Reading Mao’s Great Famine, but Not Sure I can handle it

I bought Frank Dikötter’s “Mao’s Great Famine” on Black Friday. It just arrived. It took over a month because the State controls the post office. That seems rather benign, but this book shows how scary even that is. Dikötter got special permission to peruse over 1,000 documents in previously restricted Chinese communist archives.

I am four pages into the preface of the book, and already, my eyes are welling with tears. I don’t know if I can handle reading this thing. I was both excited and scared to read it. Now I’m more scared than excited. But I’m going to try hard to get through it without losing my mind.

Here is a taste.

A vision of promised abundance not only motivated one of the most deadly mass killings of human history, but also inflicted unprecedented damage on agriculture, trade, industry and transportation. Pots, pans, and tools were thrown into backyard furnaces to increase the country’s steel output, which was seen as one of the magic markers of progress. Livestock declined precipitously, not only because animals were slaughtered for the export market but also because they succumbed en masse to disease and hunger – despite extravagant schemes for giant piggeries that would bring meat to every table. Waste developed because raw resources and supplies were poorly allocated, and because factory bosses deliberately bent the rules to increase output. As everyone cut corners in the relentless pursuit of higher output, factories spewed out inferior goods that accumulated uncollected by railway sidings. Corruption seeped into the fabric of life, tainting everything from soy sauce to hydraulic dams. The transportation system creaked to a halt before collapsing altogether, unable to cope with the demands created by a command economy. Goods worth hundreds of millions of yuan accumulated in canteens, dormitories and even on the streets, a lot of the stock simply rotting or rusting away. It would have been difficult to design a more wasteful system, one in which rain was left uncollected by dusty roads in the countryside as people foraged for roots or ate mud.

The book also documents how the attempt to leap into communism resulted in the greatest demolition of property in human history – by far outstripping any of the Second World War bombing campaigns. Up to 40 per cent of all housing was turned into rubble, as homes were pulled down to create fertiliser, to build canteens, to relocate villagers, to straighten roads, to make room for a better future or simply to punish their occupants. The natural world did not escape unscathed either. We will never know the full extent of forest coverage lost during the Great Leap Forward, but a prolonged and intense attack on nature claimed up to half of all trees in some provinces. The rivers and waterways suffered too: throughout the country dams and canals, built by hundreds of millions of farmers at great human and economic cost, were for the greatest part rendered useless or even dangerous, resulting in landslides, river silting, soil salinisation and devastating inundations…

Any attempt to understand what happened in communist China must start by placing the Great Leap Forward squrely at the very centre of the entire Maoist period. In a far more general way, as the modern world struggles to find a balance between freedom and regulation, the catastrophe unleashed at the time stands as a reminder of how profoundly misplaced is the idea of state planning as an antidote to chaos.

What is so disturbing to me is this one sentence:

Countless people were killed indirectly through neglect, as local cadres were under pressure to focus on figures rather than on people, making sure they fulfilled the targets they were handed by the top planners.

Focus on figures rather than on people. This is what governments do. This is the argument behind every single regulation. Figures rather than people. I see echoes of the Great Leap Forward in every GDP calculation, every figure-based argument for minimum wage or drug law, every attempt to increase exports by manipulating the money supply. It’s all the same evil. It’s just a question of degree.

Mao took statism to its penultimate conclusion, and 45 million people were murdered. Not even Stalin took it that far.

Why does nobody know or care? Why does everyone know that 6 million Jews were murdered in a race war, but not that 45 million Chinese were murdered in an economic war? Many reasons, but my wife had some wise words. Jews have a cultural memory. We are perhaps the tightest knit group of people on the planet. Kill us, and we can mobilize to the point that everyone will be hearing about it forever.

But most people are just individual people. Nobody will mobilize for them. But I will do my best to remember those 45 million faceless Chinese who are remembered by nobody, as statues of Mao still stand in Beijing and China is about to undergo another gigantic crash fueled by insane money printing that has expanded the Yuan supply by a factor of 23.5 since 1996.

It won’t be as bad as the Great Leap Forward of course, but it will be quite bad.

Model Portfolio Change

After yesterday’s drop I have added a position to the model portfolio. $3,000 worth of SPY April 15 2016 calls at a strike of $203. Check the model portfolio page at the menu bar.

There is no reason for stocks to fall so hard now, as the money supply is expanding rapidly. This will be reversed in a few days, if not today and we should be able to sell the calls for a quick profit sometime in late January or early February.

The reason I picked the $203 strike is that it has the least open interest in near the money contracts, meaning the lowest amount of people trading it. That generally gives it a discount over other strikes as the demand is lowest.

I always go out a little farther than I plan to sell them in case my timing is off. It’s worth it to pay the extra time premium rather than rely on impeccable timing which I almost never have.

Anti Fed Economics Goes Mainstream as Jared Blikre Does it Again

Something amazing is happening at Yahoo Finance. It’s a tool I use almost daily for stock research, but the articles and commentary are generally blah mainstream Keynesian Fed cheerleading nonsense.

Not anymore.

I reported on Jared Blikre last week, who actually made mention of the excess reserves problem at the Federal Reserve. This is an enormous financial elephant in the room that will eventually (and soon) destroy the dollar. I suspected he may have Austrian leanings. That is now confirmed.

Blikre is a friend of Bob Wenzel, and Austrian economist and publisher of EconomicPolicyJournal and TargetLiberty. I emailed Blikre’s last article to Bob and it turns out he had already linked to the very article I sent him 5 days before I even found it on the Yahoo front page. That means it was floating as the feature Yahoo Finance article for 5 whole days, though there are probably IP based permutations and algorithms governing who sees that article as the feature and who doesn’t.

So yes, we have someone high up at Yahoo Finance reporting on actual relevant financial news out of the Fed. On December 31, Blikre struck again, detailing some strange goings on in the Fed funds rate and humongous overnight treasury auctions that signal something’s up. It reads like a slightly toned-down version of a Zerohedge piece, but Blikre clearly has a deep understanding of the mechanisms of Fed operations and money creation that even I am unfamiliar with.

Read Blikre’s piece in full. It’s real financial journalism.