Innocent unknowing people often claim that communism is wonderful in theory but fails in the way it is implemented. This belief is both naive and dangerous. The very concept of Marxism is flawed, from the beginning, from Karl Marx himself.
Marx believed that communism evolved from capitalism. Capitalism was a prerequisite to build the wealth necessary for the future. Once capitalism had created a society of ultra-wealthy bourgeoisie, so the theory goes, communists would kill them and re-distribute the wealth for all to live happily ever after. Note that the essence of communism is murder. Many who extol the theoretical virtues of communism overlook this basic tenet that Marx himself promoted in the Communist Manifesto. What Marx did not grasp was that all wealth is not represented by hard assets. Wealth is primarily intangibles like intellectual property that once expropriated has little value. The key assets of modem multi-trillion dollar companies today walk into the office in the morning and out in the evening (or work from home). Take away the incentive of ownership from those who create wealth and they will stop creating it. Government ownership is creating a big problem for the Chinese communist party today. Local governments have survived by expropriating land and selling it to developers who build high rises that they sell to the people. Consequently, real estate constitutes the preponderance of household wealth in China today: $60 trillion.
The net value (net of debt) of US real estate is about the same. The difference is that the US stock markets are worth $45 trillion while the value of the Chinese stock market has stagnated at $5 trillion for the past 20 years. Real Estate is not a productive asset. No economy can survive on real estate alone. Take away equities and there is no wind in the sails of an economy
The Communists have stifled their stock market by arresting people like Jack Ma to prevent them from attaining wealth and the power that goes with it. The communist party is essentially carrying out redistribution the way Karl Marx said to do it, by cutting off the heads (so to speak) of the wealthiest in society and re-distributing the spoils. But that are killing the goose that lays the golden eggs. This kleptomaniacal approach is coming back to bite the party. Productivity in China has gone negative. Without wealth creation from the private sector to sustain it, the real estate market is teetering. So the government, which 20 years ago had no debt, has borrowed to support the economy. Government debt now totals 300% of GDP and continues to rise exponentially. This is a recipe for disaster Japanese 1989 style. China is on the verge of collapsing. The bankruptcy of Evergrande and Country Garden and other real estate developers, who recently have taken people’s money without building anything, is the first crack in the system.
Notice how when these developers miss payments, it is always to foreign lenders. This is a de facto subsidy forced on foreigners by the Communist Party.. But even foreign money has its limits. Foreign money is stupid. But even foreign funding will eventually dry up. You cannot fool all the people all the time. The government is papering over the problem by bailing these companies out and assuming more debt, but this cannot go on. Prices of real estate in China, the primary source of household wealth, are now declining. This is ominous. Do not underestimate what it portends.
On the horizon lies the biggest collapse in wealth in human history. If it happens gradually, as it has so far, then the world economy can absorb it. If it accelerates, it can strain the world economy severely. The faster the west divests from China the less risk it poses. But economic developments of this magnitude rarely happen gradually. Riots are never reported by the Chinese media, but they are widespread and put down brutally. An acceleration in the collapse of the real estate mirage, aside from straining the global economy, is likely to lead to a mass revolt that even a party as large as the Chinese Communist Party will be powerless to extinguish. When a people have lost everything, then they have nothing further to lose. They will risk their lives to overthrow the thieves who took their livelihoods. This is what the Communist party fears most.But the party has brought it upon themselves. Communism is thievery plain and simple. Thievery destroys wealth, and wealth destruction leads to poverty and revolt. To use a term Karl Marx himself coined, communism “contains the seed of its own demise.”
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