Are we too pessimistic with regard to China? Perhaps, but who really knows. Seriously, who really knows. The data out of the Ultimate Crony Capitalist State is poor. It is politically manipulated. No one really has a hard sense of what’s actually going on, including probably the Chinese government to a large extent.
We have said in the past that the real economic “run for the hills” moment is the moment the dollar loses world reserve currency status. If that were to ever happen all sorts of things would cascade. Interest rates would shoot up. Our debt would become unmanageable. All sorts of dollar denominated assets would decrease in relative value. It would be a colossal mess.
This is unlikely to happen anytime soon. Though “dollar hegemony” has eroded somewhat since the 2008 Crash,
Image: Zerohedge – The red dots are oil tankers just hanging out waiting to unload in Texas.
Yes the Saudis have been trying to take down the American fracking oil industry and probably the Russians too. (With much success to date at least in the USA.) But this glut of oil is not only the result of our Middle Eastern “friends” turning on the oil spigots. It is also because the world’s second largest economy, China, is slowing and likely will continue to slow.
You can definitely put us in that camp. Seems ever since China started locking away short traders in gulags (not an exaggeration) while the Chinese central bank proceeded to literally buy the Shanghai market to keep it afloat, things have chilled out a bit. In fact many world markets (including ours) have had a nice rally through the often stormy month of October. So now with those pesky “speculators” locked away in a dungeon somewhere and the press thoroughly informed that they had better report official Chinese numbers instead of those oh so annoying “real”
When oil prices collapsed after the Saudis opened the spigots and dropped the “oil bomb” on the world (and they still have bombs to drop if need be) ACC (and others) warned that this could be very damaging to the American economy. Though the lower gas prices were welcome, the engine of the post Crash “recovery” in the USA was the fracking revolution which spread down the Rocky mountains and into parts of the Midwest. Now an economic slowdown is spreading the same way.
Looks like since the stock market meltdown things are tightening up in China. I can see the commie commanders foregoing golf. But sex and pigging out? That’s going to be tough.
This is full on terrifying. Many of our readers would probably be relegated to “junk credit” status overnight. If you are in China and reading this, please don’t leave a comment. We don’t want you to miss out on a mortgage. (Not really an issue as most of our stuff – most – appears to be outside of the “Great Firewall” of China.)
This score is linked to one’s Citizen ID number and it is all about manipulation,
Sao Paulo. One of the world’s most massive cities.
Brazil is not a country Americans think about all that often but it is a huge country and an economy which has long been on the rise. No longer. A political crisis (driven by a very crony socialist president) coupled with the bottom falling out of commodity prices (driven by a declining China – also a crony state reaping what it has sown) have combined to hammer the country.
This is not an isolated issue of concern only for currency traders and international economists.
OK, Politico did not use the exact term, but Charles Davidson and Jeffrey Gedmin make a pretty bold statement in today’s edition. China is a kleptocracy and this encourages instability in the country and in the global economy.
We have argued this pretty much since the founding of this website. A broad system of crony capitalism like the one in China creates distortions in the economy, prices are obfuscated, the connected become wealthy, dishonesty is compounded,
Kyle Bass is often excellent. He is warning today that much of the developing world is in a dangerous banking position. He argues that these emerging market systems are quite exposed to even a run of the mill downturn. Additionally he argues that China has “only just begun” devaluing its currency.
Between a rock and a hard place.
Could? Well, I suppose so. In the same sense that taking drugs away from an addict is likely to trigger a “drugs crisis.”
If you don’t know, the entire financial world is on tenterhooks right now waiting for the latest declaration from the Federal Reserve, or as David Stockman puts it, the financial politburo. Will they raise rates or won’t they? Look to the skies. Stare into the crystal ball. What will the masters of the universe do?
We’ve been saying the numbers weren’t to be trusted in China for years. (We certainly weren’t the only ones.) Looks like the world is also coming to this realization, or more likely is just acknowledging that the jig is up. Or maybe both. Whatever, we hope that you had a good ride if you were investing in China on the long side, and hope that you saw the writing on the ghost city walls before things got ugly.
Things are getting wacky in The Ultimate Crony Capitalist State.
Robert Shiller, not always our favorite economist here, is warning that the stock market is looking particularly bubbly. This isn’t a huge story except that talk of a bubble is now coming from one of the accepted shamans of Keynesianism. Shiller also called the tech bubble and housing bubbles accurately. His book Irrational Exuberance is a classic.