China’s “New Era” Is Old Totalitarianism

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• China arrests 1.4 million since June
• Japanese Central Bank is losing control
• Is Putin the new Prince Vlad? Hardly

China’s “New Era” Is Old Totalitarianism
October 19, 2022

“Who is not subject to these same pressures? More money, more debt, more pleasure, more time, more credit in the system. Our central bank, it doesn’t matter who it is, whether it’s the central bankers or Xi Jinping or you and me. Testing the limits is not that uncommon. But when we reach beyond them, paying for it isn’t either.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

When I was a kid, Dave, I think of how many times I tested limits and I can look back and go, “Gosh, that was a close one. I know God was looking out for me on a couple of things.” But I remember being called into the room by my grandmother, who loved the fact that I had a lot of freedoms, but she also knew that I was very much into space exploration when I was a kid. I was six years old when man walked on the moon. All I wanted to do was make a rocket go up, and I thought, “They’ve got fuel in a rocket.” So I went out to the garage and I got gasoline and I filled up a big container with gasoline and then I went inside and I got matches and I lit the gasoline with matches. I had put something on top because I thought the combustion would actually cause the top to go up. Actually, all it did was just really burn. But I look back, Dave, I had absolutely no idea what I was messing with at the time. And how often do we just barely miss it when you go, “Gosh, that was a close one.”

David: That was a close one. Well, I mean, combustible is the first word that comes to mind when I think about the ingredients that are both in the financial markets and in the sphere of international relations today. You can go a long time with combustible ingredients that never cause any harm, right?

Kevin: Yeah Yeah.

David: They’re dangerous.

Kevin: Gas in a can is not as dangerous as gas with a match.

David: Well, exactly. So maybe even they’re inherently unstable, but handled well, just not of great consequence. So the same gas that my eight year old cooks his eggs with can burn down the house.

Kevin: Yeah.

David: And if you talk to a teenage boy from the 1980s, he can tell you, at least this one can, Aqua Net is both great for styling hair and working as a small scale flame thrower.

Kevin: So if your grandma asked you about the Aqua Net, like she asked me about the gasoline, would you have told the truth? I slipped into a lie for a little bit at the time.

David: Well, there’s two truths. Was I styling my hair first or—

Kevin: It’s true.

David: Moving on to bigger and brighter things. There are many things in life that are not dangerous in the hands of one person, and then quite dangerous in the hands of another. So maybe we’re talking about the line between confidence and overconfidence, or awareness, unawareness, educated, uneducated, I don’t know, but your reference, Kevin, to old pilots and bold pilots, but there being no old, bold pilots comes to mind.

Kevin: And I know you to be fairly bold. I know that you’re a limits tester. You’re getting off this last weekend, your last race, and I think there was quite a bit of water on the road when you were biking.

David: Right? So yeah, kind of a minor diversion. This is not quite flame throwing, but could be a bad example. I was riding a bike, generally not a hazardous activity unless conditions are challenging and the navigator’s pushing the limits.

Kevin: Wet roads. Yeah.

David: Sixty turns on a three-loop course after torrential rains, you kind of need to watch your speed. And around the first major U-turn, I locked up the brakes, fishtailed, nearly laid it over. Fortunately, nothing more dramatic or painful happened. But needless to say, I toned it down after that.

Kevin: Well, and that brings back the thought, “Gosh, that was a close one.” In a way, that’s how you learn through life. And the Darwin Awards are, I hate to say it, but the Darwin Awards are given to people who it was beyond a close one. They tested the limits and they lost.

David: Right. Right. Well, on the list for today, far more consequential than riding a bike, our short list: Nuclear weapons, financial weapons of mass destruction, specifically derivatives and a bloated market in debt obligations that exceeds global productive capacity by, I don’t know, 350%. By the way, the official debts that we have globally compared to global GDP are only the explicit obligations, unfunded government projects for which political benefit has already been received. And the bill has yet to come due, that adds another 78 trillion to the global pile of promises made.

