It’s hard to overstate how important it is that despite massive, massive, intervention from the Bank of China and huge political pressure from Beijing the Chinese market continued and continues to sell off. This is the first instance of a central bank post-2008 really losing control. And this is happening in the world’s second largest economy and arguably the world’s chief engine of growth.
In case you haven’t noticed things aren’t so hot in China. In fact the country, the Ultimate Crony Capitalist State is in serious trouble. Today it devalued the yuan, its currency.
We have been sounding the alarm on China for a very long time. Not that we’ve been the only ones. That China has been headed for real trouble has been obvious to many for quite a while, years. Regardless, trouble is here now. The world’s second largest economy is pretty much in crisis mode, or very near it and this state of affairs will have an impact (it already has) globally.
What should also be understood is that this is not a separate episode from the initial financial crisis which hit much of the world in 2008. China, Greece, Japan, it’s a continuation of the Great Recession. We’re not out of it. Indeed, some believe that we likely have not seen the worst of it.
The word “cascade” comes to mind. China is the world’s second largest economy. The continued crash has real implications for the rest of the world economically and probably politically. What those implications are at his point we do not know but it is certainly time now to keep one’s eyes on the horizon.
You want to know why Chinese stocks bounced today? The Chinese government outlawed the selling of stocks for many people and just stopped trading for over half of listings.
That my friends is crony craziness on a massive scale. A Chinese scale.
This would be fun to watch if it wasn’t for the fact that an unstable China creates a number of problems for us, the USA, economically and perhaps in other ways. But here’s a good bit of advice from the author of the attached article.
When Shanghai was peaking at 5,000 in June, I gave you five words of advice: Get. The. Hell. Out. Now.
To which I’ll add five more: And. Stay. The. Hell. Out.
The Ultimate Crony Capitalist State is feeling a bit unstable right now. Instability is the great enemy of the Chinese Communist Party. The market mechanism continues to bleed through all across the Chinese economy and Beijing is getting (more) nervous. The state “capitalism” miracle is looking a lot less miraculous these days.
The Chinese stock market is off over 20% since mid June. (Though still up more than that for the year.) A property bubble continues to pop. Exports have slowed. Change is in the air. Of course it’s been in the air before.
Now it looks like China may have deployed its own version of the “Plunge Protection Team” to hold back reality. Thing is reality is reality.
What’s the old adage? Never engage in a land war in Asia? Well we tossed that one out a while ago and now it looks like we might be heading for one on the high seas. No kidding. China is building island bases in the South China Sea, right over massive deposits of oil and smack dab in the middle of Asian trade routes, and we are not happy about it. In fact we’ve ordered China to essentially stop immediately. They are not complying, and are using diplomatic talk of the kind which isn’t very diplomatic.
We have gotten to the point where sober minded people (well probably most of the time) with serious skin in the game are getting concerned.
China is an amazing political and economic entity. Watching it is fascinating.
Is it slowing? How much? Is it a lot? Is it a lot more than even the pessimists think? Is the Chinese banking system looking at a “black hole moment”? Can the banks be bailed out by the Chinese central bank without setting off a worldwide economic wildfire? No one knows the answer to these questions, including the powers that be in China.
China is the ultimate crony capitalist state. It is a country which is built on lies on top of more lies on top of more lies on top of more lies.
This could be a good thing overall for China as the “alternative sources,” trusts, what is often called the “shadow banking system,” might actually be a stabilizing and limiting force in the economy. The rates of interest on loans through the shadow banking system are much higher than what municipalities can obtain through traditional lenders, and probably more accurately reflect the real risk of loans. (Which are considerable it appears.)
So long as the dollar retains its “reserve” status we’ll continue to run the world economic show.
China is slowing, and probably pretty quickly. The banking sector is in real trouble. It is possible that the real estate correction now underway will be far worse than the one we recently saw in the United States and in other parts of the West.