QUESTION: Dear Martin:
How does this affect cash flow to and within the USA? (China Bond market)
Rich
ANSWER: It does not alter anything just yet. Most of the capital outflow from China has been its own people trying to get cash out. They were using BitCoin to accomplish that.
This is a first step in the process. It will take time to develop and the next step will be to maintain a stable and important rule of law. In order to attract capital, there must be a stable and honest rule of law. Once the rule of law crumbles into bias and corruption as we see today in the USA and Europe, this is part of the risk of investment that, with time, will destroy Western civilization.
Edward Gibbon wrote in his classic, Decline and Fall of the Roman Empire:
“…the intolerable weight of taxes, rendered still more oppressive by the intricate or arbitrary modes of collection; the obscurity of numerous and contradictory laws; the tedious and expensive forms of judicial proceedings; the partial administration of justice; and the universal corruption, which increased the influence of the rich, and aggravated the misfortunes of the poor. “
Book III, Chapter 34
Country Risk is a critical part of international investment. In assisting international companies with decisions where to locate plants or open up operations, the first criteria is always “Country Risk” which is all about the stability of the Rule of Law. How can you invest in any country if there is no reliable legal system to secure contracts or property?
Contract Law began in Babylon. Hammurabi’s legal code required all agreements to be written down. This put an end to false claims. When we talk about investing in Europe, we do not even consider “Country Risk” because it is assumed the Rule of Law is stable. That is gradually changing. The insane fines are part of the process of the decline and fall. In the USA, you cannot sue banks for manipulation in NYC. The conviction rate in the USA is federal court is 98.5%+++. They threaten and intimidate people and 98% takes plea deals because jury trials are rigged for the government. This too is destroying the foundation of the American economy in a slow gradual process.
Consequently, China will surpass the United States and the West because our Rule of Law is collapsing. Courts rule in favor of government routinely and once that happens, no property is secure any more. They are just confiscating cash presuming it is criminal in some way be it taxes or otherwise and they do not have to prove anything. This is demonstrating that the West will not be able to survive long-term without security of property. Hence, you can see it coming. If China respects property rights, then capital will migrate to Asia and leave the West due to the lack of a Rule of Law.
