities, life has become a hamster wheel of increasing effort and diminishing reward. A welter of costs for housing, education, healthcare and other expenses are rising faster than average salaries, giving many people the sensation of running to stand stil

“The latest measures to bring down after-class tutorial companies are in line with the shift of focus to the Chinese population’s quality of life,” says Yu Jie, senior research fellow at Chatham House, a London-based think-tan

According to figures from the Chinese Society of Education, the average annual cost of tutoring for a student is more than Rmb12,000 ($1,860), more than an average month’s salary in a country with a 2019 per capita gross domestic product of $10,216. Some families, however, spend as much as Rmb300,000 a year for tutoring in well-known schools by famous teacher

Such a burden is often exacerbated by the need to pay for childminders while both parents work long hours in office jobs and contend with snarled rush-hour traffic. Parents who elect to live in the catchment area of sought-after schools in cities such as Shanghai pay extortionate amounts for the privileg

“We paid over three million renminbi ($465,116) for our place,” says Yang Liu, a mother in Shanghai who leaves home for work at 6.30am and does not return until shortly before her six-year-old daughter goes to bed at 9p

Even though kindergartens are officially discouraged from setting after-school work, her daughter gets homework for every day of the week. She must learn Chinese characters, English words, memorise poems, practise reading and play the violi

The stress that such lifestyles display to unmarried young people has an impact beyond inducing some of them to “lie flat”. Statistics show that couples are getting married later and the birth rate is falling precipitously. In 2020, only 12m babies were born, down from 14.65m a year earlie

With the number of women of childbearing age (22-35) due to fall by more than 30 per cent over the next decade, some experts are predicting the number of babies born could drop to below 10m a year and China’s fertility rate could become the lowest in the worl

The realities of daily life for China’s middle class presents a different image from that offered by the inexorable rise of headline GDP figures. The cost of living in big cities has risen sharply, shrinking people’s disposable income

Alicia García Herrero, chief economist for Asia Pacific at Natixis, an investment bank, puts it succinctly: “The bulk of China’s population is doing worse in net terms as housing affordability continues to worsen and access to education and health becomes more and more costly

South Korea looks to fintech as household debt balloons to $1.6tn

Digital lenders set to fill gap as banks pull back in heavily indebted natio

Myeongdong shopping district, Seou

South Korea’s household debt has worsened during the pandemic, with increases in borrowing for mortgages to cover stagnating wages © Reuter


August 3, 2021 1:02 am by Song Jung-a in Seou

After her family business of ferrying drunk people home was hit by closures of bars due to Covid-19 curfews and social distancing, Lee Young-mi* found herself juggling personal debts of about Won30m ($26,000)

The 56-year-old resident of Suncheon in South Korea was already struggling to pay off or refinance four credit cards, but now faces the prospect of those debts rapidly multiplying after her husband was diagnosed with cance

“We’ve had little income for more than a year as not many people are out drinking until late into the night,” said Lee. “Now my husband won’t be able to work at all for the next three months after his surgery

Lee’s story is playing out across Asia’s fourth-largest economy as self-employed workers, who make up nearly a third of the labour force, have seen their incomes reduced sharply due to coronavirus restrictions. Now, after struggling for years to keep a lid on household debts that hit a record Won1,765tn ($1.6tn) in March, Seoul is looking to fintech companies and peer-to-peer lenders for answer

Chart showing increase in South Korea's household de

Among them is PeopleFund, which touts tech-based investment products backed by machine learning that allow borrowers to refinance their higher-interest loans from banks and credit card companies

The company has loaned at least $1bn to more than 7,500 customers since it was established in 2015. Its products allow borrowers to switch their debts to fixed-rate, amortised loans at annual interest rates of about 11 per cent, a change from the riskier floating rate, interest-only loans common in South Korea

PeopleFund has received about Won96.7bn in financing from brokerage CLSA, and along with Lendit and 8Percent is one of the first among the country’s 250 shadow banks to win a peer-to-peer lending licence

“The country’s most serious household debt problem is with unsecured non-bank loans, whose pricing has been too high. We can offer more affordable loans to ordinary people unable to receive bank loans,” Joey Kim, chief executive of PeopleFund, told the Financial Time

The proliferation of digital lenders and fintechs in South Korea, where higher-risk borrowers are often cut off from bank financing, has been encouraged by the country’s governmen

“We hope that P2P lenders will help resolve the dichotomy in the credit market by increasing the access of low-income people to mid-interest loans,” said an official at the Financial Supervisory Servic

South Korea’s household debt situation has become more pressing since the onset of the pandemic, with increases in borrowing for mortgages, to cover stagnating wages and to invest in the booming stock market. South Korean households are among the world’s most heavily indebted, with the average debt equal to 171.5 per cent of annual incom

