I’ve been in the transition from motion to stationary for 5 days. Still can’t watch TV, but have been getting news from web every day.
Butterfly economics and ‘black swans’ indicate that large events always come from seemingly insignificant events.
This news story is perhaps the most important of anything going on in the world right now, in that small numbers of people could have a terrible impact on the largest number of humans in the shortest amount of time.
http://www.nytimes.com/2009/07/11/world/asia/11riotinto.html?_r=1&scp=7&sq=rio&st=cse
http://online.wsj.com/article/SB124723948786923911.html
I just drove 9,000 miles through mining country. This news story has very direct connections to that land. I read it in a very different light from the yellow jeep.
Given:
- China is the largest manufacturer of everything in the world – the world depends on them for ‘stuff’
- China is the largest single buyer of the top commodities in the world – the world depends on them for income.
- China’s commodity buying has kept the sub-prime fueled ‘worst recession in decades’ from becoming ‘complete economic depression’ by keeping a floor under global commodity prices. Its core demand for iron, copper, etc have kept commodity prices from collapsing despite the crash in home and industrial construction elsewhere.
- China – with its unique mix of ‘communist’ and ‘capitalist’ culture – does not have legal boundaries between ‘business secrets’ and ‘state secrets’ – and therefore can do pretty much what it wants with the world’s commerce – within their boundaries and laws.
- China is a de-facto owner of the lion’s share of global commodities and has essentially conducted a peacetime invasion of Africa and other resource rich regions.
Then:
This little ‘tiff’ is has much more immediate damaging potential than Iran, Afghanistan, North Korea, banking crisis, and a host of other headlines.
- If commodity prices were really negotiated 45% downward as China demand, then the recession we see now would extend far beyond only those humans who were rich enough to have brokerage accounts or a mortgage.
- If trade with China slows down even for a month or two, because people fear getting arrested, or fear that their assets will be effectively nationalized….then retail everywhere drops significantly, industrial supply chains and financial markets freeze again.
In 1940 the US cut off scrap steel and fuel sales to Japan. That was a pivotal event in creating a world war. Butterfly economics had started long before that policy move.
The moves by China this week – arresting Rio Tinto executives and holding them incognito – are still very small.
They are not likely to stimulate world war.
Most likely the executive detentions will result in back room negotiations and exchange of significant funds.
But they have implications far beyond this now second-page news story.