Kevin: Well, when you bring up the global pile of promises made, I have to admit, being an American, being from the United States, being from the country with the reserve currency, being surrounded by two oceans, so really never being invaded, we Americans don’t really think globally, but we’re probably going to have to. Look at what this weekend brought with China

David: In a Financial Times article over the weekend, the old French critique of us having the dollar reserve currency status and having exorbitant privilege was turned on its head and described as exorbitant indifference. As the dollar increases in value, it puts a lot of pressure on other parts of the world, but the pressure’s there already. So we reflect on Japan, China, the US, Ukraine, Russia, Iran, Saudi Arabia, France, Germany, and others. And they all hold combustible ingredients, which may or may not create conflagration, but you’ve got energy disputes, again, if you’re thinking about Europe and Russia or even the US and OPEC, fresh in the marketplace today. You’ve got missiles flying, literally, in Eastern Europe. You’ve got an overstressed financial architecture. That’s not one particular geography, that’s globally. And then you’ve got massive political consolidation, which is happening as we speak in China. There are a lot of volatility accelerants, we could call them.

Kevin: When I was a kid, I would watch Outer Limits, and I loved the beginning of the show because I settled in because it says, “Do not touch your television set. We control the vertical, we control the horizontal.” I know I’ve quoted this before. I’m probably misquoting it, but there was something about knowing that they had control that gave me comfort. Today we rely on an awful lot of people who say they have control when really, they’re testing the limits and actually finding out that they don’t have control.

David: And it seems the consolation is that you’re safe. We’ve got it covered. You’re safe. Right? But that’s not always the case. The JGB Market, that is the Japanese Government Bond Market, slipped from the grasp of the bank of Japan this last week. And the yen too, has slipped further from a 24-year low to a 30-year low. Do we care? Yes, absolutely. Now, this is a very curious turn of events because control is presumed. It’s presumed in the class of bankers, technocrats, and what was thought to be manageable slips from the grasp of the managing class, then uncertainties emerge and that sense of safety begins to erode. Again, the storyline changes and all of a sudden you begin with social and political problems. The line in the sand was 25 basis points for the 10 year Japanese government bond, and it’s no longer holding. Now it’s to 28 basis points this week.

Kevin: So the Bank of Japan has given the impression of control for quite a while, and they’ve been willing to give up the value of the currency to do that. It reminds me of a flight. We were flying out of Phoenix, my wife and I, and it’s the whole sit back and enjoy the flight kind of feel until you see the phone ring up in the front. And I remember the flight steward at the time, he turned around and he looked with fear in his eyes at the back of the plane, and it’s like, “This doesn’t feel like sitting back and enjoying the flight.” They had actually had to declare an emergency because of a fire alarm that was going off. We had to have an emergency landing there at Phoenix Sky Harbor. But it’s amazing how quick things change. Now nobody panicked because it turned out to be a no deal, but it was an emergency situation. So what is a basis point here or there with Japan? They said they were going to keep it at 25 basis points. Why is that important that it went up to, what was it, 28?

David: That’s exactly right. A hundred basis points equals 1%. So we’re talking about a fraction of a fraction of 1%. Who cares?

Kevin: So is it a false alarm?

David: Yeah, mere basis points, some could say, right? Three, to be precise. That’s all we must worry about, frankly, with trillions in debt obligations because that’s all the difference there is between something that works and doesn’t work. Mere basis points. So like the proverbial straw that breaks the camel’s back, we don’t know which basis point topples the beast of burden under a critically unmanageable load, but we do know that tolerances are lowered when stresses increase. A few basis points can be the difference between success and failure, continuance or disastrous loss of trust.

Kevin: So it’s not necessarily that it was 25 basis points versus 28 basis points, it’s that they wanted 25 and didn’t get it. That may show a bigger problem.

David: Well, that’s right. And they’re sacrificing the yen to get there.

Kevin: Yeah.

David: We’ve seen that lose, not 20 basis points, but 20 full points from 120 down to 149, almost 30 points now, the yen has given up in the defense of this sort of financial Maginot.

Kevin: It feels arbitrary in a way.

David: Right.

Kevin: Yeah.

David: So why 25? Well, because without a cap the quantity of debt in Japan is unbearable relative to the size of the economy. And you might say, “Well, it’s arbitrary. It could have been 50 basis points, could have been 10.” We come up with these numbers. Is it arbitrary? No, I mean it’s no more arbitrary than the 2% inflation target widely accepted by central planners all over the world as the appropriate inflation objective. There is a mathematical equation to support yield curve control, the policy in Japan, just as there is a mathematical equation that argues for and supports the 2% inflation rate.

