China: Full Scale Riots Breaking Out

China: Full Scale Riots Breaking Out
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China: Full Scale Riots Breaking Out

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China: Full Scale Riots Breaking Out

See article here – for background of potential riots.

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By Thomas

There are generally three types of riots (after increasing severity):

  1. Student riots which are generally not serious. They are the earliest. Some (especially young people) think something is wrong; but they don’t quite know what.  Tianmin Square is an example. They can and will be squashed by slapping the ringleaders in prison.
  2. Farmer uprisings. One way of bringing them about is lowering the price on their products in order to placate the city population. They are not a problem as such for a regime – use enough brutality and they are put down.
  3. Worker risings come when unemployment and rising food prices make people desperate. These are the real game changers.

The harvest in France in 1788 was indeed very poor, and revolution broke out the year after at the time when last year’s meager harvest was definitely eaten.

In Russia the revolution broke out after the American agriculture had smashed the grain market. This had led to urbanization in Russia that could not be supported by an industry in its infancy.

Worker unrest is serious because industrial workers are concentrated and organized due to their livelihood.

As mentioned China has already seen no. 1 and a lot of no.2 all around the country, the latter has probably been underreported. The regime is not terribly interested in that sort of publicity – and honestly who cares about a million farmers being killed in China – the country is vast.

Now we come to the likely mechanism that will act out no. 3 in China. The revolt of homeowners is not in itself serious. It is a malcontent of ruined speculators as we have seen them in West with the Wall Street protestors. Bob Hope once made the joke about an actor strike in Hollywood: “It is the only place where people won’t get out of their swimming pools before they are paid more.” Interestingly enough it was organized by that ardent communist revolutionary: Ronald Reagan.

It is the repercussions of a population that cannot continue their overspending, that is dangerous. People have lived beyond their means in a society that has overinvested. When the overinvestment comes to a halt – due to the fact that the investments will never be able to pay themselves back – these investments stop at some point – generally when credit runs out. Then economic activity slows down. The price of iron ore has already dropped a bit.

But the serious part is that the consumers stop consuming – they are already consuming above their means. Added to that when credit runs out – they are broke. And they are really broke when the banks call home their credit. And then the banks go belly up.

This means that depositors are scrambling to get their money out. Then it is only James Steward and the Christmas spirit that can save the situation. But not much indicate this gentleman is available in China for the present. Chinese are the world’s greatest savers – and biggest loser.

No people are buying gold – and drive the price of gold up. The only problem is that at some point gold cannot be sold at the price it was bought for – and then people don’t sell. Like any other asset: When overvalued it gets illiquid.

Now if the October 2011 drop in gold prices is the beginning of the end or – as the similar drop in 2008 a mere hiccup – remains to be seen. Maybe the Chinese government has one more trick up their sleeve? The exact timing of a catastrophic failure is always difficult to predict – if not – then it would not be a catastrophe. But it certainly does not look reassuring.

When consumption drops demand is shifted towards basic necessities – such as food – of which China does not have enough. Then we get food riots – and they are always ugly.

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