South Korea’s household debt-to-GDP ratio stood at 103.8 per cent at the end of last year, compared with an average 62.1 per cent of 43 countries surveyed by the Bank for International Settlement

Much of the new debt has been risky. Unsecured household loans from non-bank financial institutions were Won116.9tn as of March, up 33 per cent from four years ago, according to the Bank of Korea, much of it high interest loans taken out by poorer borrower

Getting on top of the problem has taken on national importance. In a rare warning in June, the central bank said the combination of high asset prices and excessive borrowing risked triggering a sell-off in markets and a rapid debt deleveragin

“If financial imbalances increase further, this could dent our mid-to-long-term economic growth prospects,” BoK governor Lee Ju-yeol said in Jul

The country’s economic planners, however, are struggling to contain debt-fuelled asset bubbles without undermining South Korea’s fragile economic recover


The Mexico-based fintech that decided to buy a ban

The government has attempted to address the danger by tightening lending rules. Regulators in July lowered the country’s maximum legal interest rate that private lenders can charge their customers from 24 to 20 per cent

Economists caution that rising debt levels increase South Korea’s vulnerability to an economic shock

They also warn that the asset quality of financial institutions could be hit by a jump in distressed loans when the BoK rolls back monetary easing, expected in the fourth quarte

“Monetary tightening is needed to curb asset bubbles but this will increase the household debt burden, holding back consumption further,” said Park Chong-hoon, head of research at Standard Chartered in Seoul. “The government is facing a dilemma

For Lee Young-mi, however, the 11 per cent rate offered by the PeopleFund is still too high. “I am not sure how to pay back the debt

*The name has been changed.

None other than MICHAEL PETTIS! HAHA... Great minds think alike... Of course, he would have none of my extreme hatred of Chinese... But the threat these people pose is all too real... You were born only 8 years after the Nazi and world nightmare ended... 14 years for me... We played amongst the debris of bombed houses... When you reach 60, 8 or 14 years are the batting of an eyelid... To fight your deadly enemies, you have to hate them... No shilly-shallyng, pussyfooting, dilly-dallying... et cetera...

Here is the story:

Why it might be good for China if foreign investors are wary

Regulators should be more worried by too much buying of its stocks and bonds than by too littl

A Chinese flag and a renminbi not

Beijing has in recent years opened up its financial markets to unfettered foreign inflows, mainly to gain international prestige and to promote global use of the renminbi © REUTER


August 2, 2021 11:01 pm by Michael Petti

The writer is a finance professor at Peking University and a senior fellow at the Carnegie-Tsinghua Center for Global Polic

The chaos in Chinese stock markets last week was exacerbated by foreign investors selling Chinese shares, leaving Beijing’s regulators scrambling to regain their confidence while they tried to stabilise domestic markets. But if foreign funds become more cautious about investing in Chinese stocks, this may in fact be a good thing for Chin

In the past two years, inflows into China have soared by more than $30bn a month. This is partly because of a $10bn-a-month increase in the country’s monthly trade surplus and a $20bn-a-month rise in financial inflows. The trend is expected to continue. Although Beijing has an excess of domestic savings, it has opened up its financial markets in recent years to unfettered foreign inflows. This is mainly to gain international prestige for those markets and to promote global use of the renminb

But there is a price for this prestige. As long as it refuses to reimpose capital controls — something that would undermine many years of gradual opening up — Beijing can only adjust to these inflows in three ways. Each brings its own cost that is magnified as foreign inflows increa

One way is to allow rising foreign demand for the renminbi to push up its value. The problem, of course, is that this would undermine China’s export sector and would encourage further inflows, which would in turn push China’s huge trade surplus into deficit. If this happened, China would have to reduce the total amount of stuff it produces (and so reduce gross domestic product growth

The second way is for China to intervene to stabilise the renminbi’s value. During the past four years China’s currency intervention has occurred not directly through the People’s Bank of China but indirectly through the state banks. They have accumulated more than $1tn of net foreign assets, mostly in the past two year

Huge currency intervention, however, is incompatible with domestic monetary control because China must create the renminbi with which it purchases foreign currency. The consequence, as the PBoC has already warned several times this year, would be a too-rapid expansion of domestic credit and the worsening of domestic asset bubbles

Many readers will recognise that these are simply versions of the central bank trilemma: if China wants open capital markets, it must give up control either of the currency or of the domestic money supply. There is, however, a third way Beijing can react to these inflows, and that is by encouraging Chinese to invest more abroad, so that net inflows are reduced by higher outflow

