Chinese Government Cranks Its Credit Crisis Up a Notch
The credit crisis in China continues with the government taking things up a notch this past weekend.
Zhou appears calm, but it masks the turmoil in the Chinese economy. For months now the Chinese stock market has masked the credit crisis too, having doubled over the last year. This past week, however the market plunged. Zhou's quick action on Sunday may indicate a bit of panic as prices dropped another 5% in after-market action late Friday.
It appears the consequences of years of the government goosing the economy with cheap money and free-flowing credit continue to bubble up to the surface. And those consequences can be summed up in one word: malinvestment. That's what occurs in an economy when money is artificially cheap, and in the case of China, even force-fed by the government to government-sponsored industry.
Ironically, over the weekend, I caught a few minutes of a show featuring chef and food writer Anthony Bourdain visiting China where, enjoying a great meal, he opined about how "capitalist" that country was, even compared to the U.S. (Imagine a "foodie" holding court regarding economic theory!) His hosts reveled in those comments. While it may be true that the local restaurant where Bourdain ate was an example of free market capitalism at work, the bulk of China's "economic miracle" wherein year after year we've seen statistics indicating spectacular growth isn't being driven by restaurants. It's large government-sponsored companies led by Communist Party hacks who've pumped out gobs of goods, resulting now in too much stuff chasing dwindling world demand - malinvestment at work.
But with all their problems, government officials press on. Even as their credit crisis grows, Zhou wants the Chinese currency recognized as a world reserve currency.
However all this unfolds, we would note simply how the Chinese government presses on with both its manipulation of their economy as well as their drive to add another notch to their belt as a world power by having the Remnimbi included in the ranks of currencies making up the basket that determines the value of the SDR.
Yes, folks, China and the IMF march arm in arm to fashion a world economy whose primary trend enriches a select few whose connections to government power allow them to continue to skim off the top of the speculative bubbles blowing up around us.
Interesting times?
By the way, you may know this, but the wish "May you live in interesting times" is Chinese in origin. And it's not something the object of the wish takes lightly or happily. It's more like a curse than good wishes. Looks like the Chinese government continues to do its level best to ensure "interesting times," doesn't it?
China’s central bank Governor Zhou Xiaochuan said the world’s second-largest economy has scope compared with other nations to ease its monetary policies though won’t necessarily take advantage of it.What is this "scope"?
“We have room in the reserve ratio and our interest rates are not zero yet,” Zhou, 67, said in a brief interview Saturday in Washington, where he was attending the International Monetary Fund’s spring meetings. “There is definitely room. But we need to adjust carefully. It doesn’t mean we will have to utilize it or fully utilize the room.”That was Saturday. By Sunday the Central Bank had reduced the reserve ratio. That didn't take long, did it?
Zhou appears calm, but it masks the turmoil in the Chinese economy. For months now the Chinese stock market has masked the credit crisis too, having doubled over the last year. This past week, however the market plunged. Zhou's quick action on Sunday may indicate a bit of panic as prices dropped another 5% in after-market action late Friday.
It appears the consequences of years of the government goosing the economy with cheap money and free-flowing credit continue to bubble up to the surface. And those consequences can be summed up in one word: malinvestment. That's what occurs in an economy when money is artificially cheap, and in the case of China, even force-fed by the government to government-sponsored industry.
Ironically, over the weekend, I caught a few minutes of a show featuring chef and food writer Anthony Bourdain visiting China where, enjoying a great meal, he opined about how "capitalist" that country was, even compared to the U.S. (Imagine a "foodie" holding court regarding economic theory!) His hosts reveled in those comments. While it may be true that the local restaurant where Bourdain ate was an example of free market capitalism at work, the bulk of China's "economic miracle" wherein year after year we've seen statistics indicating spectacular growth isn't being driven by restaurants. It's large government-sponsored companies led by Communist Party hacks who've pumped out gobs of goods, resulting now in too much stuff chasing dwindling world demand - malinvestment at work.
But with all their problems, government officials press on. Even as their credit crisis grows, Zhou wants the Chinese currency recognized as a world reserve currency.
Zhou and the Chinese government have been pressing the IMF to include the yuan in its Special Drawing Rights basket of currencies regarded as global reserve currencies. IMF Managing Director Christine Lagarde has said that “we welcome and share this objective.”This development makes sense as the IMF pushes its SDRs - Special Drawing Rights - as the ultimate reserve currrency to replace the US dollar some day. (You can read more about it in James Rickards' The Death of Money: The Coming Collapse of the International Monetary System. Rickards may be right about a coming collapse, although his timing would make us believe it will be upon us any day now, rather than something that will unfold over years. Either way, he does discuss in detail what we're now witnessing: the IMF pushing its digital SDR currency as a reserve currency, and the inclusion of China's Remnimbi.)
However all this unfolds, we would note simply how the Chinese government presses on with both its manipulation of their economy as well as their drive to add another notch to their belt as a world power by having the Remnimbi included in the ranks of currencies making up the basket that determines the value of the SDR.
Yes, folks, China and the IMF march arm in arm to fashion a world economy whose primary trend enriches a select few whose connections to government power allow them to continue to skim off the top of the speculative bubbles blowing up around us.
Interesting times?
By the way, you may know this, but the wish "May you live in interesting times" is Chinese in origin. And it's not something the object of the wish takes lightly or happily. It's more like a curse than good wishes. Looks like the Chinese government continues to do its level best to ensure "interesting times," doesn't it?
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