The Economy

The amount of debt that has created the mirage of growth in China is enormous. It's not just a China story. This has broadly been the story of the whole world -- first leading into the financial crisis and the debt bomb stupid central bankers created, and then their doubling down in the aftermath to prop it up. ... which has required debt levels that are much, much bigger now, with debt markets around the world having been hijacked to keep yields negative in real terms to keep the whole thing going.

China matters because the debt levels are that huge. ... and the regime there may be more determined to take reflexive short-term actions that may make things even worse, in order to create the appearance of stability. Evergrande itself isn't the whole problem, even though the amount of debt it represents SHOULD make people's eyes bulge. It's just the tip of iceberg. Whether the debt bomb explodes tomorrow with Evergrande as the catalyst, or it explodes later because something else causes them to lose control, it's going to happen. As has been the case for the last decade and a half, the longer this goes on, the more distortion it is going to require, which means the payback later on just gets worse and worse with each day they hold off the eventual payback for the stupidity of the past. We have created mountains of debt, and the only way to now keep massive defaults from happening is by distorting markets to allow all of that debt to rollover by the creation of even MORE debt. And this has been going on for a very long time now, unfortunately.

Robert Kiyosaki is a huckster, and there are a lot of hucksters out there selling the same story. They are not wrong about the STORY largely. What they are wrong about is their ability to tell you when the end of the insanity comes. Ignore the Kiyosakis of the world and listen to people who aren't selling you crap. Someone like Kyle Bass who has been all over China for years. The amount of leverage in China right now is at least 3 times higher than it was in the U.S. when the housing crisis created a financial crisis. This kind of thing has played out throughout history -- it is ALWAYS a leverage story that creates financial crises. And it is always a monetary story; in more recent times ,things central banks did over periods of years that most people weren't atuned to to create growth fantasies coming back to create devastation; payback for the mirage of growth they pulled forward. Focusing just on China right now would miss the point. The whole world has gone bonkers. In the U.S. we are running up trillions of dollars of public and private debt -- right now they are debating multi trillion dollar spending bills -- that would never be a possibility without a central bank having completely hijacked our debt markets to make money cheaper than free. We are just creating money out of thin air and borrowing against it to create leverage. ... and spending. There is so much malinvestment because of the idiocy and it is all going to end up with a lot perceived wealth evaporating at some point.

It's just absurd to think that isn't going to end up badly in all of the places that have gone down that path, and unfortunately, it is a worldwide thing. The only question -- and Robert Kiyosaki doesn't have the answer -- is what schemes will they come up with to prop it up and how long can they do it before they lose control of it. In China, they can resort to capital controls (i.e. -- trying to foist off the losses on foreign investors to hold off collapse), forced government interventions and monetary shenanigans way more easily than we or the EU will (even though I am astounded by the powers hte Fed and ECB have taken over the last decade and a half without any pushback), because it's a dictatorship. But broadly? China's growth year after year for a VERY long time was huge. It was largely a fantasy -- they were just pumping money fresh off a printing press in and creating housing and airports and "infrastucture" projects that weren't being dictated by actual demand. Right now? China is growing more slowly than the U.S. is. That hasn't happened in a very long time. And without the mirage of growth to create a narrative, it makes it much harder to keep up confidence in the people who are holding all of the debt that needs to default.

 

Awesome strategy. Take your supposedly self-sufficient government agency that is supposed to operate on a P&L basis but which burns through billions of dollars a year and needs to keep tapping the Treasury. ... and try to compete with Walmart to cash poor people's checks. Did it occur to anyone that Walmart does it cheaper, they offer greater optionality in how you can get your money, and even if they didn't do it more cheaply, they are way more convenient for 99 percent of the target audience because it's a place those people are shopping in all the time already?

 

Walmart doesn't profit from selling stamps. If you factor in the labor and logistics costs involved, I am sure they look at it as something of a loss leader -- a convenience for customers to get them in the store to buy stuff Walmart profits from -- even if it is insignificant to them.

If the USPS stopped selling stamps at physical locations and left it to Walmart and Target and other large retailers, presumably without the price-fixed 55 cent price tag (or whatever it is now) the USPS has slapped on a postage stamp, Walmart and Target would be free to raise the price they charge -- perhaps buying the stamp from the USPS for 55 cents and selling it for 60 cents. Or they might just choose to continue to use it as a loss leader the way they currently do. It's tough to say.

But it's nothing like a check cashing service, which is an industry that operates in a competitive environment. The USPS is uncompetitive in everything it attempts to do because its cost structure is absurdly uncompetitive. Politicians have their hands all over it, which has meant things like wages and benefits that aren't determined in an actual marketplace. In the case of those benefits, large health care and retirement costs were never actually funded (another hallmark of how the government operates), which is why the USPS bleeds money and is forced to "borrow" from the Treasury to keep going. As a business model it amounts to this: Spend way more than you have to to operate and charge way too little for your product to meet your costs. Expanding operations into very competitive businesses only makes sense for a politician who is armed with executive orders and can pretend that the losses don't exist.