KUNMING, CHINA – We see cameras everywhere… on every street corner, over every sidewalk, above every building entrance, over every train platform and bus stop…
Yesterday, I heard a man recount how he was fined for jaywalking in China. They pulled the fine straight from his bank account 20 seconds after he crossed the street. He was caught by facial recognition software.
I took this picture of cameras on our stroll in the park today.
We see cameras everywhere in China
On the Road
My ex-wife Kate, our three kids, and I left America over a year ago. We’ve been traveling around the world by public transport, staying in backpacker hostels. We’ve been across America, Europe, Africa, the Middle East, India, and Southeast Asia.
We’re currently in Kunming, in southern China. We’re staying in a cheap hotel ($13 a night). We do our schoolwork in the morning (Kate and I are homeschooling our kids) and a little exploring in the afternoon.
Today, we rode the subway and took a couple of city buses. Then we went for a walk in the park. Tomorrow, we catch a bullet train to Lijiang, an ancient market town with cobblestone streets in the Yunnan mountains.
We’ll spend two months in China… then we’ll head for Japan.
Riding the bus in Kunming, in southern China
For the last three months, I’ve been writing about the plumbing beneath the world’s financial system and how there’s a shortage of dollars in the market for very short-term loans (one- to three-day loans).
This is an important market because banks from all over the world use it to match their obligations with their assets on a minute-by-minute basis. Trillions of dollars change hands every day. I used to work on the repo desk at Citigroup, and trades measured in the billions would cross my desk.
I’ve discussed terms like repos (repurchase agreements), effective fed funds rate, interest on excess reserves, swap rates, and FX (foreign exchange) hedged bond rates.
I’ve described how the Treasury’s voracious appetite for cash (after it raised the debt ceiling) has coincided with foreigners refusing to buy Treasurys (because FX swap rates went negative), which has coincided with deflation in the eurodollar market.
You don’t need to understand any of this. All you need to know is that there aren’t enough dollars in the system, and the situation keeps getting worse.
I’ve called this a “slow-motion credit crunch.” I’ve been warning that, unless the Federal Reserve fixes it, things are going to start blowing up.
Well, the Fed hasn’t fixed it. I’m not even sure it understands what’s going on. And yesterday, ZeroHedge carried this headline:
Something Just Snapped: Chaos Hits Repo Market As “Dollar Funding Storm” Makes Thunderous Landfall
You can see that “chaos” in the chart below. It shows the overnight repo rate, which spiked 6.4% between Friday and Tuesday.
To reiterate, any moment now, the Fed is going to open the liquidity taps. If it doesn’t, things are going to start blowing up, especially in emerging markets.
The Dow-to-Gold ratio is at 18.08. It peaked at 22.36 last year. It’s on its way to 5.
– Tom Dyson
P.S. We continue to be amazed how modern and prosperous this part of the world is. The subway is so bright and shiny it almost hurts the eyes. The traffic is perfectly organized. The buses don’t accept cash. There’s no honking or civil disobedience. The restaurants all have digital signage. There are big, imposing banks with long rows of ATMs everywhere you look.
I wish I could talk to the locals and ask them if there’s been any inflation in prices… or if consumer credit is popular… or how they can afford to buy apartments.
But we can’t communicate. It takes us five minutes just to buy a drink, order a meal, or get directions. We mime and point at pictures. And when we’re not getting our message across, we use our phones to translate.
P.P.S. This is in Hanoi a few days ago. The train squeezes down this little alley. It’s become a tourist attraction. Lots of cafes have sprung up next to the tracks, and you can have a coffee or a plate of spring rolls while you wait for the train. We love trains in this family (well, okay, it’s mainly Dad), so of course we had to go. Here we are getting flattened against a wall by the train…