China's Credit Bubble and the Balance of Trade Sometimes I sound like a nihilist, even to myself, but I can

't help repeating that predicting even the near term future is a bear, if you'll pardon the image. All we have to do is list a few years and a few countries, Japan 1989, Russia 1987, The United States 2008 and China ??, to get the idea. I was sitting in my backyard with a family of politically minded Germans, in 1986, telling them that I thought the Berlin Wall was about to come down and they all laughed at me and said it would not come down in our lifetimes. The conversation changed to another subject, abruptly, but the Berlin Wall fell around their ears within a few months of their return to Germany. I'm not bragging about my predictive powers but I happened to be following German events very closely at that time, and I was looking at some things that most Germans wouldn't allow themselves to see at the time. (I won't mention some of my less successful predictions :) From a bird's eye view it looks as if China is in a counterrevolutionary swing to the right. With political unrest, that pendulum could reach its limit and begin moving back to a center that has, probably, shifted towards the totalitarian, egalitarian left permanently. Mix this with a 2500 year old native grown Confucian authoritarianism, combined with a "China is the center of the universe" mentality, and we could see trouble in the future. For one thing, Asia itself has big political problems, even though they seem to be in party mode at the moment. Consider: Japan is rearming. The Korean civil war has not truly ended since it started in 1951. China is circling Taiwan like a shark in love. Most China scholars agree that one major reason Chinese leaders embraced Marxism was as a shield to allow the Chinese people to turn from their ancient feudal culture towards Western humanist culture, and especially towards our political, economic and social institutions, while keeping the West out of its internal affairs, which they were unable to do in the past.

As in Japan, this has worked on the surface but underneath the surface, Confucianism and Taoism continue to have a very strong influence, just as Christianity has a strong influence, under the surface, in the West. Chinese feudal culture, along with the Chinese language and character system, will tend to isolate China from the rest of the world and especially from the West. The Chinese have deluded even themselves into thinking that they are a Western style economic system. But they aren't. This is a very complex subject and I've only scratched the surface. (For example, Russia believes that its culture and civilization forms a true bridge between Asia (including Islam) and the West. But, of course, that is another story. (And, ominously, it involves "the roof of the world" Afghanistan and environs.) ) I'm going to have another cup of coffee. Maybe I'll cheer up.