Is China a Currency Manipulator?

Mitt Romney thinks so:

China has an interest in trade. China wants to, as they have 20 million people coming out of the farms and coming into the cities every year, they want to be able to put them to work. They want to have access to global markets. And so we have right now something they need very badly, which is access to our market and our friends around the world, have that same– power over China. To make sure that we let them understand that in order for them to continue to have free and open access to the thing they want so badly, our markets, they have to play by the rules.

They’re a currency manipulator. And on that basis, we go before the W.T.O. and bring an action against them as a currency manipulator. And that allows us to apply tariffs where we believe they are stealing our intellectual property, hacking into our computers, or artificially lowering their prices and killing American jobs. We can’t just sit back and let China run all over us. People say, “Well, you’ll start a trade war.” There’s one going on right now, folks. They’re stealing our jobs. And we’re gonna stand up to China.

The theory goes that by buying U.S. currency (so far they have accumulated around $3 trillion) and treasuries (around $1 trillion) on the open market, China keeps demand for the US dollar high.  They can afford to buy and hold so much US currency due to their huge trade surplus with America, and they buy US currency roughly equal to this surplus.  To keep this pile of dollars from increasing the Chinese money supply, China sterilises the dollar purchases by selling a proportionate amount of bonds to Chinese investors.  Supposedly by boosting the dollar, yuan-denominated Chinese goods look cheap to the American (and global) consumer.

First, I don’t really think we can conclusively say that the yuan is necessarily undervalued. That is like assuming that there is some natural rate of exchange beyond prices in the real world. For every dollar that China takes out of the open market, America could print one more — something which, lest we forget — Bernanke has been very busily doing; the American monetary base has tripled since 2008. Actions have consequences; if China’s currency peg was so unsustainable, the status quo would have collapsed long ago. Until it does, we cannot conclusively say to what extent the yuan is undervalued.

What Romney is forgetting is that every nation with a fiat currency is to some degree or other a currency manipulator. That’s what fiat is all about: the ability of the state to manipulate markets through monetary policy. When Ben Bernanke engages in quantitative easing, or twisting, or any kind of monetary policy or open market operation, the Federal Reserve is engaging in currency manipulation. Every new dollar that is printed devalues every dollar out in the wild, and just as importantly all dollar-denominated debt. So just as Romney can look China in the face and accuse them of being a currency manipulator for trying to peg the yuan to the dollar, China can look at past U.S. administrations and level exactly the same claim — currency manipulation in the national interest.

While China’s currency policy in the past 40 years has been to attract manufacturing, technology, resources and investment into China (and build up a manufacturing base to provide employment to its low-skilled population) by keeping its produce cheap, America’s currency policy has sought to enjoy a free lunch made up of everyone else’s labour and resources. This has been allowed to develop because of America’s reserve currency status — everyone has needed dollars to access global markets, and so America has rested on her laurels and allowed her productive industries to decline. Why manufacture the bulk of your consumption when China can do it cheaper, and Wal Mart has no problem with slave labour? Why manufacture your military hardware when China can do it cheaper? Why produce your own energy when you can instead consume Arab and Latin American oil?

Former U.S. ambassador Jon Huntsman raised this issue in an article from China Business News in a cable that was eventually leaked via Wikileaks:

The U.S. has almost used all deterring means, besides military means, against China.  China must be clear on discovering what the U.S. goals are behind its tough stances against China. In fact, a fierce competition between the currencies of big countries has just started.  A crucial move for the U.S. is to shift its crisis to other countries – by coercing China to buy U.S. treasury bonds with foreign exchange reserves and doing everything possible to prevent China’s foreign reserve from buying gold.

If we use all of our foreign exchange reserves to buy U.S. Treasury bonds, then when someday the U.S. Federal Reserve suddenly announces that the original ten old U.S. dollars are now worth only one new U.S. dollar, and the new U.S. dollar is pegged to the gold – we will be dumbfounded.

Today when the United States is determined to beggar thy neighbor, shifting its crisis to China, the Chinese must be very clear what the key to victory is.  It is by no means to use new foreign exchange reserves to buy U.S. Treasury bonds.  The issues of Taiwan, Tibet, Xinjiang, trade and so on are all false tricks, while forcing China to buy U.S. bonds is the U.S.’s real intention.”

