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Vanitas with Skull (Hendrick Andriessen, ca, 1600-1650, oil on panel)

Vanitas with Skull (Hendrick Andriessen, ca, 1600-1650, oil on panel)

Here is a simple but extremely lovely small still life painting by Hendrick Andriessen, a Flemish Baroque painter who specialized in “vanitas” paintings.  The entire composition is designed to remind the viewer how transient human life is.  The fragile pipe stems are easily broken (and tobacco’s pleasure is brief and tainted).  Each lovely cut flower withers away, The quivering flame is blown out…and nothing represents the dreadful onrushing nature of death like a human skull.  At the apex of the composition is a fragile bubble ready to burst.

As summer ends, this composition seems fitting in many ways (for example it was my birthday this past weekend).  Additionally, the bubble has symbolic significance in other realms than art.  We all knew the China bubble had to pop…..

Shanghai, China

Shanghai, China


I don’t usually post about business because I understand it very little and like it even less, but events on the other side of the world merit a brief mention (also I can’t think of anything truly worthwhile to write about today). The SSE Composite Index is a stock market index of all the shares traded on the Shanghai Stock Exchange (well actually all A and B shares).  Since June of 2014 this index has shot up by 40% pushing it to heights not seen for 3 years.  The news is all the more baffling considering that a consortium of experts agree that nothing in the actual Chinese economy supports this rampant bull market. Sophie Yan from CNN Money describes the Chinese economy in somewhat bleak terms: “factory activity is at an eight-month low, the real estate sector is shaky and the economy just saw its worst quarter since the financial crisis.”

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So why are stocks surging upward with no relation to the real news?  Well, America’s economy is doing better than it has for a long while and China sells a lot of goods across the Pacific Ocean.  Also ordinary Chinese small holders seem to finally be digging up jars of coins and investing them in the stock market (the average Chinese householder has been wary of investing savings in institutions or businesses for obvious historical reasons).  But, it seems obvious that the real answer is that this is a speculative bubble.

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Like I said at the top, I do not understand business: perhaps secret unknown market forces are privy to information which nobody else knows about…or maybe the rules of human economics have been eternally suspended.  However barring those potentialities, the SSE is full of froth and is about to pop (in fact, on Tuesday, AKA yesterday, the index shed 5% in a day…and then bounced back).  I wonder how high it will go before it falls and I wonder how far the fallout from a correction will go.  Our own market seems a tad frothy too…but Americans have a proud ability to willfully ignore what everyone else in the world is up to.  Whatever happens, it should be an interesting few months for volatile speculative craziness in Shanghai.

The “ghost fleet” of container ships lies anchored and inactive off the coast of Malaysia.

Today we return to China, the incandescent heart of global world trade.  The Chinese economy has emerged from the mud, blood, & chaos of the 19th and 20th century to become a world-straddling giant. GDP has grown at rates of 5% to 10% (or more) per annum, year after year.  Entire giant cities are springing up, seemingly overnight. Roads, airports, canals, and railroads are being rolled out like carpet.  The Chinese are magnificent, invincible, beyond the ordinary constraints of destiny! Yet (as you might have noticed) outside of China, there is an international financial crisis going on.  One wonders how the Chinese economy, which is still based around selling socks, buckets, and cheap plastic crap goods to everyone in Europe and the United States is coping with the huge declines in demand from those sectors.

 

An inscribed walnut-shell snuff bottle (Ching Dynasty, ca. 1736–1799. photo Bonhams)

But let’s put such a question aside for now.  That was all back-up information to the real subject of today’s post: walnuts!  Walnuts are edible seeds from trees of the genus Juglans (a word which means “acorn of Jove” to honor the virility and fecundity of the king of the Roman pantheon).  Walnuts are interesting plants in all sorts of ways.  Both the wood and nuts are commercially important. The trees conduct extensive chemical warfare against other plants.  There are dark and captivating myths concerning walnuts in cultures from East Asia to the Mediterranean to North America.  However, we will have to address the fascinating botanical aspects of walnut trees in a future post, because right now there are more immediate concerns: a speculative bubble for actual walnuts has formed in China and the nuts have become the focus of intense price inflation.

 

Buying walnuts at Yayuan International Antique Market in Beijing August 26, 2012. (photo by REUTERS/Stringer)

In China, walnuts have long been a popular plaything.  Handling the seeds is thought to increase blood flow, and the wealthy have long regarded walnuts as a status symbol. An article from Reuters (which is apparently a real article rather than a satirical joke) underlines the Chinese affection for walnuts by interviewing an ardent collector and enthusiast:

The bigger, older and more symmetrical, the better, says collector Kou Baojun in Beijing, who owns over 30 pairs of walnuts, most of which are over a century old and have taken on a reddish shine from years of polishing in the palm. “Look how well these have aged. Playing with these kinds of walnuts isn’t for ordinary people,” Kou said.

