Maybe you have heard about the Asian Infrastructure Development Bank. This is the latest boondoggle created by a bunch of communist apparatchiks, mostly in their late 60's. A lot of them majored in engineering in college.
These politicians are working in conjunction with a bunch of Keynesian apparatchiks at the People's Bank of China, who spend their entire lives figuring out excuses on why mass inflation of the monetary base is good for China.
By combining Communist politics, Keynesian economics, and a central bank tradition going back 35 years of constant monetary inflation, the Chinese government will once again shoot itself in the foot. Here is a country that thinks it is productive to build entire cities that will hold a million people, but nobody moves in.
A BOONDOGGLE BANK
This enormous boondoggle, which is going to fund regional boondoggles set up by national governments, has received a lot of publicity, all of it good. The Keynesian press has rushed in to tell us about this political coup that the Chinese have engineered. We are told that the Obama administration has egg on its face, because the administration opposed the whole idea. This is a case of one group of central planners with their very own central bank and boondoggle banks, who oppose the invasion of the their turf by another group of central planners, who also have a central bank.
Meanwhile, all over the world, politicians are rushing to get in on the deal. They see this for exactly what it is: a gigantic boondoggle that they can dip into, at below-market interest rates, to fund their own national boondoggles.
Infrastructure projects are beloved by all statists. There are roads, bridges, and other highly visible testimonials to the utter wastefulness of government spending. This is what Frederic Bastiat wrote in 1850 in his famous essay on the things seen and the things not seen. They are classic examples of what he called the broken window fallacy. People can see the results of the government money in the form of massive projects. They never consider the losses that society has sustained, as a result of the transfer of wealth from one group of people in the society to another group.
The great losers in all this, as always, will be the Chinese people. Money that need not have been created will now lower the purchasing power of the Chinese yuan. This is the main point of this boondoggle. It is one more example of mercantilistic Keynesian nonsense. And Smith refuted back in 1776, but the Keynesians have not learned.
So, the average Chinese citizen is going to pay more for imports from other nations, because the People's Bank of China will have created money out of nothing, and will have transferred the money to the Boondoggle Bank. The bank will buy IOU's issued by governments from around the world. The governments will issue the IOU's because they are going to use the money to create massive infrastructure boondoggles in their own countries. The national governments will look as though they are doing something very creative, and the money will be funded by loans from the Asian Infrastructure Development Bank.
Why wouldn't these projects be funded by local entrepreneurs or international entrepreneurs? The answer is simple: they are money-losing propositions. They are boondoggles. They would not have paid off if private investors had lent the money to the governments to build the projects. Private investors know better. They know these are boondoggles, and they do not want any part of them. But this will not stop the bureaucrats at the Asian Infrastructure Development Bank. They will have lots of newly counterfeited yuan to use to buy foreign currencies, which they will use to buy IOU's from governments at below-market interest rates. And a good time will be had by all.
This is one more example of government waste. This is one more example of bureaucrats with PhD's who have no clue about investing their own money, or the money of profit-seeking investors. Instead, they are going to take billions of dollars worth of newly counterfeited yuan and buy the currencies issued by central banks from around the world.
You can read all about it on Wikipedia. This is written in neutral language, as if this were not a gigantic boondoggle by the Chinese government in order to fund large-scale boondoggles run by various governments.
In June 2014 China proposed doubling the registered capital of the bank from $50 billion to $100 billion and invited India to participate in the founding of the bank. On October 24, 2014, a signing ceremony held in Beijing formally recognized the establishment of the bank. Twenty-one countries signed the Memorandum of Understanding (MOU), including China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan, and Vietnam.U.S. pressure allegedly tried to keep Australia and South Korea from signing up as founding members, despite the fact that they formerly expressed an interest in it. However, both Australia and South Korea have officially applied to join the bank, ignoring objections by the United States. Indonesia's joining was slightly delayed due to their new presidential administration not being able to review the membership in time.
FREE MONEY
"Free money! Get your free money!" We read in The New York Times that the bureaucrats who are giving away the free money are just amazed at how many governments signed up to get the free money.
The sudden rush to join China's new Asian development bank by this week's deadline, including last-minute applications by countries hardly considered Beijing's best friends, astonished even the Chinese.The article praises the Chinese bureaucrats who are going to lend newly counterfeited money at below-market prices. We are to believe that these are very smart fellows.
The interim head of the bank, Jin Liqun, who has worked at the World Bank and the Asian Development Bank, is "an experienced, savvy guy," said Nicholas R. Lardy, senior fellow at the Peterson Institute for International Economics in Washington. "He's hiring an able staff of about 40 people, half from China's Finance Ministry, half recruited internationally. He says he wants to hire the best staff he can get."These Chinese central bankers are imitating Western central bankers. They are hiring a bunch of bureaucrats, formally certified by various accredited institutions. These bureaucrats are supposedly going to know what to do with literally hundreds of billions of dollars of newly created fiat money. They are supposedly top people in the field, which is probably true, because they will be paid above-market salaries. They will then decide how to give away money at below-market prices. I am sure they will give it all away. I am sure there will be takers for all of this money. I am sure that lots of boondoggle projects will get built, though of course not on time, and always over budget. There will be lots of these projects for voters to come to view, and all the governments involved will say: "a job well done."
This will come out of the hides of Chinese citizens. It will also come out of the hides of voters in the particular countries, who will then be required to pay the taxes to pay back the loans for the boondoggles. This is Keynesian economics at its most visible.
If the bureaucrats in the other countries want to build entire cities that will remain empty, there will be bureaucrats in the Asian Infrastructure Development Bank who will be happy to hand over the money. These are people who have real expertise at building empty cities.
CONCLUSION
Anybody in the United States who worries about Chinese politicians and Keynesian economists working for the Chinese government should concentrate on something else to worry about. This is one more Chinese fire drill run by Communists, Keynesians, and central bankers.
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