Commentary on Political Economy

Monday 18 October 2021



You know you’ve got a problem when you find yourself buried deep in the pipeline of Japanese producer price inflation.

And, even worse, you’re enjoying yourself!

All of which reminds me of a very amusing conversation that I had recently about dating sites.

You know that whole thing about swiping right and swiping left, well, I asked which one was which?

Was swiping left a no, and swiping right a yes, and how the whole thing works?

Anyway, the conversation quickly degenerated and my friends started building a dating site profile for me.

I was asked what ‘interests’ I would put on my profile page.

That was easy!

Inflation, I said.

They all thought this was hilarious.

I didn’t.

We brainstormed for a bit and it was going nowhere fast.

They kept coming back with silly suggestions like ‘romantic candlelit dinners’.

Incidentally there were women and men involved in this conspiracy, including family!

I finally came up with what I think is a most ingenious compromise.

I would simply put up a picture with the caption “Happy to discuss over dinner, with or without candles, and after watching Inflation At First Sight.”

This was the picture.

I hope you agree that is a stunning picture which featured in an FT article by Gideon Rachman: ‘The moment of truth over Taiwan is getting closer.’

As you will know I have gone very quiet on all-things Taiwan over the past few months.

I kind of got it out of my system, which is what I do, and turned my attention to my fixation on inflation.

I’m actually getting that out of my system now as well, because everyone seems to have developed a similar fascination.

Lets be frank there’s only so many times you can talk about cold rolled steel and strip metals.

Ok, if you insist, here it is.

I’ve also tamed my insatiable curiosity for all-things Evergrande…seriously.

It’s a busted flush. It’s over. Its toast.

I’ve also made up my mind that we are witnessing a profound regime shift in China, that will lead to a significant slowing in economic growth.

If the facts change I will change my mind, however, I really, really don’t think Xi Jinping will change his mind, and more worrying is that it seems there is no one that can change his mind.

Evergrande may well be a controlled demolition with distinctly Chinese characteristics, but it’s still a demolition.

China may well have the greatest capacity of any nation on earth, and the greatest array of levers to pull, to manage the deflation of the greatest bubble ever seen in history, but deflate it will.

You can call it “The Great Property Reset’ or whatever you wish, but reset it will.

Some months ago I sent you this paper, and perhaps its time to read it again.

If you didn’t read it the first time, I think its time that you did.

I first started taking a keen interest in China in the early nineties and have been a fascinated student of its remarkable journey ever since.

Many of you will hopefully recall my unbridled optimism for the economic growth potential of the world’s most populous nation in, and around, 2003.

Some of you, who I worked with, will be able to quote verbatim some of my favourite phrases from that time.

Time and time again, over decades, I would disagree with those who repeatedly called for the imminent collapse of the Chinese economy.

Today, and to make myself absolutely clear, I am not calling for an economic collapse.

However, I am saying that, today, China faces its sternest test since I first started my fascination with all-things China.

I will also say, with much trepidation, that I fear for the political stability of China.

My reading of the Chinese political tea leaves is that opposition to Xi Jinping is growing, and will continue to grow.

Xi continues to marginalise and silence the reformist voices in the party and his accumulation of power is reminiscent of previous dark chapters in Chinese history.

History also tells us that autocrats too often look for a foreign distraction when faced with a domestic crisis.

I think China faces both a property crisis and an energy crisis, which will call into question the credibility and competency of the Chinese Communist Party and its leadership.

The Party’s legitimacy is at stake, with all eyes on the President.

There is, as we all know too well, one issue which unifies the whole nation and that is the country beneath the dragon’s claw, enveloped by the restraining American eagle’s claw. ​

Need I say more?

In recent weeks many have spoken about the prospect of a winter of discontent in Europe as they face an energy crisis.

Perhaps, we should be looking east?

Anyway, that’s enough of contentious and controversial predictions, accompanied by vivid, vibrant and provocative dating site pictures.

This week we saw the release of U.S CPI and PPI data.

Surprisingly I haven’t got much to say about them.

Although, I have to confess that I do enjoy immersing myself in the pipeline of inflation.

These numbers are still startling.

Can you read the fine print?

Processed goods for intermediate demand.

Unprocessed goods for intermediate demand.

Yup, these are the increases in prices coming down the U.S inflation pipeline.

Yup, history clearly tells us that such surges are transitory because something very bad usually happens, and rather quickly.

In fact you really don’t want to spend too much time looking at the history of ‘Processed goods inflation’ (the first chart) because if you do you’ll need another tequila.

All the very best,



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