Having recently completed Rothbard’s “America’s Great Depression”, I couldn’t help draw the parallels between America’s roaring 20’s and China’s roaring economy today, and I couldn’t help conclude that China will inevitably fall in a depression just like America did during the 1930s. The ive of this article is to present an Austrian argument as to why this must happen; to substantiate my arguments, I will be quoting Rothbard’s Fifth Edition where relevant.
Before proceeding any further, I would urge all readers who haven’t read Rothbard’s “America’s Great Depression”, to pick up a copy and read it. First, it is a real pleasant read, and Rothbard’s witty style of writing makes reading it fun. Second, the first part of the book develops the Austrian Business Cycle Theory, which is indispensable for understanding credit booms and their inevitable busts. Finally, the second part of the book elaborates the development and the causes of the Inflationary Boom of the 1920s and provides a basis for comparison with the economic policies of modern-day China.
In order to establish our parallel, we need some historical perspective of the relationship between a world superpower and a rising economic giant. In the 1920s, Great Britain was the superpower of the world, and the United States was the rising giant. As such, Great Britain ran its economic policies independently, and the U.S. adapted its own policies in a somewhat subordinated manner. Today, The United States is the hegemonic superpower of the world, and China is the rising economic giant. Not surprisingly, the U.S. runs its policy independently, while China adjusts its own accordingly.
Continuing our parallel analysis, during the 1920s the British Empire was already in decline, was militarily overextended, and in order to pay for its imperial adventures, resorted to debasing its own currency and running continuous foreign trade and budget deficits. In other words, Britain was savings-short, a net-debtor nation, and the rest of the world was financing her. Meanwhile, America was running trade surpluses and was a net creditor nation. Importantly from a historical point of view, the British Empire collapsed when the rest of the world pulled the plug on their credit and began capital repatriation. Today, the American Empire is in decline, is militarily overextended, and is financing her overextended empire with the “tried-and-true” methods of currency debasement and never-ending foreign trade and budget deficits. In other words, America is savings-starved, a net-debtor nation, and the rest of the world is financing her. At the same time, today China runs trade surpluses and is a net-creditor nation. When the rest of the world finally pulls the plug on American credit, will the American Empire also collapse?
The cause of the Depression, as Rothbard explains, was a credit expansion that fuelled the boom. According to Rothbard, “[o]ver the entire period of the boom, we find that the money supply increased by $28.0 billion, a 61.8 percent increase over the eight year period [of 1921-1929]. This was an average annual increase of 7.7 percent, a very sible degree of inflation (p.93)…The entire monetary expansion took place in money substitutes, which are products of credit creation… The prime factor in generating the inflation of the 1920s was the increase in total bank reserves” (p.102). In other words, during the 1920s, the United States experienced an inflationary credit boom. This was most evident in the booming stock and the booming real estate markets. Furthermore, there was a “spectacular boom in foreign bonds… It was a direct reflection of American credit expansion, and particularly of the low interest rates generated by that expansion” (p.130). To stem the boom, the Fed attempted in vain to use moral suasion on the markets and restrain credit expansion only for “legitimate business. Importantly, consumer “prices generally remained stable and even fell slightly over the period” (p. 86). No doubt the stable consumer prices contributed to the overall sense of economic stability, and the majority of professional economists then did not realize that the economy was not fundamentally sound. To them the bust came as a surprise.
Today, in a similar fashion, the seeds of Depression are sown in China. Economists hail the growth of China, many not realizing that China is undergoing an inflationary credit boom that dwarfs that American one during the roaring ‘20s. According to official government statistics, 2002 Chinese GDP growth was 8%, and 2003 growth was 8.5%, and some analysts believe these numbers to be conservative. According to the People’s Bank of China own web site (http://www.pbc.gov.cn/english/baogaoyutongjishuju/), “Money & Quasi Money Supply” for 2001/01 was 11.89 trillion, for 2002/01 was 15.96 trillion, for 2003/01 was 19.05 trillion, and for 2004/01 was 22.51 trillion yuan. In other words, money supply for 2001, 2002, and 2003 grew respectively 34.2%, 19.3%, and 18.1%. Thus, during the last three years, money supply in China grew approximately three times faster than money supply in the U.S. during the 1920s.
No wonder the Chinese stock market has been booming and the Chinese real estate market is on fire. Just like the U.S. in the 20s, China finances today foreign countries, mostly the U.S., by buying U.S. government bonds with their trade surplus dollars. Just like the Fed’s failed attempts of moral suasion during the 20s, the Chinese government today similarly attempts in vain to curtail growth of credit by providing it only to those industries that need it, that is, only to industries that the government endorses for usually political reasons. Also, for most of the current boom, Chinese consumer prices have been mostly tame and even falling, while prices for raw commodities have been skyrocketing, which perfectly fits the Austrian view that prices of higher-order goods, such as raw materials, should rise relative to prices of lower-order goods, such as consumer goods. This indeed confirms that credit expansion has already been in progress for a considerable time, and that inflation now is in an advanced stage, although it has not yet reached a runaway mode. Thus, economic conditions in China today are strikingly similar to those in America during the 1920s, and the multi-year credit expansion implies that a bust is inevitable.