Like tulips in 17th century Holland, Chinese walnuts (particularly ancient, symmetrical, or large specimens) are trapped in a speculative bubble. Chinese bankers, investors, and speculators have been pouring money into building up light industrial production capacity and driving exports to the rest of the world.  As international trade withers, it is unclear how to reallocate all this money.  Ordinary Chinese investors have been fleeing the Chinese stock market because of widespread economic uncertainty, flagging exports, and because all-too-familiar shenanigans have made it difficult to invest in equities without being fleeced.  As this great river of capital backs up and flows elsewhere, strange markets are created, such as the thriving bubble market for dubious and or mercurial cultural objects like special gourds, esoteric teas, rare tropicl hardwoods, and, yes, walnuts.  A pair of particularly fine antique walnuts was recently listed (on a walnut trading site) for a price equivalent to more than $30,000.00.

The Chinese central government is desperately trying to “cool” the economy, but, in the mean time, people see walnuts appreciating in value by 200% and they can not resist the lure of easy money (even if they are literally investing in common nuts which grow on trees).  Cynical economists have speculated that the central government does not care about such frothy markets, since the craze for esoteric cultural items is at least not causing rampant inflation in food or energy prices, but those with a historical mindset have to wonder how this bubble is going to pop.

The exact moment a bubble is burst (Photo: BARCROFT MEDIA)

Close observation of this image will make you feel better about our current financial situation and about the moral progress of our nation.

The Panic of 1837 was one of the worst financial crises to ever hit the United States of America (at the time it was the worst).  It brought a five year recession in its wake.  Gloom mongers (and even hard-headed realists) believed that the nation would never recover its prosperity.

During the 1830s there was an immense boom of real estate speculation focused on public lands which were being sold off to buyers with political connections.  Huge fortunes could be made by reselling this land to railroad companies and canal builders who were rushing forward with competing projects.  The individual states were complicit with this mania, sinking vast amounts of public money into a diverse array of infrastructure projects both good and bad.

A "wildcat" three dollar banknote issued by a Michigan Bank for some sort of "Safety Fund" in 1837

Through various vetoes and political maneuvers President Andrew Jackson had successfully engineered the demise of the Second Bank of the United States (which was unable to renew its charter in 1832).  A great rash of new banks and investment companies sprang up throughout the 1830’s to supplant the bank.  Rather than paying off their debts and refinancing new projects, these financial houses anticipated greater profits from investing borrowed capital in the booming land speculations.  Because of this apparent national prosperity, the balance of trade shifted.  America, previously an exporter, was suddenly importing more goods than it was selling.  In anticipation of the huge profits, American states and corporations (and wealthy individuals) were borrowing money from European banks.  Additionally,  the world’s climate was changing in the 1830s.  An unusually cold era marked by intense volcanic activity and by an anomalous paucity of sunspots (the Dalton minimum) was coming to an end.  As environmental conditions changed, crops failed in 1835 and in 1837.

All of these factors were topped off by disastrous executive meddling.  The Specie Circular Act was an executive order issued summarily by Andrew Jackson in 1836 (during his last year in office) and carried out by his unfortunate successor. It required payment for all government land to be in gold or silver.  Jackson anticipated that the nation’s coffers would fill up with precious metals (he apparently did not trust paper money).  But people did not and could not pay.  The bubble burst.  Over 600 banks failed and the cotton market completely collapsed.  Eight states partially or wholly failed and even the Federal government was unable to discharge its debts.  Trade stood still as business confidence evaporated entirely.  Food riots shook the country.  Unemployment and hardship were the watchwords of the time.  The whole sad affair was exacerbated by economic calamity overseas: European bankers, suffering from their own setbacks, curtailed lending.  It was not until 1842 that the economy began to recover.

"I have no money and cannot get any work."

Strangely enough, the grim era between 1837 and 1842 witnessed tremendous technical innovations which would reshape the nation and the world.  In 1837 Samuel Morse invented the electric telegraph, which he successfully tested on January 6th 1838 at the Speedwell near Morristown, New Jersey–thus inventing the telecommunications industry.  Crawford Williamson Long used ether for the first time on March 30, 1842 to remove a tumor from the neck of a patient and usher in a new era of surgery.  In Europe a German chemist invented artificial fertilizer while James Nasmyth perfected the steam hammer (which made it much easier to build large machines).  Morse’s accomplishments and those of his fellow inventors are remembered.  The failures of the rapacious bankers, greedy speculators, and incompetent politicians have been forgotten by everyone except for historians.

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