I think I understand Shadow Banking. A visit to Wikipedia for its description
of Shadow Banking is a memory refresher. The difficulty in understanding Shadow Banking is that it deals with "far money financial paper" that is so far away from near money concepts quantified by M1 and M2 money that it is hard to get my mind around exactly what it is. I can step through all the math manipulations, back flips and hinking and jinking it takes to get to a Credit Default Swap and somehow the fact that it has an insurance aspect that someone will pay depending on certain circumstances give it some security and value as a financial piece of paper that is otherwise worth as much as it is printed on. Entire Shadow Banking systems are built on "far out money" like this. Ultimately of course it was not the insurance of the CDS that gave it worth as paper but the Government coming to the rescue with the bailout. Because it had to. There Is No Alternative (TINA). A binary choice between live and death with our necks in the news. So convenient to put such a decision for the government to make in such clear terms. Just like the fallacy of the "Fiscal Cliff".
We know full well what the Western concept of "Shadow Banking" is. It is finance. Finance with "Money" that has been created on or out of even less than the nothing that M1 and M2 money is created out of. It is all debt money. In the end all the funny money, far out money, finds its credibility backed by nearer debt money categories of M1 and M2.
M1 and M2 is the kind of money that I turned into investment. I bought stock with it.....
Beyond M1 and M2 are funny money categories extending out to the extremes of "Magic Beans" to whatever they can get people to believe in.
What is the Shadow Banking system in China?
This is an analysis of Shadow Banking in China that I found this morning thanks to Naked Capitalism. The analysis is called: "Uncertain Foundations". An apt title! What is the foundation? The lead line focus of the analysis is: Debate is raging about the effectiveness of how China’s murky shadow banking system is regulated.
The analysis cites this reference for its analysis of what China's Shadow Banking System is since China does not have a Chinese Wikipedia to define their Shadow Banking System. If they did I think we would be looking at two different systems when we compared their Wikipedia to ours. That is the pitfall: We think that there Shadow Banking System is the same as ours. It is no more the same than the two money debt systems are the same. (But we think they are and must therefore behave the same and dictate that China is doomed to crash).
Pulling The Wool over the eyes is a shadowing system. An American idiom created in the 1830's. It hides what is as well as what is being done. That can't be seen. Only heard and if what we hear is all we have to go on then the skillful employment of sound effects takes us back to the golden age of radio where our imagination takes us to worlds that do not exist but are created for us to believe in. All for our entertainment of course. Now we suspend disbelief when we watch movies. Or Fox News.
Pulling the Wool works two ways. We worked the trick at Normandy. Wall street worked the trick with CDS. How might the Chinese be working the trick with their Shadow Banking System.
Could it be that they are hiding it in plain sight? That it is not in fact Banking System money? A Grand Deception to make us think it is? It appears that the most literal translation of Pulling the Wool to Chinese is "To Make One's Ape" Interesting, culturally.
The words Finance and Investment are murky terms living in the shadows of conceptual structure even as they are defined by Wikipedia. However, to its everlasting credit, Wikipedia recognizes ambiguity when it sees it and like a good referee calls it as it sees it and regarding Investment has an Investment - Disambiguation link that links further to the more specific area that I want to focus on the link however returns me to a sub-section of the original link. Feels like I am stuck in a do-loop. Another form of Pulling the Wool over the eyes.
I define investment and finance in terms of what kind of money is used to do it.
Investment is excess M2 money capital the stuff of M2 profit of a business left over after expenses are covered. (like personal savings after payday expenditures).
Finance is money created not from profit derived from labor and materials but created directly from nothing for capital investment.
In these terms is it possible that the Chinese Shadow Banking system is Investment based and our Shadow Banking System is Finance based?
Actually this is an extension of my intuitive thinking that the two Money/Debt systems are fundamentally different and we can't see the fundamental difference because we view the entire money world in our own terms. The Chinese system in terms of our system.
Might it be convenient for the Chinese to allow us to view their system in that way.
How elegant to have your adversary pull the wool over its own eyes.
That concept is entirely the same expression as the elegance of skinning a cat by inducing it to jump out of its own skin. The inducement is caused by sneaking up behind it and simply saying Bo!
What if the money we are talking about in the Chinese Shadow Banking system is "real" money that someone earned, (maybe a whole lot of money) not just created by the bank out of nothing and the bank (or they who earned it with no banking insurance coverage) stand a chance of losing all that "earned" or asset money. In other words, a debt backed by 100% asset money that can only be 100% lost in the worst case scenario. Does asset capital money work that way in a non-debt money system?
In our Finance Shadow Banking system "Finance Money" can be lost in multiples of 100% and the risk of all that loss can be shifted down to the M2 debt money level.
Are we China's Ape?
What to do if you are a Chinese citizen with a ton of money.
Australia has the answer and it is an invitation.
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