Destruction has noise
The Recession, China's New Silk Road, and Self Satisfaction at work
In 2013, the PRC’s President publicly announced the strategy of investing in worldwide infrastructure projects that would benefit China’s trade economy. Dubbed the “New Silk Road,” by some, the idea was for China to deploy billions in capital around the world in the form of grants and low interest loans. These dollars would be used to fund projects that would make the flow of goods easier and cheaper, and increase China’s influence globally as the financier and ultimate guarantor of these loans.
In real terms, almost a trillion dollars were made available for construction and investment projects in countries containing around two-thirds of the world’s population, representing 33% of world GDP. The project was ambition, writ large.
Many of these loans haven’t shaped up to be good financial decisions on the part of the Chinese Communist Party or its banking organs. During COVID, $50+B of the outstanding loans had to be renegotiated —- better pricing, longer repayment windows. Now that things are better, things aren’t really better: more than $20B of those loans are in default today.
China is one of the largest debt issuers on the planet. If the political decision was made to cease or slow the issuance of Chinese-backed debt instruments, other economies would have to step up to fill the gap. Credit liquidity fuels the global economy. If it dries up … well 2008 won’t be the worst economic downturn you’ve seen in your lifetime.
Geopolitically, though, China is in a very good position. As the senior debt holder on assets as diverse and strategically important as ports, warehousing, crops, railroads, airports, and dozens of other categories of assets, China might become the de facto operator of these institutions should debtors default without sufficient remedy. A credit of a debtor-in-default enjoys the protection of the law and those protections extend to worldwide courts of justice.
One scenario that is often discussed is that China effectively forecloses on the assets it wants to own, manage, control and restrict. It’s the only nation on earth that could deploy sufficient human resources to staff institutions in foreign countries. If it has anything in abundance, it has people and it quietly abandoned its one child policy in 2016, so it will have more. And it will need to do something with them. Something good for China.
As you look at the unfolding crisis around Chinese debt defaults, keep in mind that the game looks very different for the mind that is playing for keeps 200 years from now. And make no mistake, that’s the table stakes here. Who will rule the world as hegemon in 200 years. China is making the bet that it will be China.
Special thanks to Bridger Pennington for some of the facts and figures here.
“Intelligence and wisdom are not the same. I have seen intelligent serial killers, but I’ve never seen a wise one.”
— Terry Crews
How do you know if you did good work today? Is it all about accomplishing goals, cleaning up the to-do list? Or are there other dimensions that we should take into account?
David Singleton, Stripe’s Head of Engineering faced the problem that we’ve all encountered after finishing our work for the day. He asked himself: “Did I really accomplish anything? How do I even know?”
It led him to a thought-experiment where he broke down the 4 core drivers of satisfaction:
Did I enjoy the work?
Did I get stuff done?
Did I make measurable progress against goals I’ve set?
Did I learn something?
He then scored himself on a scale of 1-10 on each of those fronts and took the average between them and noted on his calendar in red sharpie, the score for the day. When he has too many days where the score is below 7, he takes a step back to reevaluate the path he’s on. Sometimes those scores are indicative of a bad trajectory. Sometimes they tell him that he’s in the middle of the project but there’s light at the end of the tunnel. Regardless, he’s taking his own pulse on a regular basis. Shouldn’t we all be doing that?
“Cadence matters. It doesn’t matter what speed you’re going; anyone going slower than you is an idiot, anyone going faster is a maniac. Choosing the proper cadence for your life determines your perspective on everyone else in it.”
— Trey Taylor
We are in a recession. It’s always been a simple matter of math to determine whether the economy was growing or shrinking. It’s shrinking. We all know it, even the ones swearing that they don’t know it.
The definition has always been 2 quarters of declining GDP means that the economy is in recession. It’s a rule-of-thumb designed to guide Central banking decisions on money supply. It has very little to do with most American businesses except as a potential indicator of future buying patterns from consumers.
No Administration want a recession under their watch and when they happen, in normal times, the politicians lean heavily on the business cycle excuse. “Nothing to do with us, the business cycle grows and shrinks according to factors we don’t control. Let’s help out by voting to spend more public money to shallow this recession out.” Like clockwork. Every time.
Except this time. This time the politicians are falling all over each other to insist that we aren’t in a recession, and that we definitely didn’t get there by pumping too much money into the system to create an inflation rate they are also lying about. Rather, the new intellectual exercise is to reframe and insist that inflation isn’t really inflation, or that it’s transitory and not here to stay, and that recession isn’t really recession because we have a new way to determine it.
Some of the talking heads even go so far as to insist that the 2 quarter rule was never really a thing. Paul Krugman, the worst economist in the country, and therefore the most quoted one, has taken to calling people who rely on the old definitional rule as the “2 quarter crazies,” because name-calling and derision is the best way to win economic arguments?
The hilarious thing, of course, is that in the course he produced for Masterclass, he teaches the 2 quarter rule as a cornerstone of macro-economic analysis. It’s classic Krugman, and classic Leftist ideology that the things you once said aren’t the things you have to say now.
But to clear things up, we are in a recession.