The Chinese Market Crash

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The Chinese Market Crash 

When the international financial press presents their standard explanation for the panic decline in the Chinese stock market, most want to tamp down the acute apprehension that the long awaited global depression is now at hand. Well, the International Business Times in their account on the China Stock Markets, makes a very insightful appraisal.

“Some analysts say the acceptance of the Chinese yuan into the International Monetary Fund’s Special Drawing Rights basket of reserve currencies late last year may have strengthened China’s determination to allow the exchange rate to be set by the market — as it seeks to make the currency fully convertible within the coming years.”

The implication is that the yuan’s decline versus other currencies, especially against the U.S. Dollar is a directed strategy and not a bubble caused by market forces. Now compare this viewpoint to the one back in the summer of 2015, from the Economist, The causes and consequences of China's market crash.        

“The proximate cause for all this is a chain of events that began with the surprise devaluation of the yuan on August 11th. More than $5 trillion has been wiped off on global stock prices since then. Today's Chinese-market meltdown seems to have been driven by disappointing data on Friday, which suggested that China's industrial activity is slowing sharply, and by the failure of the Chinese government to unveil bold new market interventions today to prop up equity prices.”

 Well these are code words for quantitative easing that has worked out so well for our own economy. Hogwash should be the response. “Bold new interventions” is equated as using the central banking toolbox to kick start stock prices so that the insiders can be bailed out. Wall Street, City of London or the Frankfurt financial center all seem to be on a mission to entice the Orientals back on the opium habit. This time the moneychangers want to make Asia into a debt junkie slave. 

An outlook from the Middle East asks, What's behind China's stock market meltdown? Their answer in part states, “The drop, which is being linked to poor economic figures, tensions after North Korea's nuclear test and the spat between the Arab world and Iran, comes amid further data showing that China's economy is slowing down.”

This slant may be understandable from their perspective, but it misses the mark by a wide margin. Back to the Economist, finally with a valid point:

“The global market rout may also represent a definitive end to the period of rip-roaring emerging-market growth that began around 2000. Tumbling emerging-market indexes and currencies, from Brazil to Turkey and Kazakhstan, are further evidence, if more was needed, that the cocktail of Chinese growth, low interest rates and soaring commodity prices that powered emerging-market growth has been yanked away, leaving the developing world to face the hangover.”

The party binge should have ended decades ago. However, the banksters will stop at nothing to protect their ongoing debt and usury monitory system. Economic reporting is mostly obsessed with charting stock performance and writing about all the nifty ways to play the discotheque of gambling.

And who does not know the reputation of the Chinese to wager and place their bets?

Fortune forecasts the risks from this market crash in Why China's Stock Market Crash Could Spark a Trade War. By saying, “The fact that China’s currency is falling now is a sign that the transition the economy was supposed to be making towards the consumer is in trouble”, they are stating the obvious.

Chinese exports are in the tank because the economies of the first world are basket cases. The age of unfettered consumerism is in sharp decline. The connection between the shrinking middle class in the Wes which has caused a contraction in cash flow, and adds to the failure of the Chinese to expand any further their own version of a prosperous and upward mobile society, is extremely significant.

The net result is that the fear mongering about a forthcoming trade war, from water carriers for the “Free Trade” fraud like Fortune, clamors for completing the TPP sell out.   

The literal war of words and certainly incompatible trade practices that actually create real wealth is seen in the criticism of Donald Trump’s articulation and advocacy of slapping on tariffs to level the playing field.

Do not fall for the bait of demonizing the “Make American Great Again” economics. China cannot afford an additional destructive downturn in their own exports from current levels. On the other hand, The U.S. desperately needs to re-industrialize their domestic economy.

The expectations for the Chinese economy need to be based upon utilization of their overbuilt and under used capacities to rise up active commerce that can build long term and mutually beneficial relationships.

China must allow foreign investment to access their stock markets without the restrictive practices that are now in place. Also, they must permit a true reciprocal duty adjustment to achieve genuine fair trade. Finally, foreign investors must be able to actively manage ventures that they have majority interests therein.

These are common sense standards. The Chinese equity markets will prosper and be more stable under these reforms. Nevertheless, the precarious condition of global finance may well sink any economic activity after a severe collapse.  

The fluid nature of the crisis places great uncertainty in all markets. Some are warning of a total financial reset in the not too distant future. And that bring us back to the prospects of the yuan becoming the basis of a new basket of reserve currencies. If a currency war erupts, the race to the bottom will be the fate for most countries.

Paper assets are just that, rags that have been beaten down into thin strips. China is facing becoming a hollow paper tiger and may explain why Dozens Of Chinese Billionaires Are Mysteriously Disappearing. The prospects of a substantial reduction of business regulations and destructive trade policies under a Trump administration have the globalists scared. For this reason alone, China needs to reform their own central banking abuses and encourage sensible trade practices.

James Hall – January 13, 2016

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