Kevin: But are we deceiving ourselves? I’ve got a book at home that I love to pull off the shelf every once in a while that just, in a beautiful way, explains beautiful equations in nature. And in nature there are equations that actually are very provable. We went to the moon with Sir Isaac Newton’s equations. But are we deceiving ourselves thinking that economics is a hard science?

David: Well, consider this. We had the equivalent of the Nobel Prize given in economics this last week, and Ben Bernanke, of all people, is one of the recipients. And the prize goes for work done to prove this. John Hasler is a professor of economics and member of the prize committee. He said this to the reporters, “In the laureate’s work it has shown that deposit insurance is a way of short circuiting the dynamics behind bank runs. With deposit insurance there’s no need to run to the bank.” And for that you get a Nobel Prize. So I guess if you’re weighing hard against soft, that felt a little soft, at least to me.

Kevin: Yeah.

David: Bear in mind that most equations in economics, they borrow from mathematical legitimacy, right? This is kind of the nature of scientism and what we expect. There is no reality outside of science, says the modern thinker. So economics borrows from mathematical legitimacy. In so doing it gets to bask in the light of upgraded status from soft to hard science. So you open up an economics textbook today, and it’s primarily about the equations. Equations— like logical syllogisms, however, they rest on assumptions.

Kevin: Right.

David: A lot of mathematicians don’t like this idea, but postulates that are accepted without the requirement of demonstration, this is a part of math. You don’t have something that’s proven, you’re working off of assumptions. So for the economist, whether it’s Thomas Malthus, Anna Schwartz, Ben Bernanke, Paul Krugman, there’s more to the story than math, although it gets dressed up very well. There are ideals, there are objectives, there are political agendas.

Kevin: Well, and I have to admit, I honestly, I was so taken by the IS–LM curve when I was in college because it looked like a black box theory that really worked, and that got me very interested in economics. So there is something about saying, “Hey, there’s an equation. If you just understand the equation, it works.” Here’s the thing with an equation, though, when one variable changes, it changes another variable. And so the cost of controlling the Japanese yield curve is an equation. They have given up currency stability at the cost of keeping this 25 basis points.

David: Well, and speaking of stability, we don’t lean on the IS–LM curve. We have something even better. It’s still four letters long. It’s the DSGE. Don’t you know? Dynamic Stochastic General Equilibrium.

Kevin: Oh, there we go.

David: I mean these—

Kevin: That’ll save us.

David: Of course. Of course.

Kevin: Yes. Sit back and enjoy the flight. Right?

David: Well, the cost of controlling the Japanese yield curve has been in real time currency stability.

Kevin: Yeah.

David: I think one of the bigger 2022 stories, in my opinion, not because of its immediate negative effects, but because of the erosion of reputation, which has occurred as a result in this year’s yen depreciation. This is the story, the yen is a microcosm and it’s a telltale of central planning failure. So the Bank of Japan today, the Fed, the ECB, other system managers tomorrow, proving out failure. But the yen show, the yen show is far more dramatic given its precarious perch in the world of leveraged financial bets. We see the collateralized loan obligation market under more scrutiny and pressure this week as a significant Japanese bank pulls the plug on its CLO trading. One of the largest CLO traders in the world says, “Nope, we’re done. We’re gone for now.” What is the impact?

Kevin: Right.

David: Lower liquidity, less functioning, higher stress on the remaining participants. The Bank of Japan is in a real bind. Can they maintain a sterling reputation much longer? Can any of the central banks, for that matter, right? So perhaps that’s an insensitive way of putting it.

Kevin: Well, are you trying to be punning? Yeah, sterling reputation. So the sterling—the pound sterling is what you’re referring to—which dropped by what? Three quarters? What did the pound sterling drop by from the high?

David: The long story of the sterling is a 70, 80% decline next to an upstart currency like the US dollar.

Kevin: But here’s the strange thing, Dave, and I get this question all the time, and I sort of wonder it myself. What is this strong dollar story? Even though our dollar here in America is buying almost double digits less in food, energy, core. I understand that they say that we’re at 8.2% CPI and that our core inflation is just—

David: 6.6.

Kevin: —yes. Skyrocketing right now.