Romney and others of his ilk might brush this off, believing that China’s $3 trillion dollar reserve hoard was gained through unfair means — slave labour, cutting corners in quality, the aforementioned “currency manipulation”, etc, and that that somehow gives America the right to inflate away its debts and screw its creditors. To some degree, they have a point. If China had a problem with America inflating away its debts, it should never have put itself so deep into dollar-denominated paper. If China recognised that America’s debt position was unsustainable, it should never have put so much into something so unsustainable, irrespective of supposed American pressure.

In the short term, though, I think escalating the trade war through the imposition of tariffs is a very bad idea. America is a consumption-led economy, and with middle class incomes already squeezed, a constriction of the supply of cheap and readily available goods is likely to put a lot of downward pressure on consumption. And it’s not just consumption — in today’s hyper-globalised world, a huge proportion of manufacturing — including military hardware — at some stage flows through China.

As Vincent Fernando noted:

Most of America’s key military technologies require rare earth elements, whose production China holds a near-monopoly over.

It’s thus perhaps no surprise that China has made the threat of rare earth export restrictions a new political bargaining chip.

American corporations could gradually pull out of China and shift to manufacturing and extracting resources elsewhere including America (which has large rare earth deposits), but it would be a challenging process. Rebuilding an industrial base is hard: skilled and experienced labour takes time to develop (American labour is rusty and increasingly unemployed and disabled), and supply chains and webs have all agglomerated in China. Building up domestic supply chains takes time, expertise and entrepreneurial zeal. And any destabilisation could spook global markets.

So let’s make no mistake: in the short term America needs China far, far, far more than China needs America. The notion that China needs America as a consumer is totally false; anyone can consume given the dollars or gold, and China holds $3 trillion, and continues to increase its imports of gold.

Peter Schiff summarises:

The big problem for countries like China and India is that they still subsidize the U.S. They buy our Treasury bonds and lend us all this money so we can keep consuming. That’s a big subsidy and a heavy burden.

They can use their money to develop their own economy, produce better and more abundant products for their own citizens. It’s a farce to think that the only thing China can do with its output and savings is lend it to the U.S. government, especially when we can’t pay it back.

Mitt Romney seems intent on destabilising this fragile relationship. American policy that incentivised globalisation and the service economy has very foolishly drawn America into this fragile position where its economy is increasingly fuelled not only by energy coming out of the politically and economically unstable middle east, but also by goods coming from a hostile and increasingly politically and economically unstable power.

And make no mistake — although China has done well to successfully transform itself into the world’s pre-eminent industrial base and biggest creditor, it has a lot of bubbles waiting to burst (particularly housing), stemming from the misallocation of resources under its semi-planned regime. Which makes this entire scenario doubly dangerous. Any shock in China would surely be transmitted to America, simply because it is becoming increasingly pointless for China to continue subsidising American consumption (through buying treasuries) when they could instead spend the money raising the Chinese standard of living. That could mean a painful rate-spike.

The real problem is that Romney is trying to address a problem that is very much in the past. If Romney was elected as President on this platform in 2000, things might be different. But China got what it wanted: by keeping its currency cheap and its labour force impoverished it became the world’s pre-eminent industrial base, the spider at the heart of the web of global trade, and a monopoly on important industrial components and resources. China used American demand, technology and investment during the 00s to develop. Now the imperative is not to grab a bigger share of global manufacturing, or a bigger hoard of dollarsit’s to leverage that position toward the ultimate aim of returning China to its multi-millennial superpower status. The promise of Chinese primacy is quite simply the strongest tool for the CPC to retain its (increasingly shaky) grip on China.

However we should not discount the possibility that bursting economic bubbles may stoke up some kind of popular rebellion against the Communist authorities in some kind of Chinese Spring. A new more pro-Western regime is surely America’s best hope of containing China, while gradually manoeuvring itself out of dependency on Arab oil and Chinese goods. But that may just be wishful thinking; it is possible that a new Chinese regime may be vehemently anti-Western; the Opium War and China’s 20th century humiliation still ring deeply in the Chinese psyche.

So it is unclear what is next for China, and the relationship between China and America. But having the world’s biggest manufacturing base and a monopoly over rare earths is a strong position to be in if your ultimate aim is to manufacture huge quantities of armaments in the pursuit of an aggressive, expansionist foreign policy…

70 thoughts on “Is China a Currency Manipulator?

