China Drains Liquidity

China increased its bank reserve requirement yesterday by .5 percent to 8.5 percent in an attempt to siphon off excess liquidity. The move comes just after China's second quarter report put its GDP growth rate at 11.3 percent. While raising the reserve requirement is considered by many countries to be a very blunt monetary policy instrument, China's blistering economic growth warrants something stronger than simply raising interest rates to tighten credit. The central bank has even said that a 10 percent reserve requirement by the end of the year is not out of the question.

10% ?!?! yeeowwww ... if they don't cool it down, inflation would destroy the economy eventually. The faster an economy grows the harder it falls when the correction comes... I'm guessing China will probably hit one of the ugliest down turns in history because of it.

Chicoms learning to manage a free market... this should be interesting to watch.

Japan thought there redhot economy would last forever and yet in the 90's they hit a huge crash and have been in bear market ever since ... they might be on the way out of it.. we will see ... at China's pace, I'm predicting an even larger crash.

Wait until the peasants discover that the banks have been looted by Party cadres and their savings are not there any more. Same for the foreign investors who believed the bogus numbers and subsidized selling goods for less than the cost of the raw materials required for manufacturing them.

Japan thought there redhot economy would last forever and yet in the 90's they hit a huge crash and have been in bear market ever since ... they might be on the way out of it.. we will see ... at China's pace, I'm predicting an even larger crash.

Japan and China are different. Japan was already a saturated developed economy when it crashed, with high real estate and commodity prices. Most of China is still poor with a lot of room to further develop, and labor and real estate are still far cheaper than industrial standards. Inflation is held under control by the large-scale migration of rural workers with cheap labor, and richer regions get richer as they progress the economic skills ladder. China's economy is mostly regionalized, and so any economic collapse would be regionalized as well, but don't expect a nation-wide collapse, it just won't happen, and even if it did, it wouldn't be anywhere as long as Japan's depression. China is regionalized like the US, when the East Coast started declining, the Southwest (Texas) and West picked up the slack.

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