There are also important parallels regarding currency and export policy. During the 1920s, the British Pound was overvalued and was used by smaller countries as a reserve currency. While Britain ran its inflationary policies during the 1920’s, it was losing gold to other countries, mainly the United States. Therefore, “if the United States government were to inflate American money, Great Britain would no longer lose gold to the United States” (p. 143). Exacerbating the problem further, the Americans artificially stimulated foreign lending, which further strengthened American farm exports, aggravated the net-export problem, and accelerated the gold flow imbalances. “It [foreign lending] also established American trade, not on a solid foundation of reciprocal and productive exchange, but on a feverish promotion of loans later revealed to be unsound” (p. 139). “[President] Hoover was so enthusiastic about subsidizing foreign loans that he commented later that even bad loans helped American exports and thus provided a cheap form of relief and employment—a cheap form that later brought expensive defaults and financial distress” (p.141) Thus, the preceding discussion makes it clear, that the fundamental reasons behind the American inflationary policy were  to check Great Britain’s drains of gold to the United States,  to stimulate foreign lending, and  to stimulate agricultural exports.
Similarly, today the dollar is overvalued and used as the reserve currency of the world. The U.S. runs its inflationary policy and is losing dollars to the rest of the world, mainly China (and Japan). Today, the currency and export policy of China is anchored around its peg to the dollar. The main reason for this is that by artificially undervaluing its own currency, and therefore overvaluing the dollar, China artificially stimulates its manufacturing exports. The second reason is that by buying the excess U.S. dollars and reinvesting them in U.S. government bonds, it acts as a foreign lender to the United States. The third reason is that this foreign lending stimulates American demand for Chinese manufacturing exports and allows the Chinese government to relieve its current unemployment problems. In other words, the motives behind the Chinese currency and export policy today are identical to the American ones during the 1920s:  to support the overvalued U.S. dollar,  to stimulate foreign lending, and  to stimulate its manufacturing exports. Just like America in the 1920s, China establishes its trade today not on the solid foundation of reciprocal and productive exchange, but on the basis of foreign loans. No doubt, most of these loans will turn out to be very expensive because they will be repaid with greatly depreciated dollars, which in turn will exacerbate down the road the growing financial distress of the banking sector in China.
Therefore, it is clear that China travels today the road to Depression. How severe this depression will be, will critically depend on two developments. First, how much longer the Chinese government will pursue the inflationary policy, and second how doggedly it will fight the bust. The longer it expands and the more its fights the bust, the more likely it is that the Chinese Depression will turn into a Great Depression. Also, it is important to realize that just like America’s Great Depression in the 1930s triggered a worldwide Depression, similarly a Chinese Depression will trigger a bust in the U.S., and therefore a recession in the rest of the world.
Unless there is an unforeseen banking, currency, or a derivative crisis spreading throughout the world, it is my belief that the Chinese bust will occur sometime in 2008-2009, since the Chinese government will surely pursue expansionary policies until the 2008 Summer Olympic Games in China. By then, inflation will be most likely out of control, probably already in runaway mode, and the government will have no choice but to slam the brakes and induce contraction. In 1929 the expansion stopped in July, the stock market broke in October, and the economy collapsed in early 1930. Thus, providing for a latency period of approximately half a year between credit contraction and economic collapse, based on my Olympic Games timing, I would pinpoint the bust for 2009. Admittedly, this is a pure speculation on my part; naturally, the bust could occur sooner or later.
While I base my timing of bust on the 2008 Olympic Games, Marc Faber, the foremost Austrian authority in the world on Chinese economic development, believes that the bust will occur sooner. According to him, the U.S. is due for a meaningful recession relatively soon, which in turn will exacerbate already existing manufacturing overcapacities in China. This, coupled with growing credit problems, makes him believe that China will tip into recession sooner than the Olympic Games. In other words, Dr. Faber believes that a U.S. recession will trigger the Depression in China. Indeed, that very well may be the trigger, but if so, it still remains to be seen whether the Chinese government will let the bust run its course or choose the route of a “crack-up” boom, come hell or high water.
We should also consider another possible trigger for a bust, namely trade surpluses turning into trade deficits due to the accelerated rise of prices for resources, such as commodities, which China must import. Faced with trade deficits, China may decide to dishoard surpluses by selling U.S. government bonds, or it may decide to abandon its peg to the dollar. In either case, this will exacerbate the problems of the ailing U.S. economy, which in turn will boomerang back to China.
Finally, the bust may be triggered by a worldwide crisis in crude oil supplies. Peak oil supply is around the corner, if not already behind us, and Middle East or Caspian instability could sharply cut oil supplies. Historically, oil shortages and their concomitant rise of oil prices have always induced a recession. China’s growing dependence on oil ensures that should an oil crisis occur, it will slip into recession.
To summarize, the likely candidates for a trigger to the Chinese depression are  a worldwide currency, banking, or derivatives crisis,  a U.S. recession,  the containment of runaway inflation,  the disappearance of Chinese trade surpluses, and  an oil supply crisis.
Whatever the trigger of the bust in China, there is little doubt that this will provide the onset of a worldwide depression. Just like the U.S. emerged from the Great Depression as the unrivalled superpower of the world, so it is likely that China will emerge as the next