David: Well, so much of this is a show. When we talk about reputation, yes, the Bank of Japan is under pressure. Yes, the Bank of England in recent weeks has been under pressure, but can any of the central banks maintain a sterling reputation? Bank of England, sitting on, we mentioned this a few weeks ago, 200 billion in unrealized losses, and accounting rules are going to help them out because they don’t actually have to take the loss. It’s not a consequence like a company would have. There’s no realization of those losses. The Fed has passed that point.

Kevin: Right.

David: 720 billion dollars in unrealized losses on the Fed balance sheet. Frankly, the only issue that’s going to go on to next year is that because they’re running at that sort of a loss structure, remittances, they won’t have to worry about remittances to the Treasury, but the Treasury Department will have a larger budget deficit thereby. 

We have a unique world. Again, things are not always as they seem. We have a strong dollar, but nearly double-digit inflation rates. How does that make sense?

Kevin: Yeah, it doesn’t.

David: You juxtapose that with a weak yen, down, let’s call it 20 to 25%, and fairly benign levels of inflation, 2%, just over two, but then you go to the euro and pound, and, like the US, inflation rates are nearly double-digit. I think, for all the differences between these currencies and central banks, the uniformity, frankly, if you’re looking at sort of the behavior of the markets, the uniformity is found in how extreme we’re seeing things get.

Kevin: So when we talk about the dollar being strong relative to other currencies, but weak in buying power, are we seeing the reverse of that in the yen? Because we’re seeing the yen decline dramatically, but they haven’t shown much inflation up to this point.

David: Right. And I just don’t know how to make sense of their data collection and assimilation. The yen has declined to the point where imports are far more expensive today than they were a year ago. And how does that not show up in the Japanese Consumer Price Statistics? Is there that much latency in data collection and assimilation? Inflation is just above 2%? I doubt it. 

I mean, 2%, you think, this is where, again, coming back to the notion of, “That was a close one,” what a difference 2% can make. Target inflation at 2% and the concerns of global growth all but disappear. In fact, we’ll have success and basically a promised utopia, say the central bankers. On the other hand, if you shrink oil supplies by 2%, there’s a gnashing of teeth, there’s tantrums, there’s threats. We’ve seen that in the last 10 days. If you increase interest rates by 2%, the world of finance begins to behave very differently. The wheels start to come off. 

So here we have US rates increasing, deeper recession in the rest of the world, and a feedback loop where further destabilization of the global economy reinforces those same trends for an even stronger dollar. So it’s all these little things, right? Little numbers that seem to be at the margins, and yet that’s where the problems are. It doesn’t take much when you’re running at the edge of things. It just doesn’t take much to get over the edge.

Kevin: It’s not just in economics. Xi Jinping’s speech on Sunday was amazing, if you actually watched the filming of it. You can listen to it, you can read it, you can read a summary of it, but I would recommend actually going and just looking at— I don’t know how many people were in there. They all had masks on. They were all carefully taking notes of everything that he said. They all had open pads and they were taking notes. And it reminded me, Dave, of the totalitarian types of speeches that Saddam Hussein used to give, where you could tell every person in the audience was absolutely petrified. If you’ve ever seen those insider films of Saddam Hussein maintaining a totalitarian government, that’s what it felt like. Yet all these people, they had their masks on, so you didn’t know that they were smiling, but they were smiling with their eyes and they were taking careful notes, and I’m sure that that film would be reviewed later just in case somebody wasn’t.

David: I think China, far more than the current Russia-Ukrainian tragedy, puts me on edge. And China now has the resources, the willpower, the ideological focus, and leadership to reshuffle the global establishment and return us to another version of the Cold War. This is not an advancement, this is a retreat to the most tragic days of the 20th century.

Kevin: Yeah. So you think about Putin, and Putin’s no good guy. He’s no good guy whatsoever, but he’s not coming across like a communist. What we’re seeing now is something that we probably haven’t seen since chairman Mao.

David: Putin is erratic, he’s unpredictable, he’s violent, he’s vindictive, he’s escalated this violence against civilians, not minimizing that, but he’s not a Stalin, and his appeals are not to a class struggle and to a worldview devoid of ethical and moral moorings. Quite the opposite. He’s framing himself as the banner bearer of a thousand-year-old spiritual legacy passed on from St. Vladimir. Some irony, Vlad Putin and Prince Vlad the Great from the 10th century, and we’ll see how far he goes with that.