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  4. I agree the the use of fiat currencies by default creates currency manipulation. Central bank intervention in dealer markets is outright interference. USA, Australia, UK are all guilty of this.

    But how do we ensure that key industries are not gutted by a flood of cheap products? The issue of fragility and “Black Swans” in trade flows needs to be incorporated in WTO guidelines. That way protectionist trade wars won’t disrail co-operation. For example most housing related products being heavy and bulky are usually made locally but Auto components may be imported. Cars are a necessity, so it is logical industries such as tyres, engines and drivetrains are made locally. Quotas agreed by the WTO need to be implemented that ensure tyre production for example, can be “geared” up if there is a trade flow disruption. Of course this will cost money to the end consumer. I don’t know about the USA, but I believe Australia no longer has a local tyre manufacturer. Chinese tyres have gutted the market share. Think of it as a global insurance policy to guard against trade flow fragility. It keeps also keeps the engineering and apprentice talent sharp.

    So I think Romney is right to politicise this. Hopefully it gets the WTO to act and create a framework that is fair, and avoids damaging trade disputes via currency manipulation.

        • The key problem with GATT and the WTO system that has followed it is that it has expeditiously tried to remove unilateral tariffs (the WTO still allows for some tariffs, but it favours multilateralism, i.e. the WTO and not the U.S. will decide whether the U.S. can impose tariffs on Chinese goods) while completely failing to address the problem of current account imbalances.

          Keynes in 45 was fixated on the notion that current account imbalances were the big problem, and to some degree I think he was right. The United States never adopted his proposals fully, but at least under the pre-WTO system it was easier for countries to impose tariffs to drop current account imbalances.

  5. Of course, while a little protectionism would have been good for everyone in 2000 or 2001, today I am not sure it will make any difference, the damage is already done.

    • Yeah, i think Romney’s 10 years too late. ( and a total prick, but that’s another story).
      China already has what it wanted from the deal, especially western tech and a massive industrial base, and besides, just how under-valued is the Yuan now? It’s almost a dollar backed currency.

      There might be some sectors on the margins where protectionism could still make a difference, but it would require a long term, vaguelly patriotic view from western coprporations, and that’s pretty unlikelly. They’ve been canabilizing their own consumer base for so long, and they’re still sitting on record profits.

      • China already has what it wanted from the deal, especially western tech and a massive industrial base, and besides, just how under-valued is the Yuan now? It’s almost a dollar backed currency.

        Excellent, and what we discussed before. I was going to write that into the article, actually, but I thought it was a bit too abstract.

  6. Aziz, isn’t America still the best positioned nation to consume chinese goods due not only to purchasing power relative to most places, but because of cultural dispositions?

    • However we should not discount the possibility that bursting economic bubbles may stoke up some kind of popular rebellion against the Communist authorities in some kind of Chinese Spring.

      This sounds bad. Almost never in history did revolutions lead to good outcomes over the short to medium term (and if over the longer term, perhaps the causal link should be discounted). Do we really need to look back in history? Does the Arab spring look good now? Does China look like something that must be contained? Or should the money spent on this paranoia be put to better use? The best outcome for China and for the rest of the world is a gradual transition towards a system that will be more stable based on a shared and accepted cultural belief (note that I did not say a Western democracy, because I want to go deeper and find out what’s keeping countries and groups together). As Bill Bonner put it:

      Last week, we were thinking about how democracy…or any government…operates on the basis of shared emotions, or feelings, rather than real ideas.

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  8. “What Romney is forgetting is that every nation with a fiat currency is to some degree or other a currency manipulator. That’s what fiat is all about: the ability of the state to manipulate markets through monetary policy.”

    Nailed it.

    he could argued that they are greater currency manipulators, but that would be an admission of guilt on the US’s part. It’s obviously simple populism. Of course, a floating yuan would negate much of the criticism, and give a truer indication of its true value. It’s a moot point, of course, as it’ll never happen.

  9. It was a good post. I saw you sparing over at ZH and thought that there were some good points being made all around.

    I see I missed the hyperinflation back-and-forth a couple of days ago, but its not the only thing I missed.

    I saw and expected the US housing and stock market crashes clear as day. I had come of age during the boom and could spot bubble money, bubble speak and bubble denial with the best of them.