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  something might be occur when I was’t feel it ,in my opinion ,it was’t my fault ,but I had to make apologizes, I felt very sad ,so I cry,but let my good friends know ,they were very sad too ,I was very sorry ,I didn’t want them know ,through this matter I learn that I should learn to tolerance ,in the future ,there has many things like these ,so I should learn how to deal with .
  I also know ,when you cry nobody can help you ,so you deal with it only by yourself ,meanwhile your friends also very sad ,so I should learn to become brave.

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Have I whether be or not promised very quickly? After promising, I believe self will be very happy, but am not such but,You are fond of a low tone , I am the high-sounding words person but, that we have a lot of place is different,Know you are very careful , make me affected very much , dodge to I think that you have good faith very much before what , I have not promised you.But you let my feel like not have a sense of security very much but now,as if being able to lose one kind at any time, I unable to guess what are you thinking of.The people whether be or not is in do not understand that afterwards, right away be going to cherish well?We have already missed an once , I have not wanted to have missed any more..
        We, all ought to want to cherish well!

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Sometimes in our lives we all have pain,we all know
But if we are wise,we konw that there’s always tomorrow.
Learn on me when you’re not strong
 and I’ll be your friend ,I’ll help you carry on
For it won’t be long, till I’m going to need
Somebody to learn on.
 
Please swallow your pride if I have faith you need to borrow
For no one can fill those of your needs that you won’t let show.
You just call on me ,brother ,when you need a hand
We all need somebody to learn on,
I juest might have a problem that you’ll understand
We all need someone to learn on. 
Hero

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Though you want to take a plane sometimes,
For it may save your time,
Humble purse fights you back.
In contrast,
At beginning, you might take a bike leisurely,
Having to change into a train reluctantly
In the middle of the journey.

The life is the same as the journey.
You could not choose a way arbitraryly,
On the road toward your goal.
But, never mind!

Tough you could not chose the ways by yourself,
Which head the final destination.
The dream has been identified in your heart.
No matter who are you,
The final destination will be reached.
Actually, this is the truth of the dream.
Hence, for the reason of success,
Let’s keep the goal in mind, never forget!

