China’s communist central planners prove how that statement only exists in the movies.
Field of Dreams, starring Kevin Costner is about a farmer who hears a mysterious voice in his cornfield saying “If you build it, they will come,” he feels the need to act. Despite taunts of lunacy, Ray builds a baseball diamond on his land with no real price signals telling him this will be profitable.
That’s what China has been missing all of these years. Price signals and the free market. They build cities, infamously deemed ghost cities with the theory that if they build it, they will come. They forget that it is the free market that sends signals to entrepreneurs that a venture will be profitable. So they built literal cities of buildings, subways, airports, shops, etc.… with no one of them.
of the Chinese government demolishing 15 buildings at once because no one moved into them after 8 years.
Jim Rickards, author of Currency Wars says “There’s a spectacular bankruptcy coming in days in the Chinese property finance market with the collapse of mega-developer Evergrande”. This could be something to watch out for because Jim knows full well how this kind of event can spread throughout the world as he was the lead lawyer who negotiated the bailout of Long Term Capital Management in 1998. That was the first of the bailouts that have exponentially grown in size since then. The 2008 financial crisis and the 2019 collapse in the repo market that has led to the current crisis we’re still in… even though they’re using the pandemic as a cover-up for the reason they needed to print a bunch of money to bail out the system yet again. And notice the bailouts are much bigger than the one before.
Pay close attention to what China is doing with its finances. This epic destruction of perfectly good buildings that were built for no one, in particular, could be the canary in the coal mine. Yet another example of why central planning doesn’t work and should be left for movie fantasy.