    What I missed in my forecasting was what you touch on in this post, “All countries (and Central Banks) are manipulating their economies and coordinating with each other to boot.” I didn’t see this coming. Not one bit!

    It is why we haven’t seen any hyperinflations. If every country is devaluing their currency together, the currency ratios remain the same. Its also why none of the countries are experiencing much growth. (The Keynesians must be scratching their heads at the lack of growth, but it is rather easy to explain. Historically, when a country would devalue their currency, their domestic goods and services would become cheaper on the world market. Voilà!) Ahhhh, but now? Devaluing the currency doesn’t work, WHEN EVERYONE IS DOING IT!

    This is also why I believe we will see hyperinflation. Greece seems to be the first country in line. (And I always thought it would be Japan.)

    “Yeah, Drachmas! What Greek GDP is down again! Why not print some more Drachmas? Its what the successfull Keynesian countries do!”

    On a side note, hyperinflation is at the end of crazy times, not the beginning! This is always missed by most people. First, crazy times and THEN HYPERINFLATION.

    • On a side note, hyperinflation is at the end of crazy times, not the beginning! This is always missed by most people. First, crazy times and THEN HYPERINFLATION.

      You got it. Washington’s blog nailed this a few days back when he noted that in no period have history have all the central banks devalued simultaneously. This is crazy, and the effects are unpredictable. Ultimately the result will be mass devaluation of everything priced in unprintables, or as David Stockman puts it ABCD (anything Bernanke cannot destroy).

    • Good point about being unable to devalue and spur your economy when others are doing. However our wise men in the Central Bank; The Australian Reserve Bank, wanted to pop a property bubble, and they achieved it with higher interest raters, a dollar at 1.10 US now parity due to 50 bp reduction due to panic caused by a gutted manufacturing and job losses. No manufacturing exports with a dollar at 1.10 to US!

      With a massive savings rate due to the high interest rates they protected our indebted banks by avoiding them having to go begging with to the Bond Vigilantes. But Manufacturing is now gutted.

      WW2 in the pacific caused massive rationing (Grandmother remembers well) so after the war Australia had a high tariff policy to allow manufacturing to flourish. People could work 2 jobs (60 hours plus) bring up a family and purchase a house cheap. All I know is the trade liberalisation policies have not seen a material increase in the Australian way of life. But we have cheaper SUV from Europe and ASIA! My father in law at our local Ford plant is on reduced hours. In the 70’s he brought up 3 daughter and a son, had investment properties. Try do that today.

      So I support Tariffs and Trade Barriers. There needs to be strategic support for complex manufacturing. Just in case the SUV needs to be tooled up to go into battle as a born again tank or millitary vehicle.

      The garbage I was fed at high school economics about comparitive advantage did not make sense then, and does not make sense 20 years later. Regarding cars, Australia produced this in the

      70’s (Tariffs)

      10’s (Tariffs now only 5%)

      Notice how the new car looks like any ither car on the world stage. No wonder nobody buys it when you can get imported cars just as cheap.

      Note the cars above are worth $500,000. Because they were built to collect. There is nothing built with pride anymore.

      So Australia offering a cash rate of 3.75% when the US is 0.5% is lunacy. No wonder our local manufacturers can’t export that boring new car above.

        • Frankly, I don’t see anything new under the sun. Tariffs are both good and wrong just like globalization (probably more good than wrong though). And they always ebb and flow; now we’re probably experiencing the reversion to the mean part.

        • Being at the arse end of the world we tend to adopt the best technologies and philosophies from all sources. Our Gold rush in the 1850-1880 brought people from all over the world. Free spirits. Miners were taxed by a repressive monarchial regime and they revolted.

          This gives us little respect for suffocating authority, and with compulsory voting we normally “sack” the idiots if they get out of hand.

          Having a population of 22 million and enough iron ore and resources, we have a welfare state and strong unions. ensure the middle working class is reasonably well off. We make our money from mining, but we do have pockets of high tech medicine and engineering. But when the reources run out well go back to this type of society:

          BTW this is an interesting movie from a societal collapse point of view. The first was better before Hollywood got involved in the second.

          The series explained how society collapsed through resource scarcity and wars. When gangs took over the highways.

