Posted on 07/10/2009 4:26:44 PM PDT by Vince Ferrer
Yesterday on their website, the People's Bank of China announced a shocker. New Chinese bank lending for June was 1.53 trillion yuan ($224 billion), double the lending in May. The total already for the year is an astounding 7.4 trillion yuan when the target for the entire year was 5 trillion. Putting this in context, total lending this year so far has amounted to 25% of 2008 GDP. As I wrote earlier this week, Chinese regulators are getting concerned that this lending is going towards poor credit and bleeding into commodity market speculation. As most know, bank lending is high powered monetary stimulus due to its high velocity. This is the key difference between fiscal stimulus vs. monetary stimulus. Actually, monetary stimulus will only work well if the banks receiving the funds lend them out. In the US, this is clearly not happening due to banks loan losses and caution over new lending (expanding balance sheet.) In China, this is not the case and new loans are flowing. - CNBC
Dominant Social Theme: China is heating up.
Free-Market Analysis: We've written about this before. China backed into "capitalism" about 30 years ago and the impetus for where it is now was increased by the problems with Tiananmen Square. The Chinese leaders are not interested in political theory at this point (if they ever were). Their currency is power and the way to maintain power is to create an apolitical system where citizens "can grow rich." Western systems work a good deal better than communist systems in this regard. And thus China has built a facade of a Western system.
Yes, it is really only an imitation of a Western system (from a political and big business perspective anyway) in our opinion, just as its banks are only imitations of Western banks and its stock markets are only imitations as well. In fact, to grow rich by investing in the Chinese stock market one apparently simply has to listen intently to the noises coming from the government as to what companies will grow and what companies will not. As far as the banks go, the system is probably even more basic than in the West. The central bank prints as much money as it can, and the commercial banks disseminate it. These banks may act as independent entities, but they still have a foot in state government as do many large companies in China.
It is all fairly well jury rigged. China has incorporated a façade of Westernism but to cast China as the world's financial engine is to understand how desperate the West has become. China's economy grows by 10 and 15 percent a year, and now appears be heating up even more. This is not normal growth but central banking generated growth. The same clique still runs China, but the economy has been supercharged by additional printing.
China is said to be turning inward now, as Western countries cannot afford to buy its products. But whether China will be able to maintain its growth by using its own huge population as a purchasing pool remains to be seen. What will certainly happen sooner or later is that the supercharged money being used by the Chinese will create the same boom-bust cycle as has happened elsewhere. Only when it ends in China after so many years, it will be the mother-of-all blow-offs.
Conclusion: It is difficult to see what Chinese leaders expect to happen once the bubble busts. Maybe they are gambling that they can control the unrest that will come in its wake. Maybe they assume the bubble will not bust for many years. But articles like the one excerpted above show us that sooner or later China's overheated and pseudo-Western economy will implode, and likely even more violently than Western economies ever have. And here's a thought: The Chinese in the meantime are said to be big buyers of gold on a government level and also personally. Perhaps what is going to eventually happen is better known in China than the West.
As long as we can bleed off enough to save our economy before they crash, what’s the problem?
(almost a serious question)...
BOOM then bust!!
If we don’t depend on them, then it won’t effect us. However, we do depend on them. They still need to buy our bonds, and if they are broke, then they can’t, which means the federal government will have to cut spending down to what it receives in tax revenue, or print cash and devalue the dollar down to nothing. California or Zimbabwe.
Trading genius Jim Rogers in 2007 moved his family from NYC to Singapore, so his daughters could learn Mandarin, and be part of what he considers to be the future of business. Sadly, it is obvious that within 5 years China will be more of a free market capitalist state than the U.S. What a pathetic state of affairs. How can Americans sit by and let this shame go on? How can a Treasury Secretary be laughed off a stage in China for saying our “bonds are safe” without a national scandal, and his forced resignation. We have become so soft and apathetic, sitting quietly while our liberty dies. Heartbreaking.
Ping.
It might be now already. Once you get underneath the large government owned businesses, there are a near infinite amount of small businesses. The typical house there, outside of the 40 story buildings, is a three story brick house. The first floor is sort of a garage, but really it is a storefront. They put some inventory or something there, and sell from their bottom floor. You don't have the big box stores or malls, but they do have streets, and every house along a street has a shop. Many streets specialize, so there will be a plumbing street, a women's clothes street, and so on.
The rank and file are much more savy sales people than Americans. I wouldn't mind some of the entreprenurial spirit coming back over here. Maybe in this recession we need garage businesses starting up, because no one else will save us.
By the time we get done with China, they’re gonna want to build a new wall!
Credit expansion, whether by government creation of fiat money or via the mechanism of fractional reserve banking, leads to the appearance of prosperity, and rising price levels. If this is allowed to continue, it eventually will lead to a bust.
So maybe the play here is to buy shares in the companies that are affected but be prepared to dump them at the first sign that the big run is over.
What a great way to bring manufacturing back to the U.S.!
Ping.
>>>hey have a penchant for gambling,which is not far from speculation
A common stereotype is that they are addicted to gambling and their businessmen leverage up to the hilt for growth... and when a down-blip appears, they CTRL-ALT-DELETE reset and start over.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.