Kevin: And lest we forget, because we think of the days of Stalin and how many people died under Stalin and Russian USSR communism, but the Chinese, how many died under Chinese communism versus Russian communism?

David: No one in global history has harnessed ideology towards such destructive ends as the Chinese communists. And this is a tall order because the Russians surpassed 20 million dead when you’re counting the famines, the executions, the population transfers, the labor and re-education camps affectionately known as the gulag. But in the great leap forward, the quote unquote new era of reform under Mao, estimates of over 55 million dead, those are considered reasonable.

Kevin: Versus the 20 or so million under Stalin.

David: Yeah. Now you have China being reshaped publicly to what she has aspired to privately for many years. Whether the Chinese like it or not, hard-line communist command and control dynamics have eased back into the picture after 40 years.

Kevin: Yeah. And the word is common prosperity instead of communism, but common prosperity really is totalitarian communism, isn’t it?

David: Well, sure. We’ve learned certainly through the philosophy of language that you can take any word and have it mean anything you want. So common prosperity, certainly that sells well, but the market dynamics of choice, of preference in a system harnessing the power of self-interest, they’re once again taking a backseat to designed outcomes, to security protocols, to suppression of dissent, and there’s more than rhetoric at play. If you go through Sunday’s speech, it was not just pathos, there was promise. It was pure ideology and terror.

Kevin: Yeah.

David: To quote Hannah Arendt with reference to totalitarianism.

Kevin: You could just see it. It was a return to what I remember from my childhood. Granted, communism may make James Bond films a whole lot more interesting, but you’ve talked about it before, Dave, when the Berlin Wall fell, that was a pretty profound moment in your life because your dad was a staunch anti-communist, or he still is, and you had grown up hearing the terror and the danger of communism, and when that wall fell, that seemed like a major paradigm shift worldwide. Are we seeing walls go back up?

David: I was at the Pomona campgrounds, and I remember getting the news that the Berlin Wall had fallen down. Some people remember where they were when—

Kevin: When Kennedy was shot.

David: When Kennedy was shot.

Kevin: Or the challenger or—

David: Blew up. Correct. And it was something that featured large in the life of our family, understanding geopolitics. And so this was a significant shift, a very significant shift. And my dad had been the skeptic of Deng Xiaoping’s reforms, and certainly a critic of some of the US leadership.

Kevin: He never bought into Glasnost-Perestroika either. He knew that that was temporary.

David: Now, the reality is, 40 years is long enough to become a permanent commitment. It just depends on whether or not leadership wants to continue in that vein or shift focus. And it would appear that we are shifting focus again. We’ve got the COVID policy the last two years, we’ve got the food security initiatives of the last six months in China, the continued crackdown on all views that diverge from the party line. And we’ve seen, actually over multiple years, the noose tighten, and it’s tightening more all the time, in China.

Kevin: You will agree, you will agree, or else we will reeducate you.

David: They have a system, sesame credits, where you can measure compliance and measure buy-in across the system. That hasn’t kept them— over the last three months, over 1.4 million detentions, over 1.4 million detentions in China in the weeks, really weeks leading up to the party meeting in Beijing. And to me that signifies a seriousness—

Kevin: Yeah.

David: —reminiscent of Mao.

Kevin: Yeah.

David: A friend of mine, Harvard educated, respected Chinese economist, at one time had 10 million Twitter followers in China, left the country several years ago. Too many opinions expressed that were not from the party, and he was no longer allowed to have a voice, no longer allowed to have a voice. The things that we take for granted in the United States in terms of free speech, we should not take for granted.

Kevin: Right.

David: Because obviously they can erode and disappear. Too many opinions expressed, he no longer has a voice, he was concerned for the safety of himself and his family. They left three to four years ago.

Kevin: And this is why, even in this country, Dave, we have to not let it go when we have censorship. And censorship, what is that? It’s just simply silencing dissent, not letting anyone have an opinion that’s not part of the acceptable ideology. That doesn’t just hold for China, that’s starting here from the technology side of things, the censorship.

David: Well, there is definitely, from the far left, I’m not going to say this is true of everyone across the political spectrum, but at the far left there’s always been a totalitarian sympathy. So silence, dissent, homogenized views to one acceptable ideology, reform and reeducate anyone that doesn’t comply. China may be the topic today, could be the US tomorrow. Certainly, if those totalitarian sympathies get to be expressed.