And this is exactly what the regulators have been trying to do. Since October of last year they have implemented a series of policies to encourage Chinese to invest more abroad, not just institutional investors and businesses but also household

But even if these policies were successful (and so far they haven’t been), this would bring its own set of risks. In this case, foreign institutional investors bringing hot money into liquid Chinese securities are balanced by various Chinese entities investing abroad in a variety of assets for a range of purpose

This would leave China with a classic developing-country problem: a mismatched international balance sheet. This raises the risk that foreign investors in China could suddenly exit at a time when Chinese investors are unwilling — or unable — to repatriate their foreign investments quickly enough. We’ve seen this many times before: a rickety financial system held together by the moral hazard of state support is forced to adjust to a surge in hot-money inflows, but cannot adjust quickly enough when these turn into outflow

As long as Beijing wants to maintain open capital markets, it can only respond to inflows with some combination of the three: a disruptive appreciation in the currency, a too-rapid rise in domestic money and credit, or a risky international balance sheet. There are no other option

That is why the current stock market turmoil may be a blessing in disguise. To the extent that it makes foreign investors more cautious about rushing into Chinese securities, it will reduce foreign hot-money inflows and so relieve pressure on the financial authorities to choose among these three bad option

Until it substantially cleans up and transforms its financial system, in other words, China’s regulators should be more worried by too much foreign buying of its stocks and bonds than by too little.

By the way, another personal connection: Pettis speaks of a "central bank trilemma". This was in fact first identified and called "the impossible Trinity" by ... Tommaso Padoa-Schioppa, the Italian central banker and later Prime Minister! whom I went to see in Brussels... He died suddenly, too young, 60s, in Rome...

Essentially, Pettis is saying is that China will remain a third world country at the whim of foreign capital "hot money flows" and "sudden stops" because capitalists will NEVER invest in China... except for short-term gain!... Parking money, arbitraging... et caetera...

Qantas has stood down a further 2500 workers... This is the same entity that was supposed to be in full swing... by October! Clearly, everyone is living up in the clouds!

And why wouldn't you... I calculate that this utterly mad, politically and socially suicidal conduct by "our so-called leaders" has made me in the region of... one million dollars in a year! And I have not even raised a finger... except for finger carpal tunnel syndrome from pounding keyboards!... Jesus!... How is that ... "sustainable"??

I think in the end we may have to judge political systems by a very simple econometric measure… the Gini coefficient! A society with a coefficient of 1 - perfectly even wealth distribution - is ideal. A society with a coefficient close to zero is a non-state, a kakotopia in Greek (the opposite of utopia)…

Jennifer Hewett at the AFR illustrates the inefficacy of our absentee or fire-brigade State... a State that "fa finta di niente" until it is called to put out a huge conflagration.. by which time it is much too late. As Jeff Buckley put it, a talented rock artist Morgan introduced to me,... "You are useless, like cops at the scene of a crime"... the crime has already occurred!

The same with buy now, pay ... never and other "FinTech" schemes that have absolutely nothing to do with technology but mere  accumulation of stolen data

These new robber barons are in all but name banks...they lend money because they have to cover payments. But what happens in a financial crisis is that payments cease to be made because the FinTech bastards are not obliged to hold sufficient capital to halt a crisis from spreading. The regulation of banks in this regard is absolutely vital to financial stability... Yet these new robber barons are not subject to it! And in the meantime they facilitate the accumulation of irresponsible and unsustainable debt

Now, Hewett seems to perceive the problem. But all she does is simply SURRENDER to it on the grounds that... AUSTRALIA IS NOT CHINA! Well, God Almighty help us then! Here is the incriminating passage

"This is not unique to Australia, of course. European regulators are also in a permanent struggle against the power of US tech giants

No Western country has China’s ability to simply assert the Communist Party’s tight control of its own tech giants like Tencent’s WeChat app and Alibaba’s Alipay that now dominate payments in China".

The crushingly brutal reality is that all these non-banking nonfinancial nonregulated FinTech sons of bitches will lead our society to ruin...All under the helpless conniving gaze of our "financial authorities" which have neither initiative nor indeed authority.

It is symptomatic that Hewett bemoans the utterly disgusting inaction of our State... AND YET FAILS EVEN TO MENTION THE CLEAR AND PRESENT DANGER posed by these abhorrent, criminal "financial technologies". She only points, as did Chanticleer at the AFR yesterday, to "THE CLEAR AND PRESENT CHALLENGE" that these criminals pose to the existing financial institutions... Not a DANGER but a CHALLENGE! As if this were all...a round of golf! Una partitella tra amici!

Here is the article:


No comments:

Post a Comment