  10. Gold is very bullish. When Gold was $1900 I said it was a top. I think now is time to buy at these depressed levels.

    We need a good retail bullion store (with low margins) to buy Gold coins. Easier to sell or exchange small denominations ( Beer, food, etc)

    Any ideas?

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  13. Aziz, what should replace central banking? And also isn’t gold fickle? I mean dont prices fluctuate wildly and if you are buying gold isn’t it a bit of a hassle to determine the quality of gold? Also I am pretty sure there were plenty of crises while we were on the gold standard which is why after the 1907 crisis central banks were created so the U.S. Govt wouldn’t be more beholden to big banks. Didn’t JP Morgan bailout the rest of the country in 1907 or something?

    • My 2 cents: gold only fluctuates wildly (now) in dollar terms because currently the dollar is the senior asset. If gold was the reserve currency, things would fluctuate in terms of the gold just as much as they do now in terms of dollars. James Grant says about the gold standard that it’s the least imperfect monetary system that has ever worked, not the least imperfect monetary system that can be imagined by a PhD mind.

      • First I think Grant is absolutely correct.

        However I actually think one of Keynes’ criticisms of the gold standard sticks:

        In the 1920s Keynes had come to see deflation as the main cause of British unemployment; and the main source of deflationary pressure as the unbalanced creditor position of the US. In theory, the international gold standard, which was the currency regime of the time provided for automatic and symmetrical adjustment of current account imbalances. Prices would automatically rise in the gold gaining countries and would automatically fall in the gold-losing countries, thus restoring the equilibrium of exports and imports between the two. But Keynes had come to realise, as he put it in 1941, that adjustment was “compulsory for the debtor and voluntary for the creditor”. If the creditor does not choose to make, or allow, his share of the adjustment, he suffers no inconvenience: while a country’s reserve cannot fall below zero, there is no ceiling which sets an upper limit. The same is true if private capital flows are the means of adjustment. “The debtor must borrow; the creditor is under no…compulsion to lend”.

        Of course, the present system is no better, and contains the exact same problem as the system Keynes sought to abolish in 1941 (and a whole load of additional problems, too).

        • But Keynes had come to realise, as he put it in 1941, that adjustment was “compulsory for the debtor and voluntary for the creditor”.

          But this is just a trivial matter that can easily be addressed through WTO-style organizations – to make sure that no one cheats (or if someone must, the decisions and exceptions will be agreed upon by everyone).

        • It can be. But history shows — either under a fiat or a gold standard — that it isn’t.

          Current account imbalances are really quite dangerous for everyone… but for the creditor and debtor they both satisfy desires (creditor to get richer, debtor to get a free lunch).

    • Central banking will replace itself; the current regimes are unsustainable, but I sincerely doubt that the love for paper money and printing presses and managed interest rates will die down, unless there is a full-blown collapse, which while I don’t rule out (in the long run I think we are going the way of 476 A.D.) it seems unlikely in the short-to-medium term.

      I personally think that competing currencies is an interesting option, because it gives people the option of various kinds of fiat and commodity-money, and lets the people decide.

      Ultimately though I think the de facto standard will be the fiat output of the superpower’s central bank. Just that in the future the superpower may be the UN or ASEAN.

      As for the gold standard, recent research shows it was actually more stable, and that under the gold exchange standard there was more growth:

      From Bloomberg:

      Conveniently enough, the gold record happens to have been assembled recently by a highly credentialed team at the Bank of England. In a December 2011 bank report, the authors Oliver Bush, Katie Farrant and Michelle Wright review three eras: the period of a traditional gold standard (1870-1913); the period of a gold-standard variant, the Bretton Woods gold-exchange standard (1948 to 1972); and a period of flexible exchange rates (1972-2008).

      The report then looks at annual real growth per capita worldwide, over many nations. Such growth, they find, was stronger in the recent non-gold-standard modern period, averaging an annual increase of 1.8 percent per capita, than in the classical gold-standard period before 1913, when real per- capita gross domestic product increased 1.3 percent annually. Give a point to the gold disdainers.

      But the authors also find that in the gold exchange standard years of 1948 to 1972 the world averaged annual per- capita growth of 2.8 percent, higher than the recent gold-free era. The gold exchange standard is a variant of the gold standard. That outcome doesn’t tell you we must go back to the gold exchange standard yesterday. But it does suggest that figuring out how the standard worked might prove a worthy, or at least not a ridiculous, endeavor.