Kevin: And this is where economics starts to play in, too, doesn’t it? Because if you have, let’s say, a rising unemployment rate, you’re going to have to do something. And when the controllers start losing control, they gain or they grasp for more control.

David: Well, and you have that, don’t you? We’ve got an economy in China which is in shambles. On a weekly basis—on a daily basis—we look at the indicators in the Chinese credit markets, and we’re talking about basis points and a disturbance in the Japanese bond market. Meanwhile in China, we’re talking about not just percentage points, single digit percentage points, but in the last week, double digit percentage points changed. For groups like Country Garden and Longfor and Sunac. And these are your big developers who have been responsible for much of the economic growth and development of China in recent years. 

So they’re losing control of the credit markets. You’ve got youth unemployment edging to 20% in China’s big cities. And there are, as always, concerns over social stability when that’s the case. So 1.4 million arrests since June should not come as a surprise. Those are numbers from the Financial Times. When we think about a third term, I just wonder, is it just a third term? Why not a fourth, why not a fifth? When do we consider that Xi is anything other than a dictator for life? Like the appointment process is one of theater—you talked about it earlier—I mean, this was scripted. You show up with your uniform, you behave in just such a fashion that everyone sees that everyone is on board. The last five years have been focused on removal of obstacles for the next five years of control.

Kevin: And you better take notes, you better be dressed right, put your mask on, and take notes or else you’re part of that 1.4 million. So totalitarianism, with possibly one of the largest economies, if not the largest economy, is back.

David: In Xi’s speech over the weekend, again, two hours in length, he made one thing clear, totalitarianism is back for as long as he is driving domestic and international policy objectives. Taiwan is at risk. And you hear the phrase “national security.”

Kevin: That’s like “do it for the children,” “national security.” You can do anything for national security.

David: You can do anything. Some of the most horrendous things that have ever been done have been done in the name of national security. National security is that catchall phrase that justifies any policy choice. And now he can pass on that permission to the party apparatus for a hardening and defensive, making the place safer and better, again, according to, what was the phrase we used earlier?

Kevin: Yeah, not communism because that’s a dangerous word, but common prosperity.

David: Prosperity.

Kevin: But I wonder, though, I remember going to what was Eastern Europe not long after the Berlin Wall fell down. In fact, it actually was the eastern side of Germany, what would’ve been called Behind the Wall. And I talked to some of the people after the wall had fallen, and some of the security that communism provided was missed. I remember talking to a lady who was guiding us to a rebuilt Lutheran church after the fire bombing in Dresden, and Dresden fell behind the wall, or was on the eastern side of the wall, and this woman had three jobs and she was barely making it now that the wall had fallen, but capitalism had taken over and she needed to have three jobs. There was a nostalgia, Dave, of someone actually taking totalitarian control. She admitted it was terrible in many ways, and they couldn’t get things in many ways, but there was something about it. Maybe I’m exploring too deeply this, but it’s a little like what we talked about, when I would sit down and watch Outer Limits, we’re going to take control of everything. You just sit back and enjoy the flight.

David: Certainties.

Kevin: Certainties.

David: Certainties. It taps into something that we wrestle with as human beings. What do we do with risk? What do we do with uncertainty? What do we do with an unknown future?

Kevin: Right.

David: There is a number of tensions that we live with in life, and we have to grapple with. If we don’t grapple with them, then someone comes in and offers something as a substitute, which is a substitute for a natural human process of dealing and wrestling with uncertainties. But we’ll remove those for you. We’ll remove risk. We’ve got you covered.

Kevin: So this is not a novel form of government at all. There are people who probably miss it.

David: Well, singular leadership, a singular ideology, not exactly novel. New York Times pointed out in Xi’s speech the references to a new era, 39 references to a new era in the speech. But this is actually a return to an old era, not a new era.

Kevin: But these are young people who probably don’t remember the old era.

