Posted on 02/08/2010 2:09:24 PM PST by SeekAndFind
World-renowned short seller Jim Chanos -- the hedge fund manager who called the fall of Enron and the systemic problems cause by subprime mortgages --recently turned his gimlet eye on China. He saw a country whose rapid rise was hiding massive flaws: grossly inflated real estate prices, irresponsible construction lending, massive overbuilding, a banking system larded with bad loans, and unreliable government data. Fitch Ratings weighed in this week saying that China's banks face the greatest "bubble risk" of any Asian country.
If Chanos and his fellow Cassandras are right and there's a bubble waiting to burst, investors might be surprised: The results won't be anything like the ones we've seen in the U.S. and Europe. In fact, a China "pop" would be much quieter than in the West -- but possibly still have huge, surprising reverberations for the U.S. Here's why:
* The Party rules
The main reason asset bubbles will deflate differently in China is because the Communist Party controls, well, everything. Free-market policies have not stopped the government from manipulating markets in ways that go well beyond what we would ever see in the West.
For example, officials can implement strict price controls that can effectively keep the population from feeling the ripple effects of a popped asset class, says Charles Freeman, who focuses on the political economy of China and U.S.-China relations for the Center for Strategic & International Studies. So if real estate values tumbled, the government could artificially prop up the prices of other things to keep the economy from buckling under the weight of deflation. And the government has strict capital controls in place that can keep money from leaving the mainland.
Freeman also points out that China controls a large chunk of the banking system,
(Excerpt) Read more at money.cnn.com ...
It would run out of dollars to buy US treasuries wouldn’t it? Then the US and China will have to trade in Wal-Mart gift certificates.
Laugh Out Loud.
I am not an economist but what is the difference between the Russian economy and the Chinese economy? Did Russia’s free market fail because Americans were investing in China?
But,but, where will Husssseein borrow mo’ money???
When, not if.
VERY GOOD ARTICLE ABOUT THIS. And SCARY AS HELL:
Toggle through the triangle icons at top of screen. Foreboding and well-written.
If China goes down, the commodity bubble will pop even harder. Gold, copper, and oil will crash.
And they won’t be in any condition to buy US debt.
And then, ...
Lord help us!
Let's see. Gunpowder, pasta, the water clock, paper money, General Tso's chicken....
the average price-to-income ratio in Beijing has reached 27:1
What could possibly go wrong?
Put this ratio in perspective: 27:1 translates to a family making $65,000/yr buying a $1,755,000 home.
How is this even remotely possible?
If you think our RE crash (which isn't even close to over yet, btw) is bad, just imagine the financial armageddon to come when China's bubble bursts, and takes us down with it.
The thing most people don't know is that multinational companies outside of China are the brains behind most of what is produced in China. They go there because it's cheaper to produce the goods there. The inventiveness is not coming from the Chinese in China. I'm amazed at how cheap the goods cost. I recently bought a $50 wood jointer made in China that is a knock-off of models costing a couple hundred dollars elsewhere.
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.