      Gold shone in other ways. In a gold-standard regime, money is backed by gold, so it’s impossible, or at least more difficult, for governments to inflate. Naturally the gold standard and Bretton Woods years therefore enjoyed lower rates of inflation compared with the most recent era. The gold standard endures a reputation for causing more banking crises than other monetary regimes. The Bank of England paper suggests gold stabilizes banks: The incidence of banking crises in the non-gold-standard period is higher than the incidence in the two gold periods.

      “Overall the gold standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives,” wrote Bush, Farrant and Wright.

      That J.P. Morgan 1907 stuff is mostly fear-mongering. In a liquidation you will always find buyers for good assets. And liquidation kills zombies, which ultimately cleans out the system, allowing for aggressive new growth.

      • I personally think that competing currencies is an interesting option, because it gives people the option of various kinds of fiat and commodity-money, and lets the people decide.

        This is also a source of uncertainty for many businesses. Every peasant may likely have to hire an investment-expert/currency-juggler to make sure his business doesn’t implode. And this if I’m not mistaken was one of the reasons behind the creation of the euro (I’m not saying that it all turned out well).

      • Competing currencies? I think the people have decided on simplicity, no? I think as long as these states that I live in remain united there would hardly be any benefit for competing currencies; what, with all the confusion that would bring? Talk about magnifying a problem. I think you may be a bit too sanguine about gold 😉

  14. But it’s popular because it makes sense in many ways.

    I think the main problem with economic discussions is that they are so rife with opinions and what I would call “comfortable facts.” Statements repeated so often that they are taken as universal truths. I think the best you can do in any economic setup is provide for people as well as you can and minimize harm – because let’s face it, we are dealing with made up and arbitrarily defined measurements, such as money.

    • It has upsides and downsides, but the upsides are more superficially visible than the downsides so it tends to be the norm. That’s the way it goes.

      By “in an economic setup” are you referring to the government’s role?

      Personally, I still like Adam Smith’s definition: contract law, infrastructure and “certain great institutions” above and beyond the private market — for instance, certain welfare nets (obviously to some degree this will be a misallocation of capital, but we do not live in a perfect world).

      The key for me actually is not the size of the government, but localism — that the people doing the governing are those with their noses to the ground at the local level, rather than far-away bureaucrats working from spreadsheets and grandiose academic theories, and that government be accountable locally.

      • By “in an economic setup” are you referring to the government’s role?

        To a degree, but specifically anything you can conceive of as an economic system.

        I think playing the game of capitalism will result in a misallocation of capital. It’s all arbitrary at the end of the day. I think the best you can do is come up with fairest deals possibly, maybe like Rawls – which I need to read more of btw- talks of?

        • You may accuse me of libertarian word games here, but by definition the market does not misallocate capital. Or, at least in the technical sense of the word “misallocate”. Certainly the definition of “misallocation” is a philosophical problem, and the committed statist will try to define poverty as “misallocation of capital”, but in a technical sense “misallocation of capital” is misallocation relative to what the free market would do. Early last century Oskar Lange (“Stalin’s favourite economist”, and as such an important intermediary between West and East) and Hayek went at this, and Hayek conclusively won by showing that central planning was — by definition — misallocation of capital, because there was no market mechanism to determine how resources would be allocated. As the century played out, Hayek’s definition seemed truer and truer — without the market mechanism, the state just cannot scale and shape production and industry to the people’s needs.

  15. I don’t think throwing Stalin into any conversation really helps the point you are trying to make because obviously no one here supports what Stalin did. It’s interesting you always bring up Soviet Russia, however.

    Anyway misallocation can of course have varying degrees and I am not suggesting the state can’t misallocate capital. I am simply saying that a system that rewards a bunch of mostly white guys that sit on there asses in skyscrapers playing with spreadsheets while being paid 80,000 dollars, or even more egregiously, getting paid 2 million in bonuses for fucking the world economy up, is a misallocation of capital. Value is subjective and arbitrary.

    • Relevant detail: I’m currently listening to Jamie Dimon on a conference call explaining a $2 billion loss in 6 weeks at J.P. Morgan’s CIO desk.

      Many of those skyscraper capital-shuffling businesses existence is right now a misallocation of capital by the technical definition, because they exist on government subsidies. In a market environment, these businesses in their present form would not be sustainable.

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