David: Interestingly, I don’t think there’s that many of the younger generation in China who really care. They don’t really care. Which is one of the reasons why it really is important that you have pure ideology and terror because there is no natural appeal. There’s been enough exposure to the western world and to the free markets for there to be some appeal. What is this thing that we have? But this is not going to be the era of free enterprise or of diversity of opinion or of liberalization, the kind promoted by Deng Xiaoping. But it’s going to be one focused on security concerns and status as a global leader. And again, buttressed by what Hannah Arendt described as the building blocks of dictatorship, ideology and terror. This week’s article titled “Moving Backwards in Xi’s China.” Some see an era of total control. 

Kevin: And they prepared, they prepared. The people who were observing were observing security increase for months before this speech. 

David: Everybody coming into Beijing, whether it was by train, bus, what have you, if they were walking with water, they had to take a sip of it to prove that it wasn’t something combustible. Right?

Kevin: Well, back to combustion.

David: The Financial Times writes of Fortress Beijing, where security’s been ratcheted higher over the past hundred days in preparation for his anointing, which I thought was a very interesting, which I thought was a very interesting category choice.

Kevin: Is that what they called it? Anointing?

David: Is this the Financial Times’ editorial committee or is this how it’s actually being viewed? Right? The anointing for a third term.

Kevin: Wow.

David: That just made me laugh. I marvel at the new era references because what they echo is the previous, quote unquote, new eras in China, like 1958 with the interventionist Zero Sparrow policy.

Kevin: What is that? Zero Sparrow policy? Just get rid of all the sparrows?

David: Yeah, sparrows were eating the grain, so they killed the sparrows. It was a national move to kill the sparrows. The problem is, when you killed the sparrows, then you had a problem with bugs that destroyed the whole crop.

Kevin: That’s like The King, the Mice and the Cheese. You remember that child’s book?

David: Yeah.

Kevin: It’s the same thing.

David: Smarter approach to agrarian management that gave us one of the worst humanitarian crises in world history, but keep that in mind, a smarter approach to agrarian management. We always have smarter approaches. 1979 ushered in a new era with the one child policy. But I tell you what, what a beautiful world. Nothing like forced sterilizations and abortions for the sake of social progress. Got to love it. New era.

Kevin: Wow.

David: New era. Zero COVID today and the most sophisticated surveillance state known to man, new era. Now we’re back to ’58.

Kevin: Yeah, with no sparrows. Now you wonder what the unintended consequences or the intended consequences are.

David: Well, what we’re dealing with is new laws rolled out this year requiring the planting of rice and wheat because they’re looking and saying, “We can’t get our soy, rice, and wheat from previous sources with the same reliability.” But again, look at what’s happened between Ukraine, Russia, the United States, and the rest of the world. We need to be more agrarian independent. So they’re ripping out cash crops, forcing the planting of rice and wheat, and you’ve got farmers who were making a decent living now living in poverty. No, they’re not targeting sparrows. I get that. But they are managing nature again. They’re managing nature again. And as we ambitiously intervene in all the natural world with Promethean boldness, I don’t care if it’s Xi Jinping or somebody closer to home, should we expect different results?

Kevin: Yeah. Do not touch the television set. We’ve got this under control. But there is, Dave, there’s a difference between technocrats and politicians and central bankers.

David: I get it. I get it. Different functions, different training.

Kevin: But there’s the same motivation, isn’t it? Control?

David: I think it’s the thread that runs between them. We will define reality. We will control the inputs.

Kevin: Right.

David: We will manage outcomes. I think confidence is not a bad thing, but overconfidence can be.

Kevin: Could this be the testing of limits, like we were talking about? Or margins?

David: Right. Getting right to the edge. We run fast, we run hard, test the limits. It’s an experiment to see what is possible. There’s an aspect to it that I can appreciate. I certainly felt it this weekend, testing the limits on a wet pavement on about a quarter of inch rubber. And we always believe that more is the answer.

Kevin: Right.

David: And I knew it. I was going for 22 miles per hour on an average, and I didn’t quite get it, but I wanted just a little bit more. And who is not subject to these same pressures? More money, more debt, more pleasure, more time, more credit in the system. Our central bank, it doesn’t matter who it is, whether it’s the central bankers or Xi Jinping or you and me. Testing the limits is not that uncommon, but when we reach beyond them, paying for it isn’t either.

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. You can find us at McAlvany.com, M-C-A-L-V-A-N-Y.com. Or you can call us at (800) 525-9556.

This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new addition of the McAlvany Weekly Commentary.