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Monday ,october 6
     What is the most unforgettable part about your hometown in your memory? Of course, it must be the local delicious food. For food is a major part of a culture, different nations, communities, and societies may has very different kinds of food. Some like hot food, others prefer to mild food. However, there is a food, or specifically, a kind of vegetable favorited by  people all around the world.
     It is chilli. Perhaps you may feel hot when  you comes to the word or the lovely vegetable. Sure, it’s red, red color and hot, hot taste might defeat many people who are less courage to have a try. Yet, just for such a sexy appearance and hot taste, it has become the role or minor role of the household dishes
     People like to eat it for it can open their stomatch . For example, there is a delicious food in my hometown, called luo si fen(cooked by snail with green vegetables and noodle). The mian material of the food is chilli. The food is very popular in the city, for its hot taste, red color and good smell. Before the food being put in front of you, the good smell of snail and sour bamboon have spreaded into your nose, and make your mouth water. Until a bowl of luosi fen finally put in fore of you, the red color of chilli may arouse your appetite very much. Then you could swallow your food in just few minute. And then, your eyes and nose will shed water for the very hot chilli.
     In fact, i could not eat the food in such a way when i lived in the city many years ago. The main reason was not for the hot taste, but the concern about my behavior. I would not like to be a water woman in public, though it would be very satisfied to eat like that way. However, it did not mean i would be more graceful at my own home.
     I was grew up in a village where the poeple lived a poor life many years ago. The houshold dishes they ate were humble vegetables and rice. Yet they needed much more energy to work hard at their farmings. So, in order to open their stomach , hot chilli became the role of their daily dishes.  The hot taste also made them more tough and unrestrained. My family also cooked chilli nearly everyday in my memory. I recalled i would become more happy and appetited when a bowl of chilli put on the table. In order to make it more delicious, my mother may cook it in various ways. So we would not be bored with the humble food everyday .
    Even today, a red chilli makes rouse my appetite. I would cook it with other vegetables sometimes, but it could no longer have the taste made by my mother indeed. Oh, lovely chilli, you are always the main role in my heart.

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Quintuplets Leave the Nest

Empty-nest syndrome hit Dan and Pam Pisner harder than most parents who send their children off to college. All five of their children - quintuplets who made headlines when they were born in 1983 - left for college last fall.

ABCNEWS’ Barbara Walters first got to know the Pisner children - Devin, Ian, Shira, Michael and Elliot - when they were 14 months old. She revisited the quintuplets last year, as they prepared to leave their home in Olney, Md. and head off to college.

A Natural, But Difficult, Change

“It’s just so hard to believe that 18 years have gone by so quickly,” said Pam, a government worker who was 29 years old when she gave birth to the quintuplets after fertility treatments. “I am going to be crying my eyes out. They are going to leave this house as quickly as they entered - all at once.”

For Dan, a computer network consultant who works from home, it’s a difficult transition as well. “I thought we got to keep them forever,” he said. But, he has realized, “You don’t get to keep them forever and this is natural.”

Four of the Pisners are at the University of Maryland, about 15 miles away. Elliot left the pack to attend Salisbury University in Salisbury, Md., which is about a 2 1/2 hour drive.

“I just loved their campus,” said Elliot, who plans on focusing on management information systems. “I’ll admit I’ll probably miss them,” he said of his siblings, adding with a laugh, “Maybe.”  

Devin, who was the first-born by 30 seconds, might be described as the troublemaker. Michael, who plays the keyboard and paints is known as the artistic one, while Elliot is labeled the smartest. Shira is the most outgoing sibling, and Ian is known for having the most common sense. The hardest part about being a quintuplet, they say, is finding privacy.

On the flip side, they also thrive in the midst of the constant tumult in the home they call “Camp Pisner.”

“There’s always somebody going through the same thing at the same time,” says Ian.

“And you always have somebody to talk to,” adds Shira. “It’s like a friend because they’re the same age and you are going through the same problems.”

Advice From the Quints

With fertility treatments and multiple births becoming more common, the Pisner kids offered some advice for raising children from multiple births.

“Don’t dress your kids alike,” suggested Michael.

“Take it one step at a time,” said Ian, knowing that his parents did just that. “Don’t get too far ahead.”

Shira, the only girl in the bunch, said, “Make sure you treat them as individuals.”

And Elliot added: “When it comes to school, don’t put them all in the same class.” 

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• The Power of a Promise
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• Holiday Blues
• Parents Often Favor One Child Over Another
• Inside Two Marriages
• Mutual gaze increases the feeling of love

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