One of the most astonishing outcomes of creating fake money is its ability to twist and reshape the world in peculiar and unexpected ways. The Dow (not quite) hitting 27,000, million-dollar shacks, and over $13 trillion in negative-yielding debt are just a few examples.
With enough fake money, any distortion is conceivable.
When considering the myriad ways fake money influences the economy, inflated asset prices are merely surface-level effects. The more significant distortions emerge in international trade—notably beyond just glaring trade imbalances.
Currency wars, competitive devaluations, and the race to the bottom all stem from the interplay of fake money, foreign exchange markets, and global trade. The resulting incentives for retaliatory tariffs and trade conflicts can also be traced back to the illusions created by fake money. Yet, these elements barely scratch the surface.
To truly grasp the implications of fake money, it’s essential to take a slight detour. A world affected by this phenomenon is undoubtedly strange, where the shortest distance between two points isn’t necessarily a straight line.
Before delving into how Beijing leverages fake money to undermine the U.S. transit market, let’s consider the realm of technology capitalism. While this narrative may be familiar, it provides critical insight into our broader economic landscape…
Benevolent Investors
The 21st century has given rise to many absurd beliefs, chief among them being the widespread notion that profits are irrelevant—growth being the sole determinant of a stock’s worth.
This runs counter to traditional views of capitalism, where current and future profits are vital for a company’s growth. Yet, according to the market’s peculiar dynamics—especially within the technology sector—profits seem to hold little significance. Investors have amassed a decade of rising portfolios to demonstrate this.
Consider Spotify. In the first quarter of 2019, the music streaming service reported revenue of $1.5 billion, but incurred a net loss of $142 million.
Despite this, investors flocked to Spotify as if it were a cash cow. By the year’s end, its share price had jumped 25 percent, all for a company reporting trailing twelve-month earnings per share of negative $7.63. Remarkably, Spotify boasts a market capitalization exceeding $26 billion.
One might question this business model. Negative earnings cannot be offset simply by increasing volumes. However, in the bubble economy of the tech sector, this rarely concerns investors.
What prevails among tech investors is the perception of innovative growth. Consequently, Spotify and numerous other tech entities thrive purely on the goodwill of investors.
This situation may be old news, but it’s crucial to revisit. By rewarding these losses, Wall Street’s most favored tech companies can decimate their competition and dominate niche markets.
How Beijing Uses Fake Money to Cannibalize the U.S. Transit Market
Arguably, the technology sector’s hallmark innovation has been its ambitious efforts to obliterate capital. Numerous unique and ingenious strategies have emerged to achieve this end—truly, the possibilities appear endless.
The Communist Party of China is currently exploiting these technology sector business models, much to the detriment of U.S. economic and security interests. Ironically, this is being done at the expense of American taxpayers.
Chinese state-owned enterprises (SOEs), such as the China Railway Rolling Stock Corporation (CRRC), are securing taxpayer-funded transit contracts in major U.S. cities. For clarity, SOEs are Chinese firms under the aegis of the Communist Party. The Alliance for American Manufacturing details the situation as follows:
“CRRC has already secured contracts to construct rail systems in Boston, Philadelphia, Los Angeles, and Chicago, having done so by significantly outbidding its competition. In Philadelphia, for example, CRRC underbid Canadian competitor Bombardier by $34 million, and offered a bid $47.2 million lower than Hyundai Rotem, which had an established manufacturing presence in the city.
“CRRC can afford to undercut its rivals because its aim is not to profit from individual contracts, as a typical free market company would. Instead, it seeks to dominate the global transit industry, rapidly establishing and solidifying its presence in markets worldwide, including the U.S.”
Much like tech firms that operate at a loss to eliminate competition, CRRC and other Chinese SOEs can also function at a loss to overtake the U.S. transit market. The difference is that while tech companies rely on benevolent investors, Chinese SOEs are bolstered by fake money from the Chinese government.
Recently, Senate Minority Leader Chuck Schumer has called for a federal investigation into CRRC’s design plans for New York City subway cars. However, this approach seems misguided.
As long as fake money is accepted for goods and services, extreme distortions will perpetuate. Beijing’s strategic use of fake money to encroach on the U.S. transit market exemplifies a troubling developmental trajectory.
Sincerely,
MN Gordon
for Economic Prism
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