**[investwise]** Soros: The Continued Stimulus Led Growth Will Lead To A Colossal Bubble!

 

Michael Pascoe writing in The Age yesterday, gave the headline "Why a China slowdown will be good news." The whole article has a similar ring to the "house prices will plateeeeeeaaaaauuuuu" argument. You've got to give it to the mainstream, apparently nothing ever goes down. Except when it's already gone down of course. But don't mention that because everything's going back up again. But a pretty good sign of the market getting near the top is when brokers and commentators start cheering 5% and 10% falls in the stockmarket, or when growth in the economy slows, "Oh, it's OK, the market needed to take a break, it's a good buying opportunity." Or, the economy "needs to pause, it should plateeeeeeeaaaaauuuu from here for a few quarters..." Sometimes that's true, but when the mainstream is singing it in unison, it's time to be on guard. But all that aside, there's more to worry about that just whether Pascoe thinks a slowing China will be good news. It's the whole attitude towards China that's even more worrying. The general idea that the Chinese are privy to a miracle formula that enables them to conduct not only the Chinese economy but the global economy in the same way that Andre Previn conducts an orchestra. Take this quote from Pascoe: "China knows the switch must be thrown to greater domestic consumption and less reliance on export growth. The comrades are taking steps in that direction. It would be nice if they took more of them and did so faster, but they are wary of rocking their bus - there are an awful lot of people jammed into it." Again, the assumption is that China can throw a "switch" and miraculously everyone in China will perform exactly as directed. That everyone will buy and sell in exactly the correct quantity and at exactly the right time. Not only that but they'll also pay exactly the pre-set price when they buy something and receive precisely the right pre-set money when they sell something. And when they've got that money they'll hold it for just the right time before spending it on something else as directed by central planners. Make no mistake, that's what central planning requires. Heaven forbid if someone should buy two pairs of shoes rather than one pair, or a jar of jam rather than marmalade. Doing so would send the whole plan out of kilter. And even worse, should a black market develop where goods and services are provided at a different price or quantity than the central planners decree, then there's another spanner thrown in the works. Not that the mainstream commentators consider any of that. According to them, central planners such as the Chinese or the Reserve Bank of Australia can just throw a switch and individuals and businesses just eagerly follow the determined path like brainless automatons. To be honest, we're not sure why the Chinese government have been placed on this pedestal. We can only think that the mainstream believes because China operates a fully coercive economy, that it can order people about at its whim and therefore economic success is assured. The reality is far from that. No economy can be centrally planned continuously without it leading to an eventual total collapse. That the Chinese economy has managed to go on for so long is what's really amazing. But get something straight. I'm sure you've seen the impressive photos of the Shanghai skyline and the vibrant and bustling downtown areas. But just because yuppies in Shanghai are buying Rolex's and Louis Vuitton bags doesn't signify wealth any more than Australians buying a 150 inch plasma television or a seven-bedroom house signifies wealth. Wealth and spending aren't the same thing. You can have wealth without spending, spending without wealth and spending with wealth. Oh, and no wealth and no spending of course. But to simply come to the conclusion that because some Chinese are spending on fancy watches and fancy cars that those individuals or the whole economy is wealthy is misleading to say the least. The important thing to remember is that the Chinese economy has taken off, largely thanks to being able to provide western businesses with cheap labour and cheap production. But it has done so coercively. For every fancy watch buying person in Shanghai, there's thousands of others who haven't curried favour with the government and are therefore left to suffer the consequences of a repressive society. A government created oppressive society. And like any other coercive and violent government it has rewarded those it favours and hurt or destroyed those it dislikes. But that doesn't mean Western governments are no less discriminatory, just because Western governments have adopted minimum wage legislation. All that's done is to push employment offshore into the lap of coercive governments. Where they own the means of production and force individuals to accept labour terms or... well, you get the picture. Those left in the West unable to find work because they've been priced out of the market may not be forced to work in oppressive conditions, instead they become part of a permanent underclass relying on favours from their own coercive government. A government that can turn the welfare tap on and off as it sees fit. Without minimum wage legislation in Western economies, there would be less demand for cheaper overseas labour and less ability for socialist governments to control those individuals. Besides, Western governments are no less guilty of giving favours to certain people and industries while simultaneously penalising those it considers to be less desirable. So while Pascoe and the other mainstream cronies talk about the heroic Chinese government and its ability to flick a switch to point the economy in the right direction, they should remember that the switch flicking is not the result of free markets and free will. It's the result of coercion and violence. I'll make the point again, there's much, much more to fear from putting more power into the hands of governments than there is from putting power into the hands of individuals. Yet people in the West have somehow become dependent and reliant and over-trusting of government authority. The result is less freedom. But to sum up, the idea that Australia can ride on the coattails of a booming Chinese economy forever is mistaken. Sure, take advantage of it while you can from an investment perspective -  but if you think it will last forever as the mainstream commentators seem to believe then I'm afraid you're going to be sorely disappointed. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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