Bessent moves off to a rocky start; US data positive; Japan, Taiwan and Malaysia exports strong; Australian inflation expectations rise, jobs market eases; UST 10yr at 4.70%; gold and oil prices up; NZ$1 = 59.4 USc; TWI-5 = 62.9

Governance and responsibility.  Mahe Drysdale showing what it looks like.  The Tauranga CEO shows what CEOs look like, I’m the one who lead you in here, so I have the experience to lead you out.  Follow me off this cliff.  And the part owner, the Maori Trusts, seems when the stuff is coming out of the fan, it wasn’t them who knew how to operate the fan, that they duck and dive with the best of them.  Not good enough.  

Equities finally realize who is the boss

'Well, the world's economy is still being driven by US middle-class consumer demand, the only economic engine large enough to shift the global needle. And we rely on a healthy upbeat global economy. China says it is making an attempt to duplicate this internal consumer demand, but by all accounts it is not succeeding, in part because Chinese consumers are still very risk averse and prioritising savings over consumption, and more so recently.'

Economic engine? Growth requires a doubling, over some disputed period (to mangle Seeger). The US represents 25% of global consumption O/A, much of which is public (military, infrastructure). Say 60-70% of 25% - say 16% of global. Already indebted to the max, already impacted by entropy; RE Ponzi in in the rear-view mirror. Needle? You'd need a micrometer...

China cannot consume any faster than it is - and not just because of risk-averse individuals; their leadership clearly see depletion more clearly than Western leaders do - or at least, Overton-ly can. Burnham's lame attempt to straddle modernity's need for FF, with a 'transition' - is worth listening to. Nobody will 'transition' seamlessly, but China will land softer than the US - whose dive is nearing vertical. 

Quoted from this morning's summary...



"Why is this important for us? Well, the world's economy is still being driven by US middle-class consumer demand, the only economic engine large enough to shift the global needle. And we rely on a healthy upbeat global economy. China says it is making an attempt to duplicate this internal consumer demand, but by all accounts it is not succeeding, in part because Chinese consumers are still very risk averse and prioritising savings over consumption, and more so recently."



Blimey - IMO, this paragraph, and in particular the first three sentences, literally beg the addition of some contextual background.



The Architecture of Wealth - How Structural Money Creation Diverged the Fortunes of the US and China (disclaimer - resident xenophobes, please feel free to scroll)



This not a promotional cheerlead for China - it is simply a collation of fact-based observations that will obviously be a very uncomfortable read for fans of the outgoing Western-centric unipolar hegemonic model.



I have spent a fair chunk of the last third of a century studying macroeconomics and how the vested interests use faulty metrics and slight of hand to obfuscate the fact that the Western-centric debt-based fiat-Ponzi is right now entering its death throes. 



For decades, standard Gross Domestic Product (GDP) metrics have treated a dollar generated by a speculative Wall Street hedge fund identically to a dollar produced by a high-tech manufacturing plant.



However, evaluating national power through the lens of Productive GDP (PGDP) - a metric that strictly isolates physical manufacturing, agriculture, utilities, and tangible infrastructure from secondary financial transactions - reveals a stark structural divergence between the United States and China.



By filtering out the paper wealth of hyper-financialisation, it becomes clear that the distinct mechanisms of money creation in these two superpowers have forged completely different economic realities.



The Engine of Credit: Private Markets vs State Direction

The root of this divergence lies in the architecture of broad money M2 creation and the destinations to which newly minted credit is funneled. In the United States, money creation is almost entirely market-led and decentralized, driven by private commercial banks.



Because these institutions prioritize maximizing short-term shareholder returns, credit naturally flows toward highly profitable, asset-backed sectors. This creates a self-reinforcing loop where credit expands to fund real estate speculative lending, complex financial derivatives, and corporate stock buybacks.



This system inflates the nominal GDP footprint of the Financial, Insurance, and Real Estate (FIRE) sectors, but it does so without expanding the nation’s underlying physical capacity.

Conversely, China operates a state-directed, investment-led monetary framework. While broad money expands via the banking system, the People’s Bank of China (PBOC), through "window guidance" exerts direct qualitative control and quantitative quotas over lending practices. State-owned commercial banks are mandated to align credit expansion with national industrial policy.



Consequently, newly created money is directly channelled into real-world, tangible assets: automated factories, high-speed rail lines, semiconductor foundries, and green energy infrastructure. In this model, the expansion of the money supply occurs in near-lockstep with the expansion of the nation's physical ability to produce goods.



Inflation and the Mechanics of Supply and Demand

These divergent credit pathways directly dictate how inflation manifests within each domestic economy. The US model inherently fosters a highly financialised consumer economy that is structurally prone to debilitating demand-pull and cost-push inflation.



When massive credit injections occur, such as the aggressive monetary easing and stimulus measures of the early 2020s - purchasing power expands rapidly while the domestic productive baseline remains stagnant or diminished due to decades of offshoring.



This results in too much money chasing an inelastic pool of goods, causing sharp consumer price inflation and exposing a profound vulnerability to fragile global supply chains.

China's supply-side money creation acts as a structural buffer against consumer inflation. Because bank credit is systematically targeted at expanding industrial capacity, the domestic supply of goods routinely keeps pace with, or even exceeds, domestic aggregate demand.



When China increases its money supply, it builds more factories and scales production efficiencies. Instead of generating rampant inflation, this hyper-abundance of physical capacity creates a disinflationary environment, driving down factory-gate prices and allowing the economy to absorb massive monetary expansions without triggering hyperinflation in daily consumer essentials.

The Real Realignment: Productive GDP and the Savings Engine

When this structural difference is measured through Productive GDP, the illusion of nominal wealth evaporates. In the United States, PGDP represents an increasingly minor fraction - roughly one-sixth - of its total broad GDP.



The remaining five-sixths are comprised of service-oriented and paper-shuffling overheads, such as inflated healthcare administration, litigious legal structures, and real estate fees.

China's economic profile is completely dominated by its physical output. When adjusting strictly for tangible infrastructure, manufacturing volume, ship-building capacity, and energy generation, China's PGDP is approximately 300% larger than that of the US.



In fact, as Western industrial erosion has continued, the United States has slipped into third place globally in real productive terms, falling behind the rapidly expanding Indian economy.



Summary



This production-heavy ecosystem has successfully cultivated a highly resilient domestic savings culture. Western financial systems aggressively market consumer debt, subprime financing, and credit cards to artificially sustain consumer spending.



In contrast, China’s state banks restrict easy access to speculative retail credit, preferring to keep capital anchored in industrial development. Combined with capital controls that limit speculative capital flight, Chinese households are structurally incentivized to maintain high precautionary savings.



These personal reserves flow directly back into the state-owned banking system, creating a sustainable, low-cost pool of domestic capital that is continuously reinvested into the nation